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, 2022
Item 1. Reports to Stockholders.
(a) A copy of the report transmitted to stockholders pursuant to Rule 30e-1 is filed herewith.
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Core Fixed Income VIP Fund
Not insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Core Fixed Income VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 10 | |||
Statement of Operations | 10 | |||
Statement of Changes in Net Assets | 11 | |||
Financial Highlights | 12 | |||
Notes to Financial Statements | 14 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 21 | |||
22 | ||||
Approval of Investment Management Agreement | 23 | |||
Portfolio Holdings and Proxy Voting Procedures | 27 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN CORE FIXED INCOME VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $495,459,187 |
Bond Sector Allocation1 As of June 30, 2022 |
Bond Quality Allocation2 As of June 30, 2022 |
1 |
GUARDIAN CORE FIXED INCOME VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 1.625% | 8/15/2029 | 22.67% | |||||||||
U.S. Treasury Bond | 2.375% | 2/15/2042 | 9.76% | |||||||||
U.S. Treasury Bond | 2.250% | 2/15/2052 | 4.82% | |||||||||
Vanguard Short-Term Inflation-Protected Securities ETF | — | — | 4.61% | |||||||||
Federal National Mortgage Association | 3.000% | 5/1/2052 | 1.90% | |||||||||
Federal Home Loan Mortgage Corp. | 3.500% | 6/1/2052 | 1.35% | |||||||||
Bank of America Corp. | 4.271% | 7/23/2029 | 1.26% | |||||||||
Hess Corp. | 4.300% | 4/1/2027 | 1.04% | |||||||||
Federal National Mortgage Association | 4.000% | 6/1/2052 | 1.03% | |||||||||
Federal National Mortgage Association | 3.500% | 6/1/2052 | 1.01% | |||||||||
Total |
| 49.45% |
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 |
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, if any, 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 May 2, 2022 (commencement of operations) to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period 1/1/22- 6/30/22 | Expense Ratio During Period 1/1/22- 6/30/22 | |||||||||||||
Based on Actual Return* | $ | 1,000.00 | $ | 990.00 | $ | 0.80 | 0.49% | |||||||||
Based on Hypothetical Return (5% Return Before Expenses)** | $ | 1,000.00 | $ | 1,022.37 | $ | 2.46 | 0.49% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 60/365 (to reflect the period from May 2, 2022 (commencement of operations) through June 30, 2022). |
** | Expenses (hypothetical expenses if the Fund had been in existence from 1/1/2022) are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 6.5% |
| |||||||
Federal Home Loan Mortgage Corp. | $ | 2,945,331 | $ | 2,745,319 | ||||
3.50% due 6/1/2052 | 6,965,762 | 6,703,845 | ||||||
4.00% due 6/1/2052 | 3,335,176 | 3,290,993 | ||||||
Federal National Mortgage Association | 10,113,956 | 9,424,986 | ||||||
3.50% due 6/1/2052 | 5,179,748 | 4,984,848 | ||||||
4.00% due 6/1/2052 | 5,181,778 | 5,113,125 | ||||||
Total Agency Mortgage–Backed Securities (Cost $32,676,121) |
| 32,263,116 | ||||||
Asset–Backed Securities – 15.2% |
| |||||||
Aligned Data Centers Issuer LLC | 2,016,000 | 1,784,729 | ||||||
Ally Auto Receivables Trust | 3,850,000 | 3,825,837 | ||||||
AmeriCredit Automobile Receivables Trust | 2,625,000 | 2,500,372 | ||||||
Anchorage Capital CLO 21 Ltd. | 1,750,000 | 1,647,100 | ||||||
Ares XXVII CLO Ltd. | 2,000,000 | 1,872,200 | ||||||
Ares XXVIIIR CLO Ltd. | 2,400,000 | 2,282,160 | ||||||
BA Credit Card Trust | 3,850,000 | 3,687,706 | ||||||
Benefit Street Partners CLO XVI Ltd. | 2,800,000 | 2,657,760 | ||||||
BMW Vehicle Owner Trust | 2,500,000 | 2,479,157 | ||||||
Canyon Capital CLO Ltd. | 2,000,000 | 1,873,600 | ||||||
CarMax Auto Owner Trust | 2,200,000 | 2,055,775 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Dryden Senior Loan Fund | $ | 2,100,000 | $ | 2,013,900 | ||||
Exeter Automobile Receivables Trust | 2,450,000 | 2,424,047 | ||||||
Ford Credit Auto Owner Trust | 2,400,000 | 2,295,353 | ||||||
Ford Credit Floorplan Master Owner Trust | 2,600,000 | 2,387,080 | ||||||
GM Financial Automobile Leasing Trust | 2,760,000 | 2,750,205 | ||||||
GM Financial Consumer Automobile Receivables Trust | 3,579,000 | 3,383,841 | ||||||
Hertz Vehicle Financing III LLC | 2,140,000 | 2,108,845 | ||||||
Hyundai Auto Lease Securitization Trust | 2,800,000 | 2,791,016 | ||||||
Hyundai Auto Receivables Trust | 2,650,000 | 2,566,317 | ||||||
Jamestown CLO XI Ltd. | 2,800,000 | 2,681,560 | ||||||
Master Credit Card Trust | 3,120,000 | 2,960,290 | ||||||
Neuberger Berman Loan Advisers CLO 26 Ltd. | 1,050,000 | 1,000,440 | ||||||
OHA Credit Partners XIV Ltd. | 2,000,000 | 1,911,400 | ||||||
Santander Drive Auto Receivables Trust | 2,800,000 | 2,782,059 | ||||||
Synchrony Card Funding LLC | 3,100,000 | 3,078,798 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Toyota Auto Loan Extended Note Trust | $ | 2,175,000 | $ | 1,972,871 | ||||
Verizon Owner Trust | 2,800,000 | 2,737,936 | ||||||
Volkswagen Auto Lease Trust | 2,400,000 | 2,344,803 | ||||||
Voya CLO Ltd. | 2,000,000 | 1,912,200 | ||||||
World Omni Auto Receivables Trust | 2,800,000 | 2,612,355 | ||||||
Total Asset–Backed Securities (Cost $76,546,965) |
| 75,381,712 | ||||||
Corporate Bonds & Notes – 27.7% |
| |||||||
Aerospace & Defense – 0.5% |
| |||||||
Boeing Co. | 1,700,000 | 1,630,963 | ||||||
Northrop Grumman Corp. | 600,000 | 633,684 | ||||||
|
| |||||||
2,264,647 | ||||||||
Agriculture – 0.6% |
| |||||||
Cargill, Inc. | 3,600,000 | 3,000,996 | ||||||
|
| |||||||
3,000,996 | ||||||||
Apparel – 0.2% |
| |||||||
NIKE, Inc. | 1,200,000 | 1,101,816 | ||||||
|
| |||||||
1,101,816 | ||||||||
Beverages – 0.6% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. | 1,200,000 | 1,124,496 | ||||||
PepsiCo, Inc. | 2,100,000 | 1,790,775 | ||||||
|
| |||||||
2,915,271 | ||||||||
Commercial Banks – 5.3% |
| |||||||
ASB Bank Ltd. | 3,000,000 | 2,492,820 | ||||||
Bank of America Corp. | 6,500,000 | 6,250,920 | ||||||
Credit Suisse Group AG | 800,000 | 791,272 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Corporate Bonds & Notes (continued) |
| |||||||
Commercial Banks (continued) |
| |||||||
Goldman Sachs Group, Inc. 4.223% (4.223% fixed rate until 5/1/2028; LIBOR 3 Month + 1.30% thereafter) | $ | 2,000,000 | $ | 1,919,740 | ||||
4.387% (4.387% fixed rate until 6/15/2026; SOFR + 1.51% thereafter) | 1,000,000 | 986,690 | ||||||
Huntington National Bank | 2,400,000 | 2,389,464 | ||||||
JPMorgan Chase & Co. | 2,800,000 | 2,700,152 | ||||||
Morgan Stanley | 4,800,000 | 4,562,784 | ||||||
Toronto-Dominion Bank | 2,700,000 | 2,671,677 | ||||||
UBS Group AG | 1,700,000 | 1,681,946 | ||||||
|
| |||||||
26,447,465 | ||||||||
Cosmetics & Personal Care – 1.3% |
| |||||||
Estee Lauder Cos., Inc. | 3,400,000 | 3,050,582 | ||||||
Procter & Gamble Co. | 3,700,000 | 3,491,912 | ||||||
|
| |||||||
6,542,494 | ||||||||
Diversified Financial Services – 0.5% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 1,600,000 | 1,392,880 | ||||||
Jefferies Group LLC / Jefferies Group Capital Finance, Inc. | 1,000,000 | 894,840 | ||||||
|
| |||||||
2,287,720 | ||||||||
Electric – 0.9% |
| |||||||
Ameren Illinois Co. | 1,300,000 | 1,256,528 | ||||||
Commonwealth Edison Co. | 400,000 | 308,116 | ||||||
Duke Energy Corp. | 1,700,000 | 1,282,225 | ||||||
Exelon Corp. | 400,000 | 374,792 | ||||||
NextEra Energy Capital Holdings, Inc. | 700,000 | 717,129 | ||||||
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Corporate Bonds & Notes (continued) |
| |||||||
Electric (continued) |
| |||||||
Wisconsin Public Service Corp. | $ | 800,000 | $ | 580,832 | ||||
|
| |||||||
4,519,622 | ||||||||
Electronics – 0.5% |
| |||||||
Honeywell International, Inc. 1.75% due 9/1/2031 | 2,200,000 | 1,820,324 | ||||||
2.70% due 8/15/2029 | 800,000 | 735,128 | ||||||
|
| |||||||
2,555,452 | ||||||||
Entertainment – 0.2% |
| |||||||
Magallanes, Inc. | 1,200,000 | 1,072,068 | ||||||
|
| |||||||
1,072,068 | ||||||||
Environmental Control – 0.5% |
| |||||||
Waste Management, Inc. | 2,700,000 | 2,649,105 | ||||||
|
| |||||||
2,649,105 | ||||||||
Food – 0.6% |
| |||||||
Kraft Heinz Foods Co. | 1,400,000 | 1,293,754 | ||||||
Kroger Co. | 1,800,000 | 1,431,396 | ||||||
|
| |||||||
2,725,150 | ||||||||
Healthcare-Products – 0.6% |
| |||||||
Abbott Laboratories | 2,700,000 | 2,863,458 | ||||||
|
| |||||||
2,863,458 | ||||||||
Healthcare-Services – 0.3% |
| |||||||
UnitedHealth Group, Inc. | 1,700,000 | 1,471,979 | ||||||
|
| |||||||
1,471,979 | ||||||||
Insurance – 2.0% |
| |||||||
Athene Holding Ltd. | 1,500,000 | 1,269,435 | ||||||
Chubb INA Holdings, Inc. | 3,400,000 | 2,717,756 | ||||||
CNA Financial Corp. | 2,100,000 | 1,690,122 | ||||||
Hartford Financial Services Group, Inc. | 1,900,000 | 1,694,667 | ||||||
MetLife, Inc. | 2,500,000 | 2,520,600 | ||||||
|
| |||||||
9,892,580 | ||||||||
Internet – 0.4% |
| |||||||
Amazon.com, Inc. | 2,400,000 | 2,129,856 | ||||||
|
| |||||||
2,129,856 | ||||||||
Machinery–Construction & Mining – 0.2% |
| |||||||
Caterpillar, Inc. | 1,000,000 | 907,380 | ||||||
|
| |||||||
907,380 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Corporate Bonds & Notes (continued) |
| |||||||
Machinery–Diversified – 0.8% |
| |||||||
John Deere Capital Corp. | $ | 4,200,000 | $ | 4,150,482 | ||||
|
| |||||||
4,150,482 | ||||||||
Media – 0.2% |
| |||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 700,000 | 576,072 | ||||||
3.90% due 6/1/2052 | 700,000 | 488,649 | ||||||
|
| |||||||
1,064,721 | ||||||||
Miscellaneous Manufacturing – 1.1% |
| |||||||
Parker-Hannifin Corp. | 4,300,000 | 4,277,511 | ||||||
4.50% due 9/15/2029 | 1,100,000 | 1,094,489 | ||||||
|
| |||||||
5,372,000 | ||||||||
Oil & Gas – 1.8% |
| |||||||
BP Capital Markets America, Inc. | 700,000 | 545,195 | ||||||
Cenovus Energy, Inc. | 600,000 | 496,944 | ||||||
4.25% due 4/15/2027 | 500,000 | 490,600 | ||||||
Hess Corp. | 5,300,000 | 5,168,878 | ||||||
Marathon Oil Corp. | 2,000,000 | 1,953,980 | ||||||
|
| |||||||
8,655,597 | ||||||||
Packaging & Containers – 0.1% |
| |||||||
WRKCo, Inc. | 700,000 | 589,771 | ||||||
|
| |||||||
589,771 | ||||||||
Pharmaceuticals – 1.7% |
| |||||||
AbbVie, Inc. | 800,000 | 709,096 | ||||||
Bristol Myers Squibb Co. | 3,300,000 | 3,029,169 | ||||||
Merck & Co., Inc. | 2,200,000 | 1,893,826 | ||||||
Pfizer, Inc. | 3,200,000 | 2,676,736 | ||||||
|
| |||||||
8,308,827 | ||||||||
Pipelines – 0.9% |
| |||||||
ONEOK, Inc. | 1,300,000 | 1,358,721 | ||||||
Targa Resources Partners LP / Targa Resources Partners Finance Corp. | 3,400,000 | 2,915,738 | ||||||
|
| |||||||
4,274,459 | ||||||||
Real Estate Investment Trusts (REITs) – 1.6% |
| |||||||
American Tower Corp. | 1,000,000 | 951,480 | ||||||
Essex Portfolio LP | 1,800,000 | 1,544,598 | ||||||
6 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Corporate Bonds & Notes (continued) |
| |||||||
Real Estate Investment Trusts (REITs) (continued) |
| |||||||
Invitation Homes Operating Partnership LP | $ | 1,300,000 | $ | 1,001,039 | ||||
Mid-America Apartments LP | 1,300,000 | 1,240,798 | ||||||
Prologis LP | 1,600,000 | 1,384,944 | ||||||
Simon Property Group LP | 2,100,000 | 1,705,242 | ||||||
|
| |||||||
7,828,101 | ||||||||
Retail – 0.8% |
| |||||||
AutoZone, Inc. | 1,600,000 | 1,552,448 | ||||||
O’Reilly Automotive, Inc. | 1,400,000 | 1,395,674 | ||||||
Walmart, Inc. | 1,300,000 | 1,105,156 | ||||||
|
| |||||||
4,053,278 | ||||||||
Semiconductors – 1.1% |
| |||||||
Broadcom, Inc. | 900,000 | 814,806 | ||||||
Lam Research Corp. | 2,500,000 | 2,110,250 | ||||||
NVIDIA Corp. | 2,500,000 | 2,121,550 | ||||||
NXP BV / NXP Funding LLC / NXP USA, Inc. | 400,000 | 328,744 | ||||||
|
| |||||||
5,375,350 | ||||||||
Software – 0.4% |
| |||||||
Electronic Arts, Inc. | 1,200,000 | 975,792 | ||||||
Microsoft Corp. | 1,100,000 | 1,056,693 | ||||||
|
| |||||||
2,032,485 | ||||||||
Telecommunications – 1.4% |
| |||||||
T-Mobile USA, Inc. | 400,000 | 335,594 | ||||||
3.40% due 10/15/2052 | 300,000 | 221,541 | ||||||
Verizon Communications, Inc. | 4,300,000 | 3,567,065 | ||||||
Vodafone Group PLC | 2,300,000 | 2,286,936 | ||||||
4.875% due 6/19/2049 | 800,000 | 735,656 | ||||||
|
| |||||||
7,146,792 | ||||||||
Transportation – 0.6% |
| |||||||
Union Pacific Corp. | 1,600,000 | 1,422,848 | ||||||
3.50% due 2/14/2053 | 500,000 | 408,590 | ||||||
United Parcel Service, Inc. | 1,000,000 | 1,022,740 | ||||||
|
| |||||||
2,854,178 | ||||||||
Total Corporate Bonds & Notes (Cost $139,241,231) |
| 137,053,100 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Corporate Bonds & Notes (continued) |
| |||||||
Non–Agency Mortgage–Backed Securities – 7.4% |
| |||||||
BANK | $ | 4,140,000 | $ | 3,778,192 | ||||
Benchmark Mortgage Trust | 2,550,000 | 2,472,343 | ||||||
Citigroup Commercial Mortgage Trust | 2,750,000 | 2,718,105 | ||||||
Commercial Mortgage Trust 2017-COR2 A3 | 2,920,000 | 2,813,115 | ||||||
2019-GC44 AM | 2,415,000 | 2,149,082 | ||||||
DBGS Mortgage Trust | 2,400,000 | 2,372,967 | ||||||
DBUBS Mortgage Trust | 1,760,000 | 1,705,096 | ||||||
Freddie Mac STACR REMIC Trust | 1,490,000 | 1,432,724 | ||||||
Hilton USA Trust | 1,875,000 | 1,794,303 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 2,190,000 | 2,169,673 | ||||||
One Bryant Park Trust | 3,610,000 | 3,109,767 | ||||||
Wells Fargo Commercial Mortgage Trust | 3,000,000 | 2,954,183 | ||||||
2015-NXS4 A4 | 3,120,000 | 3,071,845 | ||||||
2016-LC25 A4 | 3,120,000 | 3,045,830 | ||||||
WFRBS Commercial Mortgage Trust | 975,000 | 966,890 | ||||||
Total Non–Agency Mortgage–Backed Securities 36,554,115 |
| |||||||
U.S. Government Securities – 37.2% |
| |||||||
U.S. Treasury Bond | 29,000,000 | 23,866,094 | ||||||
2.375% due 2/15/2042 | 57,000,000 | 48,325,313 | ||||||
U.S. Treasury Note | 123,350,000 | 112,306,320 | ||||||
Total U.S. Government Securities (Cost $187,466,104) |
| 184,497,727 |
The accompanying notes are an integral part of these financial statements. | 7 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Exchange–Traded Funds – 4.6% |
| |||||||
Vanguard Short-Term Inflation-Protected Securities ETF | 456,000 | $ | 22,854,720 | |||||
Total Exchange–Traded Funds (Cost $23,052,441) |
| 22,854,720 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 0.4% |
| |||||||
Repurchase Agreements – 0.4% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $2,110,134, due 7/1/2022(4) | $ | 2,110,120 | 2,110,120 | |||||
Total Repurchase Agreements (Cost $2,110,120) |
| 2,110,120 | ||||||
Total Investments(5) – 99.0% (Cost $498,250,120) |
| 490,714,610 | ||||||
Assets in excess of other liabilities(6) – 1.0% |
| 4,744,577 | ||||||
Total Net Assets – 100.0% |
| $ | 495,459,187 |
(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, 2022, the aggregate market value of these securities amounted to $52,036,014, representing 10.5% 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. |
(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, 2022. |
(3) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 2,154,700 | $ | 2,152,343 |
(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 as follows: |
Open futures contracts at June 30, 2022:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2022 | 554 | Long | $ | 116,731,868 | $ | 116,348,656 | $ | (383,212 | ) | ||||||||||||||
U.S. 10-Year Treasury Note | September 2022 | 115 | Long | 13,708,977 | 13,631,094 | (77,883 | ) | |||||||||||||||||
Total |
| $ | 130,440,845 | $ | 129,979,750 | $ | (461,095 | ) | ||||||||||||||||
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||||||
U.S. 5-Year Treasury Note | September 2022 | 663 | Short | $ | (74,652,416 | ) | $ | (74,421,750 | ) | $ | 230,666 | |||||||||||||
U.S. Long Bond | September 2022 | 7 | Short | (979,665 | ) | (970,375 | ) | 9,290 | ||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2022 | 242 | Short | (31,046,934 | ) | (30,824,750 | ) | 222,184 | ||||||||||||||||
U.S. Ultra Bond | September 2022 | 5 | Short | (790,436 | ) | (771,718 | ) | 18,718 | ||||||||||||||||
Total |
| $ | (107,469,451) | $ | (106,988,593) | $ | 480,858 |
Legend:
CLO — Collateralized Loan Obligation
H15T1Y — 1-year Constant Maturity Treasury Rate
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
8 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 32,263,116 | $ | — | $ | 32,263,116 | ||||||||
Asset–Backed Securities | — | 75,381,712 | — | 75,381,712 | ||||||||||||
Corporate Bonds & Notes | — | 137,053,100 | — | 137,053,100 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 36,554,115 | — | 36,554,115 | ||||||||||||
U.S. Government Securities | — | 184,497,727 | — | 184,497,727 | ||||||||||||
Exchange–Traded Funds | 22,854,720 | — | — | 22,854,720 | ||||||||||||
Repurchase Agreements | — | 2,110,120 | — | 2,110,120 | ||||||||||||
Total | $ | 22,854,720 | $ | 467,859,890 | $ | — | $ | 490,714,610 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts |
| |||||||||||||||
Assets | $ | 480,858 | $ | — | $ | — | $ | 480,858 | ||||||||
Liabilities | (461,095 | ) | — | — | (461,095 | ) | ||||||||||
Total | $ | 19,763 | $ | — | $ | — | $ | 19,763 |
The accompanying notes are an integral part of these financial statements. | 9 |
FINANCIAL INFORMATION — GUARDIAN CORE FIXED INCOME VIP FUND
For the Period Ended June 30, 2022 (unaudited)1 | ||||
Investment Income | ||||
Interest | $ | 2,729,514 | ||
|
| |||
Total Investment Income | 2,729,514 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 356,292 | |||
Professional fees | 23,327 | |||
Trustees’ and officers’ fees | 15,476 | |||
Custodian and accounting fees | 12,431 | |||
Administrative fees | 9,406 | |||
Shareholder reports | 3,545 | |||
Transfer agent fees | 2,447 | |||
Other expenses | 5,090 | |||
|
| |||
Total Expenses | 428,014 | |||
Less: Fees waived | (13,471 | ) | ||
|
| |||
Total Expenses, Net | 414,543 | |||
|
| |||
Net Investment Income/(Loss) | 2,314,971 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | 176,268 | |||
Net realized gain/(loss) from futures contracts | (302,791 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (7,535,510 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 19,763 | |||
|
| |||
Net Loss on Investments and Derivative Contracts | (7,642,270 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (5,327,299 | ) | |
|
| |||
1 | Commenced operations on May 2, 2022. |
10 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN CORE FIXED INCOME VIP FUND
1 | Commenced operations on May 2, 2022. |
The accompanying notes are an integral part of these financial statements. | 11 |
FINANCIAL INFORMATION — GUARDIAN CORE 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.
Period Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Loss | Total Operations | Net Asset Value, End of Period | Total Return(2),(3) | |||||||||||||||||||
Period Ended 6/30/22(5) | $ | 10.00 | $ | 0.05 | $ | (0.15) | $ | (0.10) | $ | 9.90 | (1.00)% |
12 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN CORE FIXED INCOME 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 | Gross Ratio of Net Investment Income to Average Net Assets(3) | Portfolio Turnover Rate(3) | |||||||||||||||
$495,459 | 0.49% | 0.51% | 2.80% | 2.78% | 53% |
(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 May 2, 2022. |
The accompanying notes are an integral part of these financial statements. | 13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Core Fixed Income VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on May 2, 2022. 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 level of current income and capital appreciation without undue risk to principal.
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 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.
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.
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”).
Exchange-traded financial futures contracts are valued at the last settlement price on the market where they are primarily traded.
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
14 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
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.
• | 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 period ended June 30, 2022, 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, 2022 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, 2022, 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.
15 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
c. 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, 2022.
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, 2022.
f. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.
16 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
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 0.45% 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. The Fund has no sub-adviser.
Park Avenue has contractually agreed through April 30, 2023 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 0.50% 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 and 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 period ended June 30, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $13,471.
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.
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 period ended June 30, 2022, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 349,930,958 | $ | 409,825,108 | ||||
Sales | 75,768,800 | 188,682,607 |
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
17 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE FIXED INCOME 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.
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, 2022, 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.
i. LIBOR Replacement Risk The terms of many investments, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments, or the value or return on certain other fund investments. As a result, LIBOR may be relevant to, and directly affect, a Fund’s performance. In July 2017, the Chief Executive of the UK Financial Conduct Authority (the “FCA”) announced that the FCA
18 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
would no longer persuade nor compel banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative, immediately after December 31, 2021, for all four non-U.S. dollar LIBORs (British Pound (“GBP”), Euro, Swiss Franc and Japanese Yen) and for one-week and two-month U.S. dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings, including three-month U.S. dollar LIBOR. In addition, in connection with supervisory guidance from regulators, some regulated entities will cease to enter into most new LIBOR contracts after January 1, 2022. Although a Fund may continue to invest in instruments that reference LIBOR or otherwise use LIBOR reference rates due to favorable liquidity or pricing, new LIBOR assets may no longer be available. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. Replacement rates that have been identified include the Secured Overnight Financing Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities, and the Sterling Overnight Index Average Rate (“SONIA”), which is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market, although other replacement rates could be adopted by market participants. At this time, it is not possible to predict the effect of the establishment of SOFR, SONIA or any other replacement rates or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s
performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the period ended June 30, 2022 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.
19 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE FIXED INCOME VIP FUND
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, 2022, 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 | $ | 480,858 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (461,095 | ) |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivative investments for the period ended June 30, 2022 were as follows:
Interest Rate Contracts | ||||
Net Realized Gain/(Loss) | ||||
Futures Contracts1 | $ | (302,791 | ) | |
Net Change in Unrealized Appreciation/(Depreciation) |
| |||
Futures Contracts2 | $ | 19,763 | ||
Average Number of Notional Amounts | ||||
Futures Contracts3 | 1,591 |
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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any
day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the period ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
20 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
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.
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
22 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management Agreement
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 December 8-9, 2020 (the “Meeting”), the Board considered and approved a proposed investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Equity Income VIP Fund, Guardian Core Fixed Income VIP Fund and Guardian Short Duration Bond VIP Fund (the “New Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”). The Board also considered and approved a proposed sub-advisory agreement (the “Sub-advisory Agreement,” collectively with the Management Agreement, the “Agreements”) between the Manager and Wellington Management Company LLP (“Wellington”) with respect to the Guardian Equity Income VIP Fund. The Trustees who are not parties to the Agreements or “interested persons” (as defined in the 1940 Act) of a party to the Agreements (the “Independent Trustees”) unanimously approved the Agreements for an initial term of two years.1
The Board is responsible for overseeing the management of each Fund. In determining whether to approve 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. At a Board meeting held on September 23-24, 2020, the Board received presentations from the Manager and Wellington regarding the services to be
1 | Each New Fund commenced operations on May 2, 2022. |
rendered and the proposed investment strategies for the New Funds. In advance of the Meeting, the Trustees received written responses from the Manager and Wellington 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 Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements.
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 Wellington.
In reaching its decisions to approve the Agreements, the Board took into account the materials and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 to be provided to the New Funds by the Manager and Wellington; (ii) the investment performance of accounts managed by the Manager and Wellington with strategies similar to the applicable New Funds; (iii) the fees to be charged and estimated profitability; (iv) the extent to which economies of scale may in the future exist for a New Fund, and the extent to which a New Fund may benefit from future economies of scale; and (v) any other benefits anticipated to be derived by the Manager or Wellington (or their respective affiliates) from their relationships with the New Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services to be provided to the New Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services to be provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services to be provided by the
23 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 Trustees considered that the Guardian Equity Income VIP Fund would operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager would have under this structure, including monitoring and evaluating the performance of Wellington, monitoring the Wellington for adherence to the stated investment objectives, strategies, policies and restrictions of the Guardian Equity Income VIP Fund and supervising Wellington with respect to the services that Wellington would provide under the Sub-advisory Agreement. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend Wellington, and its ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the New Funds may benefit from the Manager’s ability to use similar resources and capabilities of its affiliates in providing services to the New Funds.
The Trustees considered information regarding the nature, extent and quality of services to be provided to the Guardian Equity Income VIP Fund by Wellington. The Trustees also considered, among other things, the terms of the Sub-advisory Agreement and the range of investment advisory services to be provided by Wellington under the oversight of the Manager and Wellington’s experience with managing other funds that are a series of the Trust. In evaluating these investment advisory services, the Trustees considered, among other things, Wellington’s investment philosophy, investment approach and approach to portfolio construction, and its approach to managing risk. The Trustees also considered information regarding accounts managed by Wellington with a similar strategy as the Guardian Equity Income VIP Fund, including performance and portfolio characteristics. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals that would serve as
portfolio managers for the Guardian Equity Income VIP Fund and the capabilities, resources and reputation of Wellington.
The Trustees considered that Guardian Core Fixed Income VIP Fund and Guardian Short Duration Bond VIP Fund would be managed without a sub-adviser by the Manager. In evaluating the investment advisory services to be provided by the Manager with respect to these New Funds, the Trustees considered, among other things, the Manager’s investment philosophy and style, research and securities selection process and approach to portfolio construction, and the Manager’s approach to managing risk. The Trustees also considered information regarding accounts managed by the Manager with similar strategies as the applicable New Fund, including performance and portfolio characteristics. The Trustees received and evaluated information regarding the background, expertise and/or experience of the investment professionals that would serve as portfolio managers for the New Funds and the capabilities, resources and reputations of the Manager and its affiliates.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations and in light of the New Funds’ anticipated operations, that the nature, extent and quality of services to be provided to the New Funds by the Manager and Wellington were appropriate.
Investment Performance
The New Funds had not commenced operations prior to the Meeting. Accordingly, the New Funds did not yet have an investment performance record. The Board considered historical performance information with respect to other accounts managed by the Manager and Wellington with similar investment strategies as the New Funds, and comparisons to relevant benchmarks. The Trustees concluded that the historical performance records of similarly managed accounts, viewed together with the other relevant factors and information considered by the Trustees, supported a decision to approve each Agreement. The Trustees also concluded that it was appropriate to revisit the New Funds’ investment performance in connection with future reviews of the Agreements.
Costs and Profitability
The Trustees considered the proposed management fees to be paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received
24 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
and reviewed comparative information with respect to the proposed 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 Financial Solutions, Inc., an independent provider of industry data, which showed that the New Funds’ proposed management fees fell within the following quintiles (with the first quintile representing the lowest management fees and the fifth quintile representing the highest management fees): the second quintile for the Guardian Core Fixed Income VIP Fund and the Guardian Equity Income VIP Fund and the third quintile for the Guardian Short Duration Bond VIP Fund.
The Trustees considered the proposed sub-advisory fee to be paid under the Sub-advisory Agreement and evaluated the reasonableness of that fee. The Trustees also considered that the fees to be paid to Wellington would be paid by the Manager and not the Guardian Equity Income VIP Fund and that the Manager had negotiated the fees with Wellington at arm’s-length.
The Trustees received comparative information relating to each New Fund’s anticipated operating expense ratio and the actual operating expense ratio of a peer group of funds. In this regard, the Board noted that the New Funds’ anticipated operating expense ratios within the following quintiles (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios): the second quintile for Guardian Core Fixed Income VIP Fund and Guardian Equity Income VIP Fund and the third quintile for Guardian Short Duration Bond VIP Fund. The Trustees considered estimates of the New Funds’ projected asset levels and the Manager’s commitment to limit the New Funds’ operating expenses through an expense limitation agreement with the Trust through at least April 20, 2022. Although the Board recognized that the comparisons between the proposed management fees and anticipated operating expenses of the New 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 proposed management fees and evaluation of the anticipated operating expenses.
The Trustees reviewed information regarding the Manager’s projected costs of sponsoring the New Funds and projected profitability of the New Funds to the Manager based on the anticipated assets and expenses of the New Funds. The Trustees noted that the information, including with respect to revenues and
expenses, contained estimates because the New Funds had not yet commenced operations at the time of the Board meeting. The Trustees did not consider any projected profitability information from Wellington because the Manager would be responsible for payment of the sub-advisory fee and had negotiated the fee with Wellington at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Trustees concluded that the proposed management and sub-advisory fees were reasonable in light of the nature, extent and quality of services expected to be rendered to the New Funds by the Manager and Wellington. The Trustees also concluded that the projected profitability of the New Funds to the Manager was acceptable and the Trustees determined it was appropriate to revisit this information in connection with future reviews of the Agreements.
Economies of Scale
The New Funds had not commenced operations prior to the Board meeting. As a result, no specific information was available concerning the possible effect that asset growth and economies of scale have on a New Fund’s expenses. The Trustees concluded that it was appropriate to revisit potential economies of scale in connection with future reviews of the Agreements or earlier, if appropriate, and that they were satisfied with the extent to which economies of scale would be shared for the benefit of shareholders based on anticipated asset levels.
Ancillary Benefits
The Trustees 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 New Funds. The Trustees acknowledged that the New Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts. 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 Wellington and its affiliates may
25 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
receive because of their relationships with the Guardian Equity Income VIP Fund, 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 Wellington and its affiliates are consistent with
those expected for a sub-adviser to a mutual fund such as the applicable New 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 |
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 |
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
PUB11740
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Core Plus Fixed Income VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
TABLE OF CONTENTS
Guardian Core Plus Fixed Income VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 16 | |||
Statement of Operations | 16 | |||
Statements of Changes in Net Assets | 17 | |||
Financial Highlights | 18 | |||
Notes to Financial Statements | 20 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 28 | |||
Recent Rulemaking | 29 | |||
Approval of Investment Management and Sub-advisory Agreements | 30 | |||
Portfolio Holdings and Proxy Voting Procedures | 36 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN CORE PLUS FIXED INCOME VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $277,520,016 |
Bond Sector Allocation1 As of June 30, 2022 |
Bond Quality Allocation2 As of June 30, 2022 |
1 |
GUARDIAN CORE PLUS FIXED INCOME VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 2.750% | 4/30/2027 | 6.44% | |||||||||
U.S. Treasury Bond | 2.250% | 2/15/2052 | 3.14% | |||||||||
U.S. Treasury Bill | 1.045% | 7/26/2022 | 2.52% | |||||||||
U.S. Treasury Bond | 2.375% | 2/15/2042 | 2.42% | |||||||||
U.S. Treasury Note | 2.500% | 4/30/2024 | 2.33% | |||||||||
Uniform Mortgage-Backed Security | 4.500% | 8/1/2052 | 2.22% | |||||||||
Uniform Mortgage-Backed Security | 4.000% | 8/1/2052 | 1.90% | |||||||||
Uniform Mortgage-Backed Security | 5.000% | 8/1/2052 | 1.87% | |||||||||
Federal Home Loan Bank | 1.530% | 9/16/2022 | 1.81% | |||||||||
U.S. Treasury Note | 2.750% | 5/15/2025 | 1.81% | |||||||||
Total | 26.46% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value 6/30/22 | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 884.30 | $3.78 | 0.81% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.78 | $4.06 | 0.81% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 16.7% |
| |||||||
Federal Home Loan Mortgage Corp. | $ | 558,078 | $ | 546,239 | ||||
Federal National Mortgage Association | 2,188,807 | 2,074,891 | ||||||
3.50% due 7/1/2045 | 640,765 | 627,174 | ||||||
3.50% due 9/1/2051 | 278,226 | 271,170 | ||||||
3.50% due 4/1/2052 | 1,163,000 | 1,130,242 | ||||||
4.00% due 5/1/2052 | 470,421 | 471,035 | ||||||
4.00% due 5/1/2052 | 634,430 | 636,832 | ||||||
Government National Mortgage Association | 775,000 | 752,917 | ||||||
4.00% due 8/1/2052(1) | 2,927,000 | 2,906,865 | ||||||
4.50% due 7/1/2052(1) | 2,096,000 | 2,126,685 | ||||||
4.50% due 8/1/2052(1) | 765,000 | 773,218 | ||||||
5.00% due 8/1/2052(1) | 1,154,000 | 1,177,715 | ||||||
Uniform Mortgage-Backed Security | 4,810,000 | 4,472,083 | ||||||
3.50% due 7/1/2052(1) | 3,609,000 | 3,470,324 | ||||||
3.50% due 8/1/2052(1) | 4,170,000 | 4,004,059 | ||||||
4.00% due 8/16/2037(1) | 2,825,000 | 2,835,029 | ||||||
4.00% due 8/1/2052(1) | 5,350,000 | 5,264,983 | ||||||
4.50% due 8/1/2052(1) | 6,166,000 | 6,175,804 | ||||||
5.00% due 8/1/2052(1) | 5,110,000 | 5,200,038 | ||||||
5.50% due 8/11/2052(1) | 1,350,000 | 1,390,342 | ||||||
Total Agency Mortgage–Backed Securities (Cost $46,081,695) |
| 46,307,645 | ||||||
Asset–Backed Securities – 19.9% |
| |||||||
AMMC CLO 23 Ltd. | 540,000 | 506,412 | ||||||
Apidos CLO XXVI | 280,000 | 267,904 | ||||||
Apidos CLO XXXV | 400,000 | 385,336 | ||||||
Arbor Realty Commercial Real Estate Ltd. | 700,000 | 663,230 | ||||||
2021-FL2 E | 170,000 | 154,328 | ||||||
2021-FL3 D | 1,030,000 | 948,884 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Avid Automobile Receivables Trust 2019-1 B | $ | 173,904 | $ | 173,572 | ||||
2019-1 D | 2,290,000 | 2,267,286 | ||||||
2021-1 E | 830,000 | 747,281 | ||||||
Avis Budget Rental Car Funding AESOP LLC | 1,545,000 | 1,474,754 | ||||||
2020-2A A | 1,750,000 | 1,628,074 | ||||||
Bain Capital Credit CLO | 880,000 | 857,558 | ||||||
Barings CLO Ltd. | 540,000 | 516,951 | ||||||
Carlyle Global Market Strategies CLO Ltd. | 410,000 | 392,694 | ||||||
Carlyle U.S. CLO Ltd. | 1,400,000 | 1,361,298 | ||||||
CarMax Auto Owner Trust | 141,687 | 141,594 | ||||||
Carvana Auto Receivables Trust | 1,243,000 | 1,227,245 | ||||||
CBAM Ltd. | 530,000 | 489,932 | ||||||
CIFC Funding Ltd. | 1,330,000 | 1,300,126 | ||||||
2021-4A A | 1,000,000 | 976,623 | ||||||
Citibank Credit Card Issuance Trust | 840,000 | 831,141 | ||||||
CPS Auto Receivables Trust 2018-B D | 100,186 | 100,263 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
2020-C C | $ | 354,313 | $ | 352,061 | ||||
Drive Auto Receivables Trust | 1,975,000 | 1,960,551 | ||||||
Dryden 58 CLO Ltd. | 1,400,000 | 1,345,743 | ||||||
Dryden Senior Loan Fund | 1,010,000 | 980,820 | ||||||
Exeter Automobile Receivables Trust | 1,020,000 | 1,003,132 | ||||||
Exeter Automobile Receivables Trust | 1,100,000 | 1,118,539 | ||||||
First Investors Auto Owner Trust | 600,000 | 580,306 | ||||||
Flagship Credit Auto Trust | 725,000 | 719,594 | ||||||
2021-1 A | 239,099 | 237,075 | ||||||
Ford Credit Floorplan Master Owner Trust | 146,000 | 146,014 | ||||||
GM Financial Automobile Leasing Trust | 1,510,000 | 1,501,214 | ||||||
GM Financial Consumer Automobile Receivables Trust | 830,000 | 769,540 | ||||||
Goldentree Loan Management U.S. CLO 3 Ltd. | 250,000 | 238,675 | ||||||
Hertz Vehicle Financing III LP | 1,165,000 | 1,031,251 | ||||||
HGI CRE CLO Ltd. | 550,000 | 532,737 | ||||||
2021-FL1 D | 500,000 | 462,022 | ||||||
Lending Funding Trust | 936,000 | 837,046 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Lendmark Funding Trust | $ | 750,000 | $ | 650,930 | ||||
2021-2A C | 450,000 | 344,055 | ||||||
LoanCore Issuer Ltd. | 680,000 | 662,428 | ||||||
Logan CLO I Ltd. | 530,000 | 511,676 | ||||||
Marble Point CLO XVII Ltd. | 613,030 | 600,455 | ||||||
Mariner Finance Issuance Trust | 555,000 | 459,360 | ||||||
Marlette Funding Trust | 1,060,000 | 1,037,015 | ||||||
Master Credit Card Trust II | 100,000 | 100,016 | ||||||
ME Funding LLC | 1,093,950 | 1,093,484 | ||||||
Mountain View CLO LLC | 545,274 | 537,150 | ||||||
Nelnet Student Loan Trust | 570,000 | 481,013 | ||||||
Neuberger Berman Loan Advisers CLO 35 Ltd. | 1,000,000 | 978,667 | ||||||
NextGear Floorplan Master Owner Trust | 950,000 | 949,528 | ||||||
2020-1A A1 | 2,450,000 | 2,448,098 | ||||||
Oaktree CLO Ltd. | 570,000 | 539,024 | ||||||
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
OCP CLO Ltd. | $ | 790,000 | $ | 771,087 | ||||
OneMain Financial Issuance Trust | 1,416,000 | 1,308,190 | ||||||
Pennsylvania Higher Education Assistance Agency | 20,758 | 20,378 | ||||||
Race Point IX CLO Ltd. | 250,000 | 222,325 | ||||||
Santander Consumer Auto Receivables Trust | 1,475,000 | 1,419,336 | ||||||
Santander Drive Auto Receivables Trust | 816,000 | 797,885 | ||||||
2021-1 C | 1,850,000 | 1,805,191 | ||||||
SCF Equipment Leasing LLC | 797,000 | 772,033 | ||||||
2021-1A C | 1,000,000 | 893,362 | ||||||
2021-1A D | 750,000 | 661,832 | ||||||
SEB Funding LLC | 812,963 | 748,895 | ||||||
Signal Peak CLO 8 Ltd. | 1,003,948 | 979,954 | ||||||
SLC Student Loan Trust | 99,193 | 99,458 | ||||||
Sunrun Demeter Issuer LLC | 490,191 | 416,876 | ||||||
Towd Point Asset Trust | 171,212 | 170,132 | ||||||
Toyota Auto Receivables Owner Trust | 95,449 | 95,385 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Westlake Automobile Receivables Trust | $ | 750,000 | $ | 728,330 | ||||
Wind River CLO Ltd. | 510,000 | 481,777 | ||||||
World Omni Auto Receivables Trust | 178,186 | 178,068 | ||||||
Total Asset–Backed Securities (Cost $58,069,406) |
| 55,192,199 | ||||||
Corporate Bonds & Notes – 35.1% | ||||||||
Aerospace & Defense – 0.1% | ||||||||
TransDigm, Inc. | 334,000 | 312,771 | ||||||
|
| |||||||
312,771 | ||||||||
Agriculture – 0.5% |
| |||||||
Cargill, Inc. | 715,000 | 699,635 | ||||||
MHP Lux SA | 475,000 | 237,400 | ||||||
Viterra Finance BV | 398,000 | 386,748 | ||||||
|
| |||||||
1,323,783 | ||||||||
Airlines – 0.8% |
| |||||||
American Airlines, Inc. | 256,000 | 264,957 | ||||||
British Airways Pass-Through Trust | 583,480 | 556,016 | ||||||
Delta Air Lines, Inc. | 717,000 | 725,747 | ||||||
Delta Air Lines, Inc. / SkyMiles IP Ltd. | 296,000 | 287,511 | ||||||
4.75% due 10/20/2028(2) | 300,000 | 283,152 | ||||||
|
| |||||||
2,117,383 | ||||||||
Apparel – 0.1% |
| |||||||
Levi Strauss & Co. | 331,000 | 271,284 | ||||||
|
| |||||||
271,284 | ||||||||
Auto Manufacturers – 0.8% |
| |||||||
Ford Motor Co. | 846,000 | 632,368 | ||||||
Toyota Motor Credit Corp. | 1,544,000 | 1,551,535 | ||||||
|
| |||||||
2,183,903 |
6 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Building Materials – 0.1% |
| |||||||
Standard Industries, Inc. | $ | 311,000 | $ | 245,989 | ||||
|
| |||||||
245,989 | ||||||||
Chemicals – 0.4% |
| |||||||
Braskem Netherlands Finance BV | 505,000 | 430,068 | ||||||
CVR Partners LP / CVR Nitrogen Finance Corp. | 511,000 | 468,010 | ||||||
Phosagro OAO Via Phosagro Bond Funding DAC | 290,000 | 87,000 | ||||||
|
| |||||||
985,078 | ||||||||
Coal – 0.2% |
| |||||||
SunCoke Energy, Inc. | 494,000 | 402,827 | ||||||
|
| |||||||
402,827 | ||||||||
Commercial Banks – 9.8% |
| |||||||
ABN AMRO Bank NV | 400,000 | 321,248 | ||||||
Bank of America Corp. | 1,693,000 | 1,521,956 | ||||||
2.087% (2.087% fixed rate until 6/14/2028; SOFR + 1.06% thereafter) | 821,000 | 703,063 | ||||||
2.687% (2.687% fixed rate until 4/22/2031; SOFR + 1.32% thereafter) | 642,000 | 539,453 | ||||||
3.004% (3.004% fixed rate until 12/20/2022; LIBOR 3 Month + 0.79% thereafter) | 460,000 | 458,385 | ||||||
3.593% (3.593% fixed rate until 7/21/2027; LIBOR 3 Month + 1.37% thereafter) | 1,125,000 | 1,061,809 | ||||||
BankUnited, Inc. | 613,000 | 586,193 | ||||||
BNP Paribas SA | 810,000 | 752,296 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks (continued) |
| |||||||
Citigroup, Inc. | $ | 712,000 | $ | 683,556 | ||||
3.98% (3.98% fixed rate until 3/20/2029; LIBOR 3 Month + 1.34% thereafter) | 2,518,000 | 2,356,042 | ||||||
4.14% (4.14% fixed rate until 5/24/2024; SOFR + 1.37% thereafter) | 287,000 | 286,064 | ||||||
Danske Bank A/S | 1,030,000 | 1,010,842 | ||||||
4.375% due 6/12/2028(2) | 200,000 | 192,180 | ||||||
Goldman Sachs Group, Inc. | 1,141,000 | 1,124,638 | ||||||
2.383% (2.383% fixed rate until 7/21/2031; SOFR + 1.25% thereafter) | 1,373,000 | 1,111,292 | ||||||
2.615% (2.615% fixed rate until 4/22/2031; SOFR + 1.28% thereafter) | 499,000 | 414,005 | ||||||
JPMorgan Chase & Co. | 707,000 | 607,066 | ||||||
3.54% (3.54% fixed rate until 5/1/2027; LIBOR 3 Month + 1.38% thereafter) | 1,002,000 | 949,225 | ||||||
3.782% (3.782% fixed rate until 2/1/2027; LIBOR 3 Month + 1.34% thereafter) | 604,000 | 579,598 | ||||||
Macquarie Bank Ltd. | 203,000 | 177,672 | ||||||
Macquarie Group Ltd. | 968,000 | 781,118 | ||||||
4.654% (4.654% fixed rate until 3/27/2028; LIBOR 3 Month + 1.73% thereafter) | 963,000 | 940,793 | ||||||
The accompanying notes are an integral part of these financial statements. | 7 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks (continued) |
| |||||||
Morgan Stanley | $ | 718,000 | $ | 583,418 | ||||
2.484% (2.484% fixed rate until 9/16/2031; SOFR + 1.36% thereafter) | 542,000 | 416,760 | ||||||
4.431% (4.431% fixed rate until 1/23/2029; LIBOR 3 Month + 1.63% thereafter) | 1,893,000 | 1,837,365 | ||||||
Santander UK Group Holdings PLC | 877,000 | 872,247 | ||||||
Toronto-Dominion Bank | 479,000 | 473,650 | ||||||
UBS AG | 872,000 | 870,605 | ||||||
Wells Fargo & Co. | 2,093,000 | 1,875,705 | ||||||
3.35% (3.35% fixed rate until 3/2/2032; SOFR + 1.50% thereafter) | 674,000 | 598,229 | ||||||
3.584% (3.584% fixed rate until 5/22/2027; LIBOR 3 Month + 1.31% thereafter) | 976,000 | 924,399 | ||||||
Westpac Banking Corp. | 484,000 | 458,677 | ||||||
4.322% (4.322% fixed rate until 11/23/2026; 5 Year USD ICE Swap + 2.24% thereafter) | 1,300,000 | 1,252,056 | ||||||
|
| |||||||
27,321,605 | ||||||||
Commercial Services – 0.2% |
| |||||||
Gartner, Inc. | 333,000 | 287,859 | ||||||
United Rentals North America, Inc. | 73,000 | 62,358 | ||||||
ZipRecruiter, Inc. | 305,000 | 257,060 | ||||||
|
| |||||||
607,277 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Computers – 0.3% |
| |||||||
Dell International LLC / EMC Corp. | $ | 535,000 | $ | 382,279 | ||||
8.35% due 7/15/2046 | 386,000 | 480,933 | ||||||
|
| |||||||
863,212 | ||||||||
Cosmetics & Personal Care – 0.1% |
| |||||||
GSK Consumer Healthcare Capital U.S. LLC | 295,000 | 272,202 | ||||||
|
| |||||||
272,202 | ||||||||
Diversified Financial Services – 3.7% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 872,000 | 835,646 | ||||||
Aircastle Ltd. | 575,000 | 475,468 | ||||||
Ally Financial, Inc. | 732,000 | 813,903 | ||||||
Aviation Capital Group LLC | 408,000 | 356,865 | ||||||
5.50% due 12/15/2024(2) | 982,000 | 975,028 | ||||||
Avolon Holdings Funding Ltd. 2.125% due 2/21/2026(2) | 1,255,000 | 1,092,026 | ||||||
4.25% due 4/15/2026(2) | 643,000 | 598,562 | ||||||
Capital One Financial Corp. | 222,000 | 218,637 | ||||||
Coinbase Global, Inc. | 359,000 | 224,274 | ||||||
CPPIB Capital, Inc. | 2,000,000 | 2,050,020 | ||||||
Intercontinental Exchange, Inc. | 1,579,000 | 1,553,373 | ||||||
Navient Corp. | 508,000 | 419,024 | ||||||
Neuberger Berman Group LLC / Neuberger Berman Finance Corp. 4.50% due 3/15/2027(2) | 329,000 | 329,283 | ||||||
4.875% due 4/15/2045(2) | 198,000 | 178,560 | ||||||
|
| |||||||
10,120,669 | ||||||||
Electric – 2.6% |
| |||||||
AEP Transmission Co. LLC | 290,000 | 277,956 | ||||||
AES Corp. | 578,000 | 518,819 | ||||||
Alfa Desarrollo SpA | 493,665 | 353,020 | ||||||
Ausgrid Finance Pty. Ltd. | 580,000 | 566,190 | ||||||
Calpine Corp. | 302,000 | 267,820 | ||||||
8 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Electric (continued) |
| |||||||
Constellation Energy Generation LLC | $ | 727,000 | $ | 743,241 | ||||
FirstEnergy Corp. 2.65% due 3/1/2030 | 482,000 | 397,761 | ||||||
4.40% due 7/15/2027 | 1,041,000 | 973,116 | ||||||
Minejesa Capital BV | 730,000 | 653,664 | ||||||
NextEra Energy Capital Holdings, Inc. | 328,000 | 336,026 | ||||||
NRG Energy, Inc. | 280,000 | 250,516 | ||||||
Southern Co. | 1,156,000 | 1,160,335 | ||||||
Vistra Operations Co. LLC | 841,000 | 811,658 | ||||||
|
| |||||||
7,310,122 | ||||||||
Electronics – 0.1% |
| |||||||
Atkore, Inc. | 334,000 | 279,087 | ||||||
|
| |||||||
279,087 | ||||||||
Entertainment – 0.3% |
| |||||||
Jacobs Entertainment, Inc. | 303,000 | 249,836 | ||||||
Live Nation Entertainment, Inc. | 482,000 | 428,898 | ||||||
Mohegan Gaming & Entertainment | 319,000 | 271,073 | ||||||
|
| |||||||
949,807 | ||||||||
Environmental Control – 0.2% |
| |||||||
Madison IAQ LLC | 703,000 | 582,393 | ||||||
|
| |||||||
582,393 | ||||||||
Food – 0.1% |
| |||||||
Albertsons Cos., Inc. / Safeway, Inc. / New Albertsons LP / Albertsons LLC | 336,000 | 271,780 | ||||||
|
| |||||||
271,780 | ||||||||
Forest Products & Paper – 0.2% |
| |||||||
Mercer International, Inc. | 518,000 | 445,190 | ||||||
|
| |||||||
445,190 | ||||||||
Gas – 0.4% |
| |||||||
CenterPoint Energy Resources Corp. | 662,000 | 652,533 | ||||||
National Fuel Gas Co. | 554,000 | 555,906 | ||||||
|
| |||||||
1,208,439 | ||||||||
Healthcare-Products – 0.1% |
| |||||||
Medline Borrower LP | 330,000 | 281,318 | ||||||
|
| |||||||
281,318 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Healthcare-Services – 1.0% |
| |||||||
Centene Corp. | $ | 286,000 | $ | 238,567 | ||||
4.25% due 12/15/2027 | 592,000 | 552,786 | ||||||
Charles River Laboratories International, Inc. | 300,000 | 269,781 | ||||||
CHS / Community Health Systems, Inc. | 649,000 | 477,411 | ||||||
RP Escrow Issuer LLC | 515,000 | 446,258 | ||||||
Tenet Healthcare Corp. | 353,000 | 326,253 | ||||||
UnitedHealth Group, Inc. | 397,000 | 393,851 | ||||||
|
| |||||||
2,704,907 | ||||||||
Home Builders – 0.3% |
| |||||||
Century Communities, Inc. | 320,000 | 250,211 | ||||||
Toll Brothers Finance Corp. | 331,000 | 282,416 | ||||||
4.35% due 2/15/2028 | 363,000 | 328,965 | ||||||
|
| |||||||
861,592 | ||||||||
Insurance – 0.5% |
| |||||||
Assurant, Inc. | 313,000 | 244,303 | ||||||
First American Financial Corp. | 474,000 | 362,904 | ||||||
GA Global Funding Trust | 898,000 | 879,609 | ||||||
|
| |||||||
1,486,816 | ||||||||
Internet – 0.8% |
| |||||||
Baidu, Inc. | 1,080,000 | 900,580 | ||||||
Go Daddy Operating Co. LLC / GD Finance Co., Inc. | 505,000 | 426,008 | ||||||
Netflix, Inc. | 662,000 | 667,276 | ||||||
Prosus NV | 340,000 | 296,099 | ||||||
|
| |||||||
2,289,963 | ||||||||
Iron & Steel – 0.1% |
| |||||||
United States Steel Corp. | 440,000 | 380,626 | ||||||
|
| |||||||
380,626 | ||||||||
Leisure Time – 0.2% |
| |||||||
Life Time, Inc. | 286,000 | 257,020 | ||||||
Royal Caribbean Cruises Ltd. | 204,000 | 209,524 | ||||||
|
| |||||||
466,544 |
The accompanying notes are an integral part of these financial statements. | 9 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Lodging – 0.3% |
| |||||||
Hilton Domestic Operating Co., Inc. | $ | 309,000 | $ | 263,015 | ||||
MGM Resorts International | 323,000 | 291,507 | ||||||
Wynn Las Vegas LLC / Wynn Las Vegas Capital Corp. | 315,000 | 269,750 | ||||||
|
| |||||||
824,272 | ||||||||
Machinery-Diversified – 0.5% |
| |||||||
nVent Finance Sarl | 1,112,000 | 1,073,747 | ||||||
TK Elevator US Newco, Inc. | 356,000 | 317,930 | ||||||
|
| |||||||
1,391,677 | ||||||||
Media – 1.1% |
| |||||||
CCO Holdings LLC / CCO Holdings Capital Corp. | 397,000 | 321,415 | ||||||
4.75% due 3/1/2030(2) | 295,000 | 252,320 | ||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 1,130,000 | 929,945 | ||||||
6.484% due 10/23/2045 | 420,000 | 408,942 | ||||||
FactSet Research Systems, Inc. | 449,000 | 393,216 | ||||||
Time Warner Cable LLC | 288,000 | 301,743 | ||||||
Time Warner Entertainment Co. LP | 369,000 | 425,656 | ||||||
|
| |||||||
3,033,237 | ||||||||
Mining – 1.8% |
| |||||||
Alcoa Nederland Holding BV | 335,000 | 299,949 | ||||||
6.125% due 5/15/2028(2) | 414,000 | 402,921 | ||||||
Anglo American Capital PLC | 1,300,000 | 1,240,148 | ||||||
FMG Resources August 2006 Pty. Ltd. | 507,000 | 417,074 | ||||||
Freeport Indonesia PT | 243,000 | 222,583 | ||||||
Glencore Funding LLC | 555,000 | 458,141 | ||||||
4.875% due 3/12/2029(2) | 1,547,000 | 1,506,979 | ||||||
Novelis Corp. | 535,000 | 412,100 | ||||||
|
| |||||||
4,959,895 | ||||||||
Oil & Gas – 2.6% |
| |||||||
Aethon United BR LP / Aethon United Finance Corp. | 60,000 | 58,360 | ||||||
California Resources Corp. | 358,000 | 347,274 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Oil & Gas (continued) |
| |||||||
Callon Petroleum Co. | $ | 285,000 | $ | 274,102 | ||||
Comstock Resources, Inc. | 331,000 | 297,221 | ||||||
Continental Resources, Inc. | 1,475,000 | 1,424,525 | ||||||
EQT Corp. | 958,000 | 1,030,128 | ||||||
Hilcorp Energy I LP / Hilcorp Finance Co. | 338,000 | 295,006 | ||||||
Laredo Petroleum, Inc. | 288,000 | 286,560 | ||||||
MEG Energy Corp. | 355,000 | 324,580 | ||||||
Occidental Petroleum Corp. | 112,000 | 113,640 | ||||||
6.625% due 9/1/2030 | 778,000 | 801,511 | ||||||
Ovintiv, Inc. | 498,000 | 516,760 | ||||||
Petroleos Mexicanos | 1,041,000 | 793,679 | ||||||
Range Resources Corp. | 229,000 | 234,413 | ||||||
SM Energy Co. | 201,000 | 189,658 | ||||||
Tengizchevroil Finance Co. International Ltd. | 235,000 | 176,100 | ||||||
|
| |||||||
7,163,517 | ||||||||
Oil & Gas Services – 0.1% |
| |||||||
Weatherford International Ltd. | 334,000 | 277,140 | ||||||
|
| |||||||
277,140 | ||||||||
Pharmaceuticals – 0.3% |
| |||||||
Bayer Corp. | 343,000 | 363,230 | ||||||
Option Care Health, Inc. | 325,000 | 278,701 | ||||||
Organon & Co. / Organon Foreign Debt Co-Issuer BV | 321,000 | 284,069 | ||||||
|
| |||||||
926,000 | ||||||||
Pipelines – 1.2% |
| |||||||
Buckeye Partners LP | 345,000 | 275,683 | ||||||
Cheniere Energy Partners LP | 344,000 | 271,161 | ||||||
CNX Midstream Partners LP | 326,000 | 273,371 | ||||||
10 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Pipelines (continued) |
| |||||||
Eastern Gas Transmission & Storage, Inc. | $ | 428,000 | $ | 387,485 | ||||
EIG Pearl Holdings Sarl | 710,000 | 606,099 | ||||||
Galaxy Pipeline Assets Bidco Ltd. | 717,000 | 566,702 | ||||||
NGPL PipeCo LLC | 830,000 | 693,067 | ||||||
Venture Global Calcasieu Pass LLC | 317,000 | 272,265 | ||||||
|
| |||||||
3,345,833 | ||||||||
Real Estate – 0.1% |
| |||||||
Kennedy-Wilson, Inc. | 335,000 | 267,106 | ||||||
|
| |||||||
267,106 | ||||||||
Real Estate Investment Trusts (REITs) – 1.1% |
| |||||||
American Campus Communities Operating Partnership LP | 292,000 | 270,039 | ||||||
Blackstone Mortgage Trust, Inc. | 319,000 | 262,696 | ||||||
EPR Properties | 712,000 | 592,491 | ||||||
4.95% due 4/15/2028 | 695,000 | 634,299 | ||||||
Invitation Homes Operating Partnership LP | 906,000 | 697,647 | ||||||
2.30% due 11/15/2028 | 342,000 | 287,601 | ||||||
Physicians Realty LP | 398,000 | 321,043 | ||||||
|
| |||||||
3,065,816 | ||||||||
Retail – 0.1% |
| |||||||
Murphy Oil USA, Inc. | 353,000 | 301,014 | ||||||
|
| |||||||
301,014 | ||||||||
Semiconductors – 0.9% |
| |||||||
Advanced Micro Devices, Inc. | 560,000 | 551,102 | ||||||
4.393% due 6/1/2052 | 488,000 | 474,736 | ||||||
Broadcom, Inc. | 603,000 | 545,920 | ||||||
Entegris, Inc. | 307,000 | 256,615 | ||||||
TSMC Arizona Corp. | 360,000 | 290,380 | ||||||
TSMC Global Ltd. | 371,000 | 314,352 | ||||||
|
| |||||||
2,433,105 | ||||||||
Software – 0.8% |
| |||||||
MSCI, Inc. | 333,000 | 276,330 | ||||||
Oracle Corp. | 2,310,000 | 1,903,301 | ||||||
|
| |||||||
2,179,631 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Telecommunications – 0.1% |
| |||||||
Sprint Capital Corp. | $ | 279,000 | $ | 293,991 | ||||
|
| |||||||
293,991 | ||||||||
Transportation – 0.1% |
| |||||||
Seaspan Corp. | 343,000 | 271,200 | ||||||
|
| |||||||
271,200 | ||||||||
Total Corporate Bonds & Notes (Cost $109,985,487) |
| 97,280,001 | ||||||
Municipals – 0.5% |
| |||||||
County of Miami-Dade Florida | 215,000 | 171,873 | ||||||
Foothill-Eastern Transportation Corridor Agency | 361,000 | 311,653 | ||||||
New Jersey Transportation Trust Fund Authority | 605,000 | 540,563 | ||||||
New York City Transitional Finance Authority B-3 | 330,000 | 255,906 | ||||||
Regents of the University of California Medical Center Pooled Revenue | 205,000 | 154,562 | ||||||
Total Municipals (Cost $1,777,327) |
| 1,434,557 | ||||||
Non–Agency Mortgage–Backed Securities – 13.2% |
| |||||||
Angel Oak Mortgage Trust | 47,388 | 46,392 | ||||||
Atrium Hotel Portfolio Trust | 540,000 | 523,484 | ||||||
BAMLL Commercial Mortgage Securities Trust | 3,900,000 | 3,790,166 | ||||||
BBCMS Mortgage Trust 2019-BWAY A | 365,000 | 347,261 | ||||||
2019-BWAY B | 160,000 | 155,218 | ||||||
BFLD Trust | 1,000,000 | 951,045 | ||||||
2019-DPLO F | 410,000 | 386,296 | ||||||
BHMS | 560,000 | 538,598 | ||||||
2018-ATLS C | 320,000 | 302,762 | ||||||
2018-ATLS D | 1,110,000 | 1,039,379 | ||||||
BRAVO Residential Funding Trust | 1,145,575 | 1,083,670 | ||||||
The accompanying notes are an integral part of these financial statements. | 11 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
BX Trust | $ | 987,000 | $ | 957,663 | ||||
2021-ARIA E | 1,220,000 | 1,138,777 | ||||||
2022-LBA6 C | 1,090,000 | 1,035,721 | ||||||
Citigroup Commercial Mortgage Trust | 1,685,000 | 1,143,762 | ||||||
Commercial Mortgage Trust 2015-PC1 AM | 310,000 | 302,871 | ||||||
2015-PC1 B | 100,000 | 95,745 | ||||||
2015-PC1 C | 375,000 | 354,633 | ||||||
Connecticut Avenue Securities Trust | 430,000 | 399,953 | ||||||
Credit Suisse Mortgage Capital Certificates | 105,240 | 103,534 | ||||||
Credit Suisse Mortgage Trust | 890,000 | 810,351 | ||||||
DBWF Mortgage Trust | 630,000 | 610,627 | ||||||
Deephaven Residential Mortgage Trust | 673,352 | 623,111 | ||||||
Extended Stay America Trust | 646,024 | 625,181 | ||||||
Fannie Mae Connecticut Avenue Securities | 420,000 | 375,448 | ||||||
Freddie Mac STACR REMIC Trust 2021-DNA3 M2 | 655,000 | 606,517 | ||||||
2021-DNA6 M2 | 739,000 | 675,358 | ||||||
2021-HQA3 M2 | 1,025,000 | 877,656 | ||||||
2021-HQA4 M1 | 650,000 | 616,209 | ||||||
Freddie Mac Structured Agency Credit Risk Debt Note | 540,000 | 495,025 | ||||||
Great Wolf Trust | 1,028,000 | 1,002,885 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
GS Mortgage Securities Corp. II 2012-BWTR A | $ | 1,273,000 | $ | 1,264,908 | ||||
2021-ARDN B | 900,000 | 868,197 | ||||||
GS Mortgage Securities Corp. Trust | 437,247 | 421,178 | ||||||
2021-ROSS G | 660,000 | 631,852 | ||||||
HONO Mortgage Trust | 250,000 | 233,902 | ||||||
2021-LULU C | 150,000 | 140,767 | ||||||
JP Morgan Chase Commercial Mortgage Securities Trust 2018-MINN A | 339,000 | 333,005 | ||||||
2018-WPT AFL | 234,229 | 232,445 | ||||||
2018-WPT BFL | 724,000 | 716,715 | ||||||
2018-WPT BFX | 218,000 | 215,148 | ||||||
2018-WPT CFX | 290,000 | 285,849 | ||||||
2020-MKST E | 570,000 | 503,361 | ||||||
JPMBB Commercial Mortgage Securities Trust | 340,000 | 306,622 | ||||||
KIND Trust | 590,000 | 554,922 | ||||||
New Residential Mortgage Loan Trust | 45,310 | 44,039 | ||||||
One New York Plaza Trust | 850,000 | 816,758 | ||||||
PFP Ltd. | 9,578 | 9,509 | ||||||
Ready Capital Mortgage Financing LLC |
| |||||||
2021-FL6 C | 1,280,000 | 1,188,453 | ||||||
2022-FL8 A | 1,060,000 | 1,011,735 | ||||||
ReadyCap Commercial Mortgage Trust | 146,575 | 137,542 | ||||||
Starwood Mortgage Residential Trust | 246,106 | 234,156 | ||||||
12 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
Verus Securitization Trust |
| |||||||
2020-1 A1 | $ | 82,224 | $ | 79,689 | ||||
2020-5 A1 | 336,690 | 316,695 | ||||||
2021-2 A1 | 602,510 | 542,883 | ||||||
Vista Point Securitization Trust | 178,814 | 170,404 | ||||||
Wells Fargo Commercial Mortgage Trust |
| |||||||
2015-SG1 B | 1,260,000 | 1,164,191 | ||||||
2016-C35 C | 131,000 | 117,505 | ||||||
WFLD Mortgage Trust | 2,000,000 | 1,948,442 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $38,735,976) |
| 36,506,170 | ||||||
Foreign Government — 2.5% |
| |||||||
Angolan Government International Bond | USD | 300,000 | 240,009 | |||||
Caisse d’Amortissement de la Dette Sociale | USD | 1,614,000 | 1,604,655 | |||||
Egypt Government International Bond | USD | 465,000 | 327,509 | |||||
Japan International Cooperation Agency | USD | 718,000 | 710,605 | |||||
Kommunalbanken AS | USD | 2,292,000 | 2,352,004 | |||||
Kommuninvest I Sverige AB |
| |||||||
2.875% due 7/3/2024(2) | USD | 562,000 | 558,291 | |||||
3.25% due 1/16/2024(2) | USD | 840,000 | 840,260 | |||||
Nigeria Government International Bond | USD | 375,000 | 264,709 | |||||
Sri Lanka Government International Bond | USD | 200,000 | 80,152 | |||||
Total Foreign Government (Cost $7,399,379) | 6,978,194 | |||||||
Supranational Bonds – 0.7% |
| |||||||
Asian Development Bank | $ | 1,150,000 | 1,187,364 | |||||
Inter American Investment Corp. | 838,000 | 824,860 | ||||||
Total Supranational Bonds (Cost $2,025,043) |
| 2,012,224 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
U.S. Government Agencies – 1.8% |
| |||||||
Federal Home Loan Bank | $ | 5,030,000 | $ | 5,030,503 | ||||
Total U.S. Government Agencies (Cost $5,030,000) |
| 5,030,503 | ||||||
U.S. Government Securities – 18.9% |
| |||||||
U.S. Treasury Bond | ||||||||
2.25% due 2/15/2052 | 10,602,000 | 8,725,115 | ||||||
2.375% due 2/15/2042 | 7,908,000 | 6,704,501 | ||||||
U.S. Treasury Inflation-Protected Indexed Bond | 1,853,773 | 1,459,580 | ||||||
U.S. Treasury Note | ||||||||
2.50% due 4/30/2024 | 6,517,000 | 6,460,740 | ||||||
2.50% due 3/31/2027 | 1,539,000 | 1,501,727 | ||||||
2.75% due 5/15/2025 | 5,066,000 | 5,027,214 | ||||||
2.75% due 4/30/2027 | 18,107,000 | 17,863,687 | ||||||
2.875% due 5/15/2032 | 4,841,000 | 4,787,295 | ||||||
Total U.S. Government Securities (Cost $53,730,801) |
| 52,529,859 | ||||||
Short–Term Investments – 5.4% |
| |||||||
U.S. Treasury Bills – 2.5% |
| |||||||
U.S. Treasury Bill | 6,990,000 | 6,984,827 | ||||||
Total U.S. Treasury Bills (Cost $6,984,733) |
| 6,984,827 | ||||||
Repurchase Agreements – 2.9% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $8,118,865, due 7/1/2022(7) | 8,118,811 | 8,118,811 | ||||||
Total Repurchase Agreements (Cost $8,118,811) |
| 8,118,811 | ||||||
Total Investments(8) – 114.7% (Cost $337,938,658) |
| 318,374,990 | ||||||
Liabilities in excess of other assets(9) – (14.7)% |
| (40,854,974 | ) | |||||
Total Net Assets – 100.0% |
| $ | 277,520,016 |
(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, 2022, the aggregate market value of these securities amounted to $127,120,963, representing 45.8% 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, 2022. |
The accompanying notes are an integral part of these financial statements. | 13 |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
(4) | The table below presents securities deemed illiquid by the investment adviser. |
Security | Principal Amount | Cost | Value | Acquisition Date | % of Fund’s Net Assets | |||||||||||||||
MHP Lux SA | $ | 475,000 | $ | 434,169 | $ | 237,400 | 9/12/2019 – 3/31/2020 | 0.09% | ||||||||||||
Phosagro OAO Via Phosagro Bond Funding DAC | 290,000 | 290,000 | 87,000 | 9/9/2021 | 0.03% |
(5) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(6) | Interest rate shown reflects the discount rate at time of purchase. |
(7) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 8,290,300 | $ | 8,281,230 |
(8) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
(9) | Liabilities in excess of other assets include net unrealized depreciation on futures contracts as follows: |
Open futures contracts at June 30, 2022:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2022 | 77 | Long | $ | 16,262,683 | $ | 16,171,203 | $ | (91,480 | ) | ||||||||||||||
U.S. Long Bond | September 2022 | 152 | Long | 21,477,718 | 21,071,000 | (406,718 | ) | |||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2022 | 13 | Long | 1,621,727 | 1,655,875 | 34,148 | ||||||||||||||||||
U.S. Ultra Bond | September 2022 | 31 | Long | 4,925,827 | 4,784,656 | (141,171 | ) | |||||||||||||||||
Total |
| $ | 44,287,955 | $ | 43,682,734 | $ | (605,221 | ) |
Legend:
CLO — Collateralized Loan Obligation
H15T1Y — 1-year Constant Maturity Treasury Rate
H15T5Y — 5-year Constant Maturity Treasury Rate
ICE — Intercontinental Exchange
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
SOFR30A — Secured Overnight Financing Rate 30-Day Average
USD — United States Dollar
14 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 46,307,645 | $ | — | $ | 46,307,645 | ||||||||
Asset–Backed Securities | — | 55,192,199 | — | 55,192,199 | ||||||||||||
Corporate Bonds & Notes | — | 97,280,001 | — | 97,280,001 | ||||||||||||
Municipals | — | 1,434,557 | — | 1,434,557 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 36,506,170 | — | 36,506,170 | ||||||||||||
Foreign Government | — | 6,978,194 | — | 6,978,194 | ||||||||||||
Supranational Bonds | — | 2,012,224 | — | 2,012,224 | ||||||||||||
U.S. Government Agencies | — | 5,030,503 | — | 5,030,503 | ||||||||||||
U.S. Government Securities | — | 52,529,859 | — | 52,529,859 | ||||||||||||
U.S. Treasury Bills | — | 6,984,827 | — | 6,984,827 | ||||||||||||
Repurchase Agreements | — | 8,118,811 | — | 8,118,811 | ||||||||||||
Total | $ | — | $ | 318,374,990 | $ | — | $ | 318,374,990 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Assets | $ | 34,148 | $ | — | $ | — | $ | 34,148 | ||||||||
Liabilities | (639,369) | — | — | (639,369 | ) | |||||||||||
Total | $ | (605,221 | ) | $ | — | $ | — | $ | (605,221 | ) |
The accompanying notes are an integral part of these financial statements. | 15 |
FINANCIAL INFORMATION — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Interest | $ | 4,162,784 | ||
|
| |||
Total Investment Income | 4,162,784 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 680,778 | |||
Distribution fees | 379,900 | |||
Custodian and accounting fees | 40,233 | |||
Professional fees | 37,848 | |||
Trustees’ and officers’ fees | 36,881 | |||
Administrative fees | 25,526 | |||
Transfer agent fees | 7,537 | |||
Shareholder reports | 7,103 | |||
Other expenses | 8,368 | |||
|
| |||
Total Expenses | 1,224,174 | |||
|
| |||
Net Investment Income/(Loss) | 2,938,610 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | (12,623,685 | ) | ||
Net realized gain/(loss) from futures contracts | (6,369,119 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (21,015,798 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | (863,560 | ) | ||
|
| |||
Net Loss on Investments and Derivative Contracts | (40,872,162 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (37,933,552 | ) | |
|
| |||
16 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
The accompanying notes are an integral part of these financial statements. | 17 |
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.
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 6/30/22 | $ | 11.58 | $ | 0.10 | $ | (1.44 | ) | $ | (1.34 | ) | $ | 10.24 | (11.57)% | (4) | ||||||||||
Year Ended 12/31/21 | 11.58 | 0.16 | (0.16 | ) | 0.00 | 11.58 | 0.00% | |||||||||||||||||
Year Ended 12/31/20 | 10.78 | 0.24 | 0.56 | 0.80 | 11.58 | 7.42% | ||||||||||||||||||
Year Ended 12/31/19 | 9.95 | 0.26 | 0.57 | 0.83 | 10.78 | 8.34% | ||||||||||||||||||
Year Ended 12/31/18 | 10.08 | 0.26 | (0.39 | ) | (0.13 | ) | 9.95 | (1.29)% | ||||||||||||||||
Year Ended 12/31/17 | 9.73 | 0.17 | 0.18 | 0.35 | 10.08 | 3.60% |
18 | The accompanying notes are an integral part of these financial statements. |
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 to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 277,520 | 0.81% | (4) | 0.81% | (4) | 1.93% | (4) | 1.93% | (4) | 99% | (4) | |||||||||||
345,332 | 0.80% | 0.80% | 1.42% | 1.42% | 181% | |||||||||||||||||
341,827 | 0.80% | 0.83% | 2.12% | 2.09% | 183% | |||||||||||||||||
350,049 | 0.79% | 0.84% | 2.53% | 2.48% | 211% | |||||||||||||||||
355,070 | 0.79% | 0.87% | 2.60% | 2.52% | 543% | |||||||||||||||||
23,096 | 0.81% | 1.77% | 1.69% | 0.73% | 409% |
(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. |
The accompanying notes are an integral part of these financial statements. | 19 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Core Plus Fixed Income VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks income and capital appreciation to produce a high total return.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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.
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.
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”).
Exchange-traded financial futures contracts are valued at the last settlement price on the market where they are primarily traded.
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
20 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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.
• | 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, 2022, 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, 2022 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, 2022, the Fund had no securities classified as Level 3.
Derivatives Exchange-traded derivatives, such as futures contracts, exchange-traded option contracts and certain swaps, are typically classified within Level 1 or Level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. Certain non-exchange-traded derivatives, such as generic forwards, certain swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within Level 2.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN 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, 2022.
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, 2022.
f. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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,
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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, 2023 to waive certain fees and/or reimburse certain expenses incurred by the Fund to the extent necessary to limit the Fund’s total annual operating expenses after fee waiver and/or expense reimbursement to 0.81% of the Fund’s average daily net assets (excluding, if applicable, any acquired fund fees and expenses, taxes, interest, transaction costs and brokerage commissions, litigation and extraordinary expenses). The limitation may not be increased or terminated prior to this time without action by the Board of Trustees, and 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, 2022, Park Avenue did not waive any fees or pay any Fund expenses.
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, 2022, the Fund paid distribution fees in the amount of $379,900 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, 2022, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 70,749,136 | $ | 203,439,306 | ||||
Sales | 65,880,668 | 214,291,241 |
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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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, 2022, the Fund held two 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
24 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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 Replacement Risk The terms of many investments, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments, or the value or return on certain other fund investments. As a result, LIBOR may be relevant to, and directly affect, a Fund’s performance. In July 2017, the Chief Executive of the UK Financial Conduct Authority (the “FCA”) announced that the FCA would no longer persuade nor compel banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative, immediately after December 31, 2021, for all four non-U.S. dollar LIBORs (British Pound (“GBP”), Euro, Swiss Franc and Japanese Yen) and for one-week and two-month U.S. dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings, including three-month U.S. dollar LIBOR. In addition, in connection with supervisory guidance from regulators, some regulated entities will cease to enter into most new LIBOR contracts after January 1, 2022. Although a Fund may continue to invest in instruments that reference LIBOR or otherwise use LIBOR reference rates due to favorable liquidity or pricing, new LIBOR assets may no longer be available. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. Replacement rates that have been identified include the Secured Overnight Financing Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities, and the Sterling Overnight Index Average Rate (“SONIA”), which is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market, although other replacement rates could be adopted by market participants. At this time, it is not possible to predict the effect of the establishment of SOFR, SONIA or any other
replacement rates or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the six months ended June 30, 2022 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
25 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
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, 2022, 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 | $ | 34,148 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (639,369 | ) |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2022 were as follows:
Interest Rate Contracts | ||||
Net Realized Gain/(Loss) | ||||
Futures Contracts1 | $ | (6,369,119) | ||
Net Change in Unrealized Appreciation/(Depreciation) | ||||
Futures Contracts2 | $ | (863,560) | ||
Average Number of Notional Amounts | ||||
Futures Contracts3 | 477 |
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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN CORE PLUS FIXED INCOME VIP FUND
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global
economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
27 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
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.
28 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
29 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised
Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in
30 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
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 Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk
management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations,
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SUPPLEMENTAL INFORMATION (UNAUDITED)
that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included
32 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board |
also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index |
for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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.
35 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8167
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Diversified Research VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Diversified Research VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
16 | ||||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN DIVERSIFIED RESEARCH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $145,257,942
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 6.63% | |||
Apple, Inc. | 4.61% | |||
Amazon.com, Inc. | 4.19% | |||
Alphabet, Inc., Class A | 3.53% | |||
Mastercard, Inc., Class A | 2.29% | |||
Exxon Mobil Corp. | 2.12% | |||
Procter & Gamble Co. | 1.97% | |||
UnitedHealth Group, Inc. | 1.96% | |||
Home Depot, Inc. | 1.90% | |||
Union Pacific Corp. | 1.68% | |||
Total | 30.88% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 800.30 | $4.29 | 0.96% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.03 | $4.81 | 0.96% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.8% |
| |||||||
Aerospace & Defense – 2.5% |
| |||||||
Boeing Co.(1) | 1,513 | $ | 206,857 | |||||
CAE, Inc. (Canada)(1) | 11,852 | 292,065 | ||||||
Northrop Grumman Corp. | 3,444 | 1,648,195 | ||||||
Raytheon Technologies Corp. | 15,896 | 1,527,765 | ||||||
|
| |||||||
3,674,882 | ||||||||
Airlines – 0.3% |
| |||||||
Southwest Airlines Co.(1) | 13,680 | 494,122 | ||||||
|
| |||||||
494,122 | ||||||||
Automobiles – 1.5% |
| |||||||
General Motors Co.(1) | 7,174 | 227,846 | ||||||
Tesla, Inc.(1) | 2,971 | 2,000,731 | ||||||
|
| |||||||
2,228,577 | ||||||||
Banks – 2.8% |
| |||||||
Bank of America Corp. | 47,948 | 1,492,621 | ||||||
Citigroup, Inc. | 49,406 | 2,272,182 | ||||||
Silvergate Capital Corp., Class A(1) | 6,070 | 324,927 | ||||||
|
| |||||||
4,089,730 | ||||||||
Beverages – 2.9% |
| |||||||
Coca-Cola Co. | 27,531 | 1,731,975 | ||||||
Constellation Brands, Inc., Class A | 780 | 181,787 | ||||||
PepsiCo, Inc. | 14,158 | 2,359,572 | ||||||
|
| |||||||
4,273,334 | ||||||||
Biotechnology – 1.8% |
| |||||||
Ascendis Pharma A/S, ADR(1) | 4,436 | 412,371 | ||||||
Ironwood Pharmaceuticals, Inc.(1) | 29,563 | 340,861 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 2,115 | 1,250,240 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 2,101 | 592,041 | ||||||
|
| |||||||
2,595,513 | ||||||||
Building Products – 0.8% |
| |||||||
Johnson Controls International PLC | 24,943 | 1,194,271 | ||||||
|
| |||||||
1,194,271 | ||||||||
Capital Markets – 3.2% |
| |||||||
Charles Schwab Corp. | 18,795 | 1,187,468 | ||||||
GoGreen Investments Corp.(1)(2) | 22,514 | 228,967 | ||||||
Goldman Sachs Group, Inc. | 6,497 | 1,929,739 | ||||||
KKR & Co., Inc. | 18,069 | 836,414 | ||||||
Quilter PLC (United Kingdom)(3) | 325,407 | 409,874 | ||||||
|
| |||||||
4,592,462 | ||||||||
Chemicals – 2.0% |
| |||||||
Corteva, Inc. | 17,499 | 947,396 | ||||||
Eastman Chemical Co. | 3,379 | 303,333 | ||||||
Linde PLC | 1,662 | 477,875 | ||||||
PPG Industries, Inc. | 3,915 | 447,641 | ||||||
Sherwin-Williams Co. | 3,152 | 705,764 | ||||||
|
| |||||||
2,882,009 | ||||||||
Construction Materials – 0.2% |
| |||||||
CRH PLC, ADR | 9,686 | 337,267 | ||||||
|
| |||||||
337,267 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Containers & Packaging – 0.5% |
| |||||||
Avery Dennison Corp. | 4,638 | $ | 750,753 | |||||
|
| |||||||
750,753 | ||||||||
Diversified Financial Services – 0.7% |
| |||||||
Apollo Global Management, Inc. | 21,648 | 1,049,495 | ||||||
|
| |||||||
1,049,495 | ||||||||
Electric Utilities – 2.8% |
| |||||||
American Electric Power Co., Inc. | 6,505 | 624,090 | ||||||
Exelon Corp. | 11,098 | 502,961 | ||||||
NextEra Energy, Inc. | 12,643 | 979,327 | ||||||
NRG Energy, Inc. | 51,981 | 1,984,115 | ||||||
|
| |||||||
4,090,493 | ||||||||
Electrical Equipment – 0.5% |
| |||||||
Emerson Electric Co. | 9,030 | 718,246 | ||||||
|
| |||||||
718,246 | ||||||||
Electronic Equipment, Instruments & Components – 1.5% |
| |||||||
CDW Corp. | 10,339 | 1,629,013 | ||||||
Vontier Corp. | 24,536 | 564,082 | ||||||
|
| |||||||
2,193,095 | ||||||||
Entertainment – 0.6% |
| |||||||
Sea Ltd., ADR(1) | 3,875 | 259,082 | ||||||
Walt Disney Co.(1) | 6,915 | 652,776 | ||||||
|
| |||||||
911,858 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 1.0% |
| |||||||
Gaming and Leisure Properties, Inc. | 26,553 | 1,217,720 | ||||||
Vornado Realty Trust | 10,310 | 294,763 | ||||||
|
| |||||||
1,512,483 | ||||||||
Food & Staples Retailing – 1.8% |
| |||||||
BJ’s Wholesale Club Holdings, Inc.(1) | 2,304 | 143,585 | ||||||
Costco Wholesale Corp. | 1,893 | 907,277 | ||||||
Walmart, Inc. | 12,495 | 1,519,142 | ||||||
|
| |||||||
2,570,004 | ||||||||
Food Products – 0.3% |
| |||||||
McCormick & Co., Inc. | 5,103 | 424,825 | ||||||
|
| |||||||
424,825 | ||||||||
Health Care Equipment & Supplies – 2.1% |
| |||||||
Abbott Laboratories | 6,988 | 759,246 | ||||||
Baxter International, Inc. | 5,850 | 375,745 | ||||||
Boston Scientific Corp.(1) | 21,033 | 783,900 | ||||||
Dexcom, Inc.(1) | 4,110 | 306,318 | ||||||
Edwards Lifesciences Corp.(1) | 867 | 82,443 | ||||||
IDEXX Laboratories, Inc.(1) | 194 | 68,042 | ||||||
Intuitive Surgical, Inc.(1) | 2,084 | 418,280 | ||||||
Medtronic PLC | 3,086 | 276,969 | ||||||
|
| |||||||
3,070,943 | ||||||||
Health Care Providers & Services – 4.4% |
| |||||||
Cigna Corp. | 6,393 | 1,684,683 | ||||||
Elevance Health, Inc. | 2,743 | 1,323,717 | ||||||
McKesson Corp. | 1,656 | 540,204 | ||||||
UnitedHealth Group, Inc. | 5,543 | 2,847,051 | ||||||
|
| |||||||
6,395,655 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Hotels, Restaurants & Leisure – 2.0% |
| |||||||
Aramark | 10,284 | $ | 314,999 | |||||
Booking Holdings, Inc.(1) | 592 | 1,035,402 | ||||||
Chipotle Mexican Grill, Inc.(1) | 453 | 592,189 | ||||||
Hilton Worldwide Holdings, Inc. | 5,488 | 611,583 | ||||||
Penn National Gaming, Inc.(1) | 9,834 | 299,150 | ||||||
|
| |||||||
2,853,323 | ||||||||
Household Durables – 0.7% |
| |||||||
PulteGroup, Inc. | 23,775 | 942,203 | ||||||
|
| |||||||
942,203 | ||||||||
Household Products – 2.0% |
| |||||||
Procter & Gamble Co. | 19,902 | 2,861,709 | ||||||
|
| |||||||
2,861,709 | ||||||||
Independent Power and Renewable Electricity Producers – 0.1% |
| |||||||
Vistra Corp. | 5,358 | 122,430 | ||||||
|
| |||||||
122,430 | ||||||||
Industrial Conglomerates – 0.9% |
| |||||||
General Electric Co. | 4,961 | 315,867 | ||||||
Honeywell International, Inc. | 5,992 | 1,041,469 | ||||||
|
| |||||||
1,357,336 | ||||||||
Insurance – 2.9% |
| |||||||
AIA Group Ltd. (Hong Kong) | 56,200 | 617,309 | ||||||
Assured Guaranty Ltd. | 39,103 | 2,181,557 | ||||||
AXA SA (France) | 25,413 | 577,506 | ||||||
Prudential PLC (United Kingdom) | 71,535 | 889,823 | ||||||
|
| |||||||
4,266,195 | ||||||||
Interactive Media & Services – 4.5% |
| |||||||
Alphabet, Inc., Class A(1) | 2,354 | 5,129,978 | ||||||
Meta Platforms, Inc., Class A(1) | 8,897 | 1,434,641 | ||||||
|
| |||||||
6,564,619 | ||||||||
Internet & Direct Marketing Retail – 4.2% |
| |||||||
Amazon.com, Inc.(1) | 57,360 | 6,092,206 | ||||||
|
| |||||||
6,092,206 | ||||||||
IT Services – 5.0% |
| |||||||
Adyen NV (Netherlands)(1)(3) | 160 | 235,203 | ||||||
Fidelity National Information Services, Inc. | 25,493 | 2,336,943 | ||||||
Mastercard, Inc., Class A | 10,572 | 3,335,254 | ||||||
Visa, Inc., Class A | 6,937 | 1,365,826 | ||||||
|
| |||||||
7,273,226 | ||||||||
Life Sciences Tools & Services – 2.4% |
| |||||||
Avantor, Inc.(1) | 15,847 | 492,842 | ||||||
Bio-Rad Laboratories, Inc., Class A(1) | 1,159 | 573,705 | ||||||
Danaher Corp. | 4,969 | 1,259,741 | ||||||
Thermo Fisher Scientific, Inc. | 2,212 | 1,201,735 | ||||||
|
| |||||||
3,528,023 | ||||||||
Machinery – 1.6% |
| |||||||
Deere & Co. | 1,697 | 508,201 | ||||||
Ingersoll Rand, Inc. | 12,627 | 531,344 | ||||||
Otis Worldwide Corp. | 17,840 | 1,260,753 | ||||||
|
| |||||||
2,300,298 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Media – 0.4% |
| |||||||
Charter Communications, Inc., Class A(1) | 1,142 | $ | 535,061 | |||||
|
| |||||||
535,061 | ||||||||
Metals & Mining – 0.5% |
| |||||||
Agnico Eagle Mines Ltd. (Canada) | 7,134 | 326,550 | ||||||
Alamos Gold, Inc., Class A | 44,282 | 310,860 | ||||||
Anglo American PLC (United Kingdom) | 1,967 | 70,231 | ||||||
|
| |||||||
707,641 | ||||||||
Multi-Utilities – 0.4% |
| |||||||
Ameren Corp. | 5,759 | 520,383 | ||||||
|
| |||||||
520,383 | ||||||||
Multiline Retail – 0.6% |
| |||||||
Target Corp. | 6,187 | 873,790 | ||||||
|
| |||||||
873,790 | ||||||||
Oil, Gas & Consumable Fuels – 4.9% |
| |||||||
Cenovus Energy, Inc. (Canada) | 113,714 | 2,163,499 | ||||||
ConocoPhillips | 8,705 | 781,796 | ||||||
Exxon Mobil Corp. | 35,965 | 3,080,043 | ||||||
Shell PLC (Netherlands) | 30,595 | 798,391 | ||||||
TotalEnergies SE (France) | 4,582 | 241,526 | ||||||
|
| |||||||
7,065,255 | ||||||||
Pharmaceuticals – 4.4% |
| |||||||
4Front Ventures Corp.(1) | 488,903 | 268,896 | ||||||
Eli Lilly and Co. | 3,977 | 1,289,463 | ||||||
Johnson & Johnson | 10,404 | 1,846,814 | ||||||
Merck & Co., Inc. | 16,335 | 1,489,262 | ||||||
Pfizer, Inc. | 29,267 | 1,534,469 | ||||||
|
| |||||||
6,428,904 | ||||||||
Professional Services – 0.2% |
| |||||||
Booz Allen Hamilton Holding Corp. | 2,977 | 269,002 | ||||||
|
| |||||||
269,002 | ||||||||
Road & Rail – 2.0% |
| |||||||
CSX Corp. | 16,575 | 481,669 | ||||||
Union Pacific Corp. | 11,428 | 2,437,364 | ||||||
|
| |||||||
2,919,033 | ||||||||
Semiconductors & Semiconductor Equipment – 2.5% |
| |||||||
Advanced Micro Devices, Inc.(1) | 20,918 | 1,599,599 | ||||||
QUALCOMM, Inc. | 16,052 | 2,050,483 | ||||||
|
| |||||||
3,650,082 | ||||||||
Software – 12.2% |
| |||||||
Adobe, Inc.(1) | 3,993 | 1,461,678 | ||||||
Intuit, Inc. | 5,709 | 2,200,477 | ||||||
Microsoft Corp. | 37,498 | 9,630,611 | ||||||
Oracle Corp. | 31,612 | 2,208,730 | ||||||
Salesforce, Inc.(1) | 10,246 | 1,691,000 | ||||||
Unity Software, Inc.(1) | 12,947 | 476,709 | ||||||
|
| |||||||
17,669,205 | ||||||||
Specialty Retail – 2.8% |
| |||||||
Bath & Body Works, Inc. | 3,817 | 102,754 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Specialty Retail (continued) |
| |||||||
CarMax, Inc.(1) | 3,305 | $ | 299,036 | |||||
Home Depot, Inc. | 10,045 | 2,755,042 | ||||||
O’Reilly Automotive, Inc.(1) | 991 | 626,074 | ||||||
TJX Cos., Inc. | 4,181 | 233,509 | ||||||
Warby Parker, Inc., Class A(1) | 4,733 | 53,294 | ||||||
|
| |||||||
4,069,709 | ||||||||
Technology Hardware, Storage & Peripherals – 4.6% |
| |||||||
Apple, Inc. | 48,950 | 6,692,444 | ||||||
|
| |||||||
6,692,444 | ||||||||
Textiles, Apparel & Luxury Goods – 0.6% |
| |||||||
Levi Strauss & Co., Class A | 11,400 | 186,048 | ||||||
Lululemon Athletica, Inc.(1) | 609 | 166,020 | ||||||
NIKE, Inc., Class B | 4,431 | 452,848 | ||||||
|
| |||||||
804,916 | ||||||||
Tobacco — 0.2% |
| |||||||
Altria Group, Inc. | 6,883 | 287,503 | ||||||
|
| |||||||
287,503 | ||||||||
Trading Companies & Distributors – 0.3% |
| |||||||
United Rentals, Inc.(1) | 1,962 | 476,589 | ||||||
|
| |||||||
476,589 | ||||||||
Wireless Telecommunication Services – 1.7% |
| |||||||
T-Mobile US, Inc.(1) | 17,751 | 2,388,220 | ||||||
|
| |||||||
2,388,220 | ||||||||
Total Common Stocks (Cost $126,743,815) |
| 143,569,322 | ||||||
Exchange–Traded Funds – 0.5% |
| |||||||
SPDR S&P 500 ETF Trust | 1,963 | 740,542 | ||||||
Total Exchange–Traded Funds (Cost $831,857) |
| 740,542 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 0.8% |
| |||||||
Repurchase Agreements – 0.8% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $1,073,847, due 7/1/2022(4) | $ | 1,073,840 | $ | 1,073,840 | ||||
Total Repurchase Agreements (Cost $1,073,840) | 1,073,840 | |||||||
Total Investments – 100.1% (Cost $128,649,512) | 145,383,704 | |||||||
Liabilities in excess of other assets – (0.1)% |
| (125,762 | ) | |||||
Total Net Assets – 100.0% |
| $ | 145,257,942 |
(1) | Non–income–producing security. |
(2) | The table below presents securities deemed illiquid by the investment adviser. |
Security | Shares | Cost | Value | Acquisition Date | % of Fund’s Net Assets | |||||||||||||||
GoGreen Investments Corp. | 22,514 | $ | 225,140 | $ | 228,967 | 10/21/2021 | 0.16% |
(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, 2022, the aggregate market value of these securities amounted to $645,077, representing 0.4% of net assets. These securities have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 1,096,600 | $ | 1,095,400 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 139,729,459 | $ | 3,839,863 | * | $ | — | $ | 143,569,322 | |||||||
Exchange–Traded Funds | 740,542 | — | — | 740,542 | ||||||||||||
Repurchase Agreements | — | 1,073,840 | — | 1,073,840 | ||||||||||||
Total | $ | 140,470,001 | $ | 4,913,703 | $ | — | $ | 145,383,704 |
* | 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 |
FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income |
| |||
Dividends | $ | 1,293,485 | ||
Interest | 375 | |||
Withholding taxes on foreign dividends | (10,935 | ) | ||
|
| |||
Total Investment Income | 1,282,925 | |||
|
| |||
Expenses |
| |||
Investment advisory fees | 502,398 | |||
Distribution fees | 209,332 | |||
Custodian and accounting fees | 27,389 | |||
Professional fees | 26,150 | |||
Trustees’ and officers’ fees | 20,415 | |||
Administrative fees | 14,607 | |||
Transfer agent fees | 7,730 | |||
Shareholder reports | 5,259 | |||
Other expenses | 4,812 | |||
|
| |||
Total Expenses | 818,092 | |||
Less: Fees waived | (14,256 | ) | ||
|
| |||
Total Expenses, Net | 803,836 | |||
|
| |||
Net Investment Income/(Loss) | 479,089 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 8,694,274 | |||
Net realized gain/(loss) from foreign currency transactions | (724 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (46,528,286 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (1,187 | ) | ||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (37,835,923 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (37,356,834 | ) | |
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
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, 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 6/30/22 | $ | 23.63 | $ | 0.06 | $ | (4.78) | $ | (4.72) | $ | 18.91 | (19.97)% | (4) | ||||||||||||
Year Ended 12/31/21 | 19.05 | 0.08 | 4.50 | 4.58 | 23.63 | 24.04% | ||||||||||||||||||
Year Ended 12/31/20 | 15.85 | 0.08 | 3.12 | 3.20 | 19.05 | 20.19% | ||||||||||||||||||
Year Ended 12/31/19 | 11.84 | 0.11 | 3.90 | 4.01 | 15.85 | 33.87% | ||||||||||||||||||
Year Ended 12/31/18 | 12.65 | 0.09 | (0.90) | (0.81) | 11.84 | (6.40)% | ||||||||||||||||||
Year Ended 12/31/17 | 10.37 | 0.08 | 2.20 | 2.28 | 12.65 | 21.99% |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income to Average Net Assets(3) | Gross Ratio of Net Investment Income/ (Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 145,258 | 0.96% | (4) | 0.98% | (4) | 0.57% | (4) | 0.55% | (4) | 23% | (4) | |||||||||||
192,042 | 0.95% | 0.95% | 0.36% | 0.36% | 44% | |||||||||||||||||
193,384 | 1.01% | 1.02% | 0.52% | 0.51% | 76% | |||||||||||||||||
196,050 | 1.01% | 1.03% | 0.77% | 0.75% | 88% | |||||||||||||||||
148,193 | 1.02% | 1.09% | 0.68% | 0.61% | 88% | |||||||||||||||||
12,129 | 0.96% | 2.43% | 0.67% | (0.80)% | 154% |
(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. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Diversified Research VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks capital appreciation.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
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, 2022, 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, 2022 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, 2022, 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, 2022, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN 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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $14,256.
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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
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, 2022, the Fund paid distribution fees in the amount of $209,332 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 $38,565,872 and $45,067,948, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, there were no purchases or sales of U.S. government securities.
b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities
of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.
c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
e. Restricted and Illiquid Securities A restricted security cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended (except pursuant to an applicable exemption). The values of these securities may be highly volatile. If the security is subsequently registered and resold, the issuer would typically bear the expense of all registrations at no cost to the Fund. Restricted and illiquid securities are valued according to the policies and procedures adopted by the Trust’s Board of Trustees and are noted, if any, in the Fund’s Schedule of Investments. As of June 30, 2022, the Fund held one illiquid security.
6. Temporary Borrowings
The Fund, with other funds managed by Park Avenue, is party to a credit agreement with respect to a $10 million
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN DIVERSIFIED RESEARCH VIP FUND
committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against
the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and
Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the
implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the
Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers 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.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile
having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted |
20 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from |
1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher |
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the |
1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Global Utilities VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Global Utilities VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
16 | ||||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN GLOBAL UTILITIES VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $66,839,616 |
Geographic Region Allocation1 As of June 30, 2022 |
Top Ten Holdings1 As of June 30, 2022 | ||||||
Holding | Country | % of Total Net Assets | ||||
Duke Energy Corp. | United States | 8.02% | ||||
China Longyuan Power Group Corp. Ltd., Class H | China | 7.32% | ||||
NextEra Energy, Inc. | United States | 5.51% | ||||
Southern Co. | United States | 4.90% | ||||
American Electric Power Co., Inc. | United States | 4.90% | ||||
AES Corp. | United States | 4.76% | ||||
CenterPoint Energy, Inc. | United States | 4.72% | ||||
Sempra Energy | United States | 4.63% | ||||
Exelon Corp. | United States | 4.52% | ||||
Iberdrola SA | Spain | 4.50% | ||||
Total | 53.78% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22–6/30/22 | Expense Ratio During Period 1/1/22–6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 947.00 | $4.97 | 1.03% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.69 | $5.16 | 1.03% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.0% |
| |||||||
Bermuda – 3.6% |
| |||||||
CK Infrastructure Holdings Ltd. | 387,000 | $ | 2,377,680 | |||||
|
| |||||||
2,377,680 | ||||||||
Brazil – 1.6% |
| |||||||
Cia de Saneamento Basico do Estado de Sao Paulo | 134,500 | 1,083,772 | ||||||
|
| |||||||
1,083,772 | ||||||||
China – 9.2% |
| |||||||
China Longyuan Power Group Corp. Ltd., Class H | 2,506,800 | 4,889,577 | ||||||
ENN Energy Holdings Ltd. | 76,200 | 1,253,476 | ||||||
|
| |||||||
6,143,053 | ||||||||
France – 6.6% |
| |||||||
Electricite de France SA | 228,578 | 1,870,934 | ||||||
Engie SA | 217,914 | 2,529,200 | ||||||
|
| |||||||
4,400,134 | ||||||||
Germany – 2.9% |
| |||||||
RWE AG | 53,129 | 1,958,123 | ||||||
|
| |||||||
1,958,123 | ||||||||
Italy – 3.3% |
| |||||||
Enel SpA | 396,681 | 2,180,314 | ||||||
|
| |||||||
2,180,314 | ||||||||
Japan – 3.1% |
| |||||||
Kansai Electric Power Co., Inc. | 126,000 | 1,248,370 | ||||||
Tokyo Gas Co. Ltd. | 40,400 | 835,853 | ||||||
|
| |||||||
2,084,223 | ||||||||
Spain – 4.5% |
| |||||||
Iberdrola SA | 289,626 | 3,005,393 | ||||||
|
| |||||||
3,005,393 | ||||||||
United Kingdom – 3.8% |
| |||||||
National Grid PLC | 200,919 | 2,574,831 | ||||||
|
| |||||||
2,574,831 | ||||||||
United States – 60.4% |
| |||||||
AES Corp. | 151,410 | 3,181,124 | ||||||
American Electric Power Co., Inc. | 34,116 | 3,273,089 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
United States (continued) |
| |||||||
CenterPoint Energy, Inc. | 106,731 | $ | 3,157,103 | |||||
Constellation Energy Corp. | 23,301 | 1,334,215 | ||||||
Dominion Energy, Inc. | 5,933 | 473,513 | ||||||
Duke Energy Corp. | 50,029 | 5,363,609 | ||||||
Edison International | 45,469 | 2,875,460 | ||||||
Exelon Corp. | 66,709 | 3,023,252 | ||||||
FirstEnergy Corp. | 71,515 | 2,745,461 | ||||||
NextEra Energy, Inc. | 47,526 | 3,681,364 | ||||||
NRG Energy, Inc. | 64,902 | 2,477,309 | ||||||
Pinnacle West Capital Corp. | 32,879 | 2,404,112 | ||||||
Sempra Energy | 20,577 | 3,092,106 | ||||||
Southern Co. | 45,949 | 3,276,623 | ||||||
|
| |||||||
40,358,340 | ||||||||
Total Common Stocks (Cost $58,333,102) |
| 66,165,863 |
Principal Amount | Value | |||||||||||||
Short–Term Investments – 0.5% |
| |||||||||||||
Repurchase Agreements – 0.5% |
| |||||||||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $319,914, due 7/1/2022(1) | $ | 319,912 | 319,912 | |||||||||||
Total Repurchase Agreements (Cost $319,912) |
| 319,912 | ||||||||||||
Total Investments – 99.5% (Cost $58,653,014) |
| 66,485,775 | ||||||||||||
Assets in excess of other liabilities – 0.5% |
| 353,841 | ||||||||||||
Total Net Assets – 100.0% |
| $ | 66,839,616 |
(1) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 326,700 | $ | 326,343 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 2,377,680 | * | $ | — | $ | 2,377,680 | |||||||
Brazil | 1,083,772 | — | — | 1,083,772 | ||||||||||||
China | — | 6,143,053 | * | — | 6,143,053 | |||||||||||
France | — | 4,400,134 | * | — | 4,400,134 | |||||||||||
Germany | — | 1,958,123 | * | — | 1,958,123 | |||||||||||
Italy | — | 2,180,314 | * | — | 2,180,314 | |||||||||||
Japan | — | 2,084,223 | * | — | 2,084,223 | |||||||||||
Spain | — | 3,005,393 | * | — | 3,005,393 | |||||||||||
United Kingdom | — | 2,574,831 | * | — | 2,574,831 | |||||||||||
United States | 40,358,340 | — | — | 40,358,340 | ||||||||||||
Repurchase Agreements | — | 319,912 | — | 319,912 | ||||||||||||
Total | $ | 41,442,112 | $ | 25,043,663 | $ | — | $ | 66,485,775 |
* | 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. |
FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,523,152 | ||
Interest | 84 | |||
Withholding taxes on foreign dividends | (81,104 | ) | ||
|
| |||
Total Investment Income | 1,442,132 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 281,809 | |||
Distribution fees | 96,510 | |||
Custodian and accounting fees | 26,882 | |||
Professional fees | 20,093 | |||
Trustees’ and officers’ fees | 9,049 | |||
Administrative fees | 7,139 | |||
Transfer agent fees | 7,026 | |||
Shareholder reports | 4,293 | |||
Other expenses | 2,538 | |||
|
| |||
Total Expenses | 455,339 | |||
Less: Fees waived | (57,715 | ) | ||
|
| |||
Total Expenses, Net | 397,624 | |||
|
| |||
Net Investment Income/(Loss) | 1,044,508 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 826,078 | |||
Net realized gain/(loss) from foreign currency transactions | (9,345 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (6,004,573 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (8,630 | ) | ||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (5,196,470) | |||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (4,151,962 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
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�� | 7 |
FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.
Financial Highlights Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/22 | $ | 12.45 | $ | 0.16 | $ | (0.82 | ) | $ | (0.66 | ) | $ | 11.79 | (5.30)% | (4) | ||||||||||
Year Ended 12/31/21 | 10.70 | 0.28 | 1.47 | 1.75 | 12.45 | 16.36% | ||||||||||||||||||
Year Ended 12/31/20 | 10.27 | 0.23 | 0.20 | 0.43 | 10.70 | 4.19% | ||||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.24 | 0.27 | 10.27 | 2.70% | (4) |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN GLOBAL UTILITIES VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income to Average Net Assets(3) | Gross Ratio of Net Investment Income to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 66,840 | 1.03% | (4) | 1.18% | (4) | 2.71% | (4) | 2.56% | (4) | 6% | (4) | |||||||||||
88,121 | 1.03% | 1.16% | 2.38% | 2.25% | 22% | |||||||||||||||||
84,619 | 1.03% | 1.22% | 2.35% | 2.16% | 43% | |||||||||||||||||
85,307 | 0.89% | (4) | 1.37% | (4) | 1.56% | (4) | 1.08% | (4) | 50% | (4) |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers and expense limitations. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Global Utilities VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks total return.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued in accordance with policies and procedures adopted by the Board of Trustees. In addition, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities. Certain foreign equity instruments are valued by applying international fair value factors provided by approved pricing services. The factors seek to adjust the local closing price for movements of local markets post closing, but prior to the time the NAVs are calculated. Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events and/or issuer related events after the report date and prior to issuance of the report are not reflected herein.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN 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, 2022, 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, 2022 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, 2022, 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, 2022, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN 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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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 and may be terminated only upon approval of the Board of Trustees. Amounts waived or reimbursed by Park Avenue
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
pursuant to any expense limitation will not be subject to Park Avenue’s recoupment rights. For the six months ended June 30, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $57,715.
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, 2022, the Fund paid distribution fees in the amount of $96,510 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 $4,795,234 and $20,729,891, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, there were no purchases or sales of U.S. government securities.
b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.
c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
e. Restricted and Illiquid Securities A restricted security cannot be resold to the general public without
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN GLOBAL UTILITIES VIP FUND
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, 2022, the Fund did not hold any restricted, other than 144A restricted securities, or illiquid securities.
6. Temporary Borrowings
The Fund, with other funds managed by Park Avenue, is party to a credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are
indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The
Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the
Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of
19 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest
performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
20 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s |
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the |
1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Growth & Income VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Growth & Income VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
16 | ||||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN GROWTH & INCOME VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $145,219,410
Sector Allocation1 As of June 30, 2022 | ||||
| ||||
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Philip Morris International, Inc. | 3.79% | |||
Elevance Health, Inc. | 3.77% | |||
Berkshire Hathaway, Inc., Class B | 3.52% | |||
Verizon Communications, Inc. | 3.48% | |||
Comcast Corp., Class A | 3.48% | |||
Wells Fargo & Co. | 3.40% | |||
Raytheon Technologies Corp. | 3.23% | |||
Amgen, Inc. | 3.03% | |||
Roche Holding AG, ADR | 2.86% | |||
Pfizer, Inc. | 2.47% | |||
Total | 33.03% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 873.20 | $4.46 | 0.96% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.03 | $4.81 | 0.96% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS – GUARDIAN GROWTH & INCOME VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 96.8% | ||||||||
Aerospace & Defense – 6.1% | ||||||||
Curtiss-Wright Corp. | 8,284 | $ | 1,093,985 | |||||
Hexcel Corp. | 14,083 | 736,682 | ||||||
Raytheon Technologies Corp. | 48,881 | 4,697,953 | ||||||
Textron, Inc. | 37,375 | 2,282,491 | ||||||
|
| |||||||
8,811,111 | ||||||||
Air Freight & Logistics – 1.2% | ||||||||
Expeditors International of Washington, Inc. | 10,684 | 1,041,263 | ||||||
FedEx Corp. | 3,159 | 716,177 | ||||||
|
| |||||||
1,757,440 | ||||||||
Airlines – 0.8% | ||||||||
Alaska Air Group, Inc.(1) | 29,793 | 1,193,210 | ||||||
|
| |||||||
1,193,210 | ||||||||
Auto Components – 1.1% | ||||||||
BorgWarner, Inc. | 46,570 | 1,554,041 | ||||||
|
| |||||||
1,554,041 | ||||||||
Banks – 5.4% | ||||||||
JPMorgan Chase & Co. | 25,664 | 2,890,023 | ||||||
Wells Fargo & Co. | 126,094 | 4,939,102 | ||||||
|
| |||||||
7,829,125 | ||||||||
Biotechnology – 4.5% | ||||||||
Amgen, Inc. | 18,087 | 4,400,567 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 3,551 | 2,099,103 | ||||||
|
| |||||||
6,499,670 | ||||||||
Building Products – 0.4% | ||||||||
Builders FirstSource, Inc.(1) | 10,107 | 542,746 | ||||||
|
| |||||||
542,746 | ||||||||
Capital Markets – 3.8% | ||||||||
Goldman Sachs Group, Inc. | 11,110 | 3,299,892 | ||||||
Northern Trust Corp. | 23,285 | 2,246,537 | ||||||
|
| |||||||
5,546,429 | ||||||||
Chemicals – 0.4% | ||||||||
Mosaic Co. | 13,675 | 645,870 | ||||||
|
| |||||||
645,870 | ||||||||
Communications Equipment – 2.3% | ||||||||
Ciena Corp.(1) | 22,558 | 1,030,901 | ||||||
Cisco Systems, Inc. | 54,935 | 2,342,428 | ||||||
|
| |||||||
3,373,329 | ||||||||
Construction & Engineering – 1.0% | ||||||||
EMCOR Group, Inc. | 14,479 | 1,490,758 | ||||||
|
| |||||||
1,490,758 | ||||||||
Consumer Finance – 0.7% | ||||||||
Capital One Financial Corp. | 9,940 | 1,035,649 | ||||||
|
| |||||||
1,035,649 | ||||||||
Distributors – 1.9% | ||||||||
LKQ Corp. | 56,214 | 2,759,545 | ||||||
|
| |||||||
2,759,545 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Diversified Financial Services – 3.5% | ||||||||
Berkshire Hathaway, Inc., Class B(1) | 18,709 | $ | 5,107,931 | |||||
|
| |||||||
5,107,931 | ||||||||
Diversified Telecommunication Services – 3.5% |
| |||||||
Verizon Communications, Inc. | 99,686 | 5,059,064 | ||||||
|
| |||||||
5,059,064 | ||||||||
Electric Utilities – 0.7% | ||||||||
IDACORP, Inc. | 10,343 | 1,095,531 | ||||||
|
| |||||||
1,095,531 | ||||||||
Electrical Equipment – 2.4% | ||||||||
Acuity Brands, Inc. | 4,644 | 715,362 | ||||||
Emerson Electric Co. | 34,155 | 2,716,688 | ||||||
|
| |||||||
3,432,050 | ||||||||
Electronic Equipment, Instruments & Components – 1.6% |
| |||||||
IPG Photonics Corp.(1) | 4,538 | 427,162 | ||||||
Keysight Technologies, Inc.(1) | 13,908 | 1,917,218 | ||||||
|
| |||||||
2,344,380 | ||||||||
Energy Equipment & Services – 0.6% | ||||||||
Helmerich & Payne, Inc. | 19,542 | 841,479 | ||||||
|
| |||||||
841,479 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 1.4% |
| |||||||
Weyerhaeuser Co. | 59,510 | 1,970,971 | ||||||
|
| |||||||
1,970,971 | ||||||||
Food & Staples Retailing – 2.0% | ||||||||
Walmart, Inc. | 23,875 | 2,902,723 | ||||||
|
| |||||||
2,902,723 | ||||||||
Health Care Providers & Services – 7.1% |
| |||||||
Cigna Corp. | 13,334 | 3,513,776 | ||||||
Elevance Health, Inc. | 11,338 | 5,471,492 | ||||||
Quest Diagnostics, Inc. | 9,670 | 1,285,916 | ||||||
|
| |||||||
10,271,184 | ||||||||
Household Durables – 1.8% | ||||||||
D.R. Horton, Inc. | 40,017 | 2,648,725 | ||||||
|
| |||||||
2,648,725 | ||||||||
Insurance – 2.8% | ||||||||
Aflac, Inc. | 20,706 | 1,145,663 | ||||||
Allstate Corp. | 23,040 | 2,919,859 | ||||||
|
| |||||||
4,065,522 | ||||||||
IT Services – 4.7% | ||||||||
Cognizant Technology Solutions Corp., Class A | 37,408 | 2,524,666 | ||||||
FleetCor Technologies, Inc.(1) | 12,810 | 2,691,509 | ||||||
Mastercard, Inc., Class A | 3,185 | 1,004,804 | ||||||
Maximus, Inc. | 9,772 | 610,848 | ||||||
|
| |||||||
6,831,827 | ||||||||
Life Sciences Tools & Services – 2.4% |
| |||||||
Bio-Rad Laboratories, Inc., Class A(1) | 2,971 | 1,470,645 | ||||||
PerkinElmer, Inc. | 13,842 | 1,968,609 | ||||||
|
| |||||||
3,439,254 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS – GUARDIAN GROWTH & INCOME VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Machinery – 1.8% | ||||||||
Altra Industrial Motion Corp. | 12,860 | $ | 453,315 | |||||
Middleby Corp.(1) | 5,906 | 740,376 | ||||||
Westinghouse Air Brake Technologies Corp. | 16,999 | 1,395,278 | ||||||
|
| |||||||
2,588,969 | ||||||||
Media – 3.5% | ||||||||
Comcast Corp., Class A | 128,766 | 5,052,778 | ||||||
|
| |||||||
5,052,778 | ||||||||
Metals & Mining – 1.5% | ||||||||
BHP Group Ltd., ADR | 25,425 | 1,428,377 | ||||||
Steel Dynamics, Inc. | 11,934 | 789,434 | ||||||
|
| |||||||
2,217,811 | ||||||||
Multiline Retail – 1.7% | ||||||||
Target Corp. | 17,341 | 2,449,069 | ||||||
|
| |||||||
2,449,069 | ||||||||
Oil, Gas & Consumable Fuels – 5.1% |
| |||||||
Chevron Corp. | 13,085 | 1,894,446 | ||||||
ConocoPhillips | 24,296 | 2,182,024 | ||||||
EOG Resources, Inc. | 18,421 | 2,034,415 | ||||||
Phillips 66 | 13,736 | 1,126,215 | ||||||
Woodside Energy Group Ltd., ADR | 7,761 | 167,327 | ||||||
|
| |||||||
7,404,427 | ||||||||
Pharmaceuticals – 5.3% | ||||||||
Pfizer, Inc. | 68,331 | 3,582,594 | ||||||
Roche Holding AG, ADR | 99,552 | 4,152,314 | ||||||
|
| |||||||
7,734,908 | ||||||||
Professional Services – 1.3% | ||||||||
Robert Half International, Inc. | 24,832 | 1,859,668 | ||||||
|
| |||||||
1,859,668 | ||||||||
Real Estate Management & Development – 2.1% |
| |||||||
CBRE Group, Inc., Class A(1) | 42,137 | 3,101,705 | ||||||
|
| |||||||
3,101,705 | ||||||||
Road & Rail – 1.5% | ||||||||
Knight-Swift Transportation Holdings, Inc. | 47,754 | 2,210,533 | ||||||
|
| |||||||
2,210,533 | ||||||||
Semiconductors & Semiconductor Equipment – 0.6% |
| |||||||
MKS Instruments, Inc. | 8,781 | 901,194 | ||||||
|
| |||||||
901,194 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Specialty Retail – 3.7% | ||||||||
AutoZone, Inc.(1) | 997 | $ | 2,142,673 | |||||
Lowe’s Cos., Inc. | 6,226 | 1,087,495 | ||||||
Murphy USA, Inc. | 3,688 | 858,824 | ||||||
Ulta Beauty, Inc.(1) | 3,231 | 1,245,486 | ||||||
|
| |||||||
5,334,478 | ||||||||
Textiles, Apparel & Luxury Goods – 0.4% |
| |||||||
Deckers Outdoor Corp.(1) | 2,021 | 516,062 | ||||||
|
| |||||||
516,062 | ||||||||
Tobacco – 3.8% | ||||||||
Philip Morris International, Inc. | 55,738 | 5,503,570 | ||||||
|
| |||||||
5,503,570 | ||||||||
Trading Companies & Distributors – 0.4% |
| |||||||
MSC Industrial Direct Co., Inc., Class A | 8,154 | 612,447 | ||||||
|
| |||||||
612,447 | ||||||||
Total Common Stocks (Cost $120,334,631) | 140,537,183 | |||||||
Principal Amount | Value | |||||||
Short–Term Investments – 3.0% |
| |||||||
Repurchase Agreements – 3.0% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $4,322,840, due 7/1/2022(2) | $ | 4,322,811 | 4,322,811 | |||||
Total Repurchase Agreements (Cost $4,322,811) |
| 4,322,811 | ||||||
Total Investments – 99.8% (Cost $124,657,442) |
| 144,859,994 | ||||||
Assets in excess of other liabilities – 0.2% |
| 359,416 | ||||||
Total Net Assets – 100.0% |
| $ | 145,219,410 |
(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 | 3.00% | 6/30/2024 | $ | 4,414,100 | $ | 4,409,271 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 140,537,183 | $ | — | $ | — | $ | 140,537,183 | ||||||||
Repurchase Agreements | — | 4,322,811 | — | 4,322,811 | ||||||||||||
Total | $ | 140,537,183 | $ | 4,322,811 | $ | — | $ | 144,859,994 |
4 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN GROWTH & INCOME VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,952,398 | ||
Interest | 929 | |||
Withholding taxes on foreign dividends | 12,272 | |||
|
| |||
Total Investment Income | 1,965,599 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 539,536 | |||
Distribution fees | 214,476 | |||
Professional fees | 25,112 | |||
Trustees’ and officers’ fees | 19,900 | |||
Custodian and accounting fees | 18,451 | |||
Administrative fees | 14,263 | |||
Transfer agent fees | 7,754 | |||
Shareholder reports | 5,105 | |||
Other expenses | 4,688 | |||
|
| |||
Total Expenses | 849,285 | |||
Less: Fees waived | (25,699 | ) | ||
|
| |||
Total Expenses, Net | 823,586 | |||
|
| |||
Net Investment Income/(Loss) | 1,142,013 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 8,522,899 | |||
Net change in unrealized appreciation/(depreciation) on investments | (31,777,379 | ) | ||
|
| |||
Net Loss on Investments | (23,254,480 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (22,112,467 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN GROWTH & INCOME VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
This Page Intentionally Left Blank
7 |
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.
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 6/30/22 | $ | 19.17 | $ | 0.12 | $ | (2.55 | ) | $ | (2.43 | ) | $ | 16.74 | (12.68)% | (4) | ||||||||||
Year Ended 12/31/21 | 14.95 | 0.14 | 4.08 | 4.22 | 19.17 | 28.23% | ||||||||||||||||||
Year Ended 12/31/20 | 14.64 | 0.15 | 0.16 | 0.31 | 14.95 | 2.12% | ||||||||||||||||||
Year Ended 12/31/19 | 11.81 | 0.14 | 2.69 | 2.83 | 14.64 | 23.96% | ||||||||||||||||||
Year Ended 12/31/18 | 12.85 | 0.12 | (1.16 | ) | (1.04 | ) | 11.81 | (8.09)% | ||||||||||||||||
Year Ended 12/31/17 | 10.70 | 0.09 | 2.06 | 2.15 | 12.85 | 20.09% |
8 | The accompanying notes are an integral part of these financial statements. |
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 Investment Income/ (Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 145,219 | 0.96% | (4) | 0.99% | (4) | 1.33% | (4) | 1.30% | (4) | 16% | (4) | |||||||||||
193,598 | 0.97% | 0.98% | 0.82% | 0.81% | 26% | |||||||||||||||||
198,155 | 1.01% | 1.03% | 1.17% | 1.15% | 36% | |||||||||||||||||
187,172 | 1.01% | 1.04% | 1.01% | 0.98% | 36% | |||||||||||||||||
164,861 | 1.01% | 1.08% | 0.94% | 0.87% | 58% | |||||||||||||||||
10,542 | 0.98% | 2.04% | 0.81% | (0.25)% | 85% |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations, and recoupments, if any. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Growth & Income VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks long-term growth of capital.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
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, 2022, 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, 2022 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, 2022, 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, 2022, 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 |
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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $25,699.
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.
12 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $214,476 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 $25,985,032 and $49,044,269, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank
13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN GROWTH & INCOME VIP FUND
Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting
supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
14 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
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.
15 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and
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SUPPLEMENTAL INFORMATION (UNAUDITED)
evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s
role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board
concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this
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SUPPLEMENTAL INFORMATION (UNAUDITED)
regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a
Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception |
period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at
http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8169
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian All Cap Core VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian All Cap Core VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 7 | |||
Statement of Operations | 7 | |||
Statements of Changes in Net Assets | 8 | |||
Financial Highlights | 10 | |||
Notes to Financial Statements | 12 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 17 | |||
Recent Rulemaking | 18 | |||
Approval of Investment Management and Sub-advisory Agreements | 19 | |||
Portfolio Holdings and Proxy Voting Procedures | 25 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN ALL CAP CORE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $163,801,675 |
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Apple, Inc. | 6.04% | |||
Microsoft Corp. | 5.86% | |||
Alphabet, Inc., Class A | 3.90% | |||
Amazon.com, Inc. | 2.84% | |||
Exxon Mobil Corp. | 1.80% | |||
Johnson & Johnson | 1.70% | |||
Visa, Inc., Class A | 1.66% | |||
Merck & Co., Inc. | 1.54% | |||
JPMorgan Chase & Co. | 1.38% | |||
Cigna Corp. | 1.38% | |||
Total | 28.10% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 807.00 | $3.49 | 0.78% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.93 | $3.91 | 0.78% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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SCHEDULE OF INVESTMENTS — GUARDIAN ALL CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.2% | ||||||||
Aerospace & Defense – 2.0% | ||||||||
Curtiss-Wright Corp. | 2,406 | $ | 317,736 | |||||
General Dynamics Corp. | 1,748 | 386,745 | ||||||
Howmet Aerospace, Inc. | 16,312 | 513,012 | ||||||
L3Harris Technologies, Inc. | 1,051 | 254,027 | ||||||
Northrop Grumman Corp. | 1,098 | 525,470 | ||||||
Parsons Corp.(1) | 2,272 | 91,834 | ||||||
Raytheon Technologies Corp. | 12,307 | 1,182,826 | ||||||
|
| |||||||
3,271,650 | ||||||||
Auto Components – 0.6% | ||||||||
Aptiv PLC(1) | 7,490 | 667,134 | ||||||
Magna International, Inc. | 4,438 | 243,646 | ||||||
|
| |||||||
910,780 | ||||||||
Banks – 4.1% | ||||||||
Bank OZK | 3,906 | 146,592 | ||||||
First Interstate BancSystem, Inc., Class A | 12,073 | 460,102 | ||||||
JPMorgan Chase & Co. | 20,108 | 2,264,362 | ||||||
PNC Financial Services Group, Inc. | 8,649 | 1,364,553 | ||||||
Truist Financial Corp. | 38,255 | 1,814,435 | ||||||
United Community Banks, Inc. | 12,166 | 367,291 | ||||||
Wells Fargo & Co. | 7,694 | 301,374 | ||||||
|
| |||||||
6,718,709 | ||||||||
Beverages – 1.7% | ||||||||
Coca-Cola Co. | 5,011 | 315,242 | ||||||
Coca-Cola Europacific Partners PLC | 6,754 | 348,574 | ||||||
Constellation Brands, Inc., Class A | 2,241 | 522,288 | ||||||
PepsiCo, Inc. | 9,864 | 1,643,934 | ||||||
|
| |||||||
2,830,038 | ||||||||
Biotechnology – 1.4% | ||||||||
Biogen, Inc.(1) | 1,334 | 272,056 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 7,179 | 2,022,970 | ||||||
|
| |||||||
2,295,026 | ||||||||
Building Products – 0.8% | ||||||||
AZEK Co., Inc.(1) | 15,004 | 251,167 | ||||||
�� | ||||||||
Johnson Controls International PLC | 12,714 | 608,746 | ||||||
Masco Corp. | 8,821 | 446,343 | ||||||
|
| |||||||
1,306,256 | ||||||||
Capital Markets – 3.1% | ||||||||
Charles Schwab Corp. | 12,697 | 802,197 | ||||||
CME Group, Inc. | 3,462 | 708,671 | ||||||
Invesco Ltd. | 17,290 | 278,888 | ||||||
KKR & Co., Inc. | 6,200 | 286,998 | ||||||
Moody’s Corp. | 2,625 | 713,921 | ||||||
Morgan Stanley | 14,774 | 1,123,710 | ||||||
Northern Trust Corp. | 2,723 | 262,715 | ||||||
Raymond James Financial, Inc. | 9,433 | 843,405 | ||||||
|
| |||||||
5,020,505 | ||||||||
Chemicals – 2.4% | ||||||||
Air Products and Chemicals, Inc. | 1,800 | 432,864 | ||||||
Ashland Global Holdings, Inc. | 5,052 | 520,609 | ||||||
June 30, 2022 (unaudited) | Shares | Value | ||||||
Chemicals (continued) | ||||||||
Avient Corp. | 8,271 | $ | 331,502 | |||||
Axalta Coating Systems Ltd.(1) | 14,668 | 324,309 | ||||||
Chemours Co. | 4,067 | 130,225 | ||||||
Diversey Holdings Ltd.(1) | 49,993 | 329,954 | ||||||
DuPont de Nemours, Inc. | 7,057 | 392,228 | ||||||
Element Solutions, Inc. | 26,353 | 469,083 | ||||||
FMC Corp. | 2,405 | 257,359 | ||||||
International Flavors & Fragrances, Inc. | 2,191 | 260,992 | ||||||
Sherwin-Williams Co. | 1,765 | 395,201 | ||||||
|
| |||||||
3,844,326 | ||||||||
Commercial Services & Supplies – 0.4% |
| |||||||
GFL Environmental, Inc. | 25,060 | 646,548 | ||||||
|
| |||||||
646,548 | ||||||||
Construction & Engineering – 0.2% |
| |||||||
API Group Corp.(1) | 18,155 | 271,780 | ||||||
|
| |||||||
271,780 | ||||||||
Construction Materials – 0.2% |
| |||||||
Vulcan Materials Co. | 2,477 | 351,982 | ||||||
|
| |||||||
351,982 | ||||||||
Consumer Finance – 0.3% |
| |||||||
SLM Corp. | 26,704 | 425,662 | ||||||
|
| |||||||
425,662 | ||||||||
Containers & Packaging – 0.3% |
| |||||||
Ball Corp. | 5,858 | 402,855 | ||||||
|
| |||||||
402,855 | ||||||||
Distributors – 0.7% |
| |||||||
LKQ Corp. | 23,617 | 1,159,359 | ||||||
|
| |||||||
1,159,359 | ||||||||
Diversified Consumer Services – 0.3% |
| |||||||
Bright Horizons Family Solutions, Inc.(1) | 3,872 | 327,261 | ||||||
Grand Canyon Education, Inc.(1) | 2,208 | 207,972 | ||||||
|
| |||||||
535,233 | ||||||||
Diversified Financial Services – 0.2% |
| |||||||
Voya Financial, Inc. | 5,616 | 334,320 | ||||||
|
| |||||||
334,320 | ||||||||
Electric Utilities – 2.5% |
| |||||||
American Electric Power Co., Inc. | 3,142 | 301,443 | ||||||
Constellation Energy Corp. | 3,061 | 175,273 | ||||||
Duke Energy Corp. | 4,274 | 458,215 | ||||||
Evergy, Inc. | 5,260 | 343,215 | ||||||
Exelon Corp. | 9,184 | 416,219 | ||||||
NextEra Energy, Inc. | 13,184 | 1,021,233 | ||||||
PG&E Corp.(1) | 37,921 | 378,452 | ||||||
PPL Corp. | 6,775 | 183,806 | ||||||
Southern Co. | 5,693 | 405,968 | ||||||
Xcel Energy, Inc. | 4,929 | 348,776 | ||||||
|
| |||||||
4,032,600 | ||||||||
Electrical Equipment – 1.8% |
| |||||||
AMETEK, Inc. | 4,480 | 492,307 | ||||||
Eaton Corp. PLC | 7,196 | 906,624 | ||||||
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN ALL CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Electrical Equipment (continued) |
| |||||||
Generac Holdings, Inc.(1) | 1,041 | $ | 219,214 | |||||
nVent Electric PLC | 5,448 | 170,686 | ||||||
Regal Rexnord Corp. | 3,128 | 355,091 | ||||||
Sensata Technologies Holding PLC | 17,821 | 736,185 | ||||||
|
| |||||||
2,880,107 | ||||||||
Electronic Equipment, Instruments & Components – 0.5% |
| |||||||
Amphenol Corp., Class A | 2,595 | 167,066 | ||||||
TE Connectivity Ltd. | 1,554 | 175,835 | ||||||
Zebra Technologies Corp., Class A(1) | 1,400 | 411,530 | ||||||
|
| |||||||
754,431 | ||||||||
Energy Equipment & Services – 0.5% |
| |||||||
Cactus, Inc., Class A | 7,206 | 290,186 | ||||||
Schlumberger NV | 14,891 | 532,502 | ||||||
|
| |||||||
822,688 | ||||||||
Entertainment – 1.6% |
| |||||||
Electronic Arts, Inc. | 6,316 | 768,341 | ||||||
ROBLOX Corp., Class A(1) | 4,696 | 154,311 | ||||||
Take-Two Interactive Software, Inc.(1) | 1,948 | 238,688 | ||||||
Walt Disney Co.(1) | 10,665 | 1,006,776 | ||||||
Warner Bros Discovery, Inc.(1) | 25,996 | 348,866 | ||||||
Warner Music Group Corp., Class A | 4,680 | 114,005 | ||||||
|
| |||||||
2,630,987 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 3.4% |
| |||||||
AvalonBay Communities, Inc. | 3,149 | 611,693 | ||||||
Broadstone Net Lease, Inc. | 21,760 | 446,298 | ||||||
Empire State Realty Trust, Inc., Class A | 43,133 | 303,225 | ||||||
Equinix, Inc. | 1,256 | 825,217 | ||||||
Extra Space Storage, Inc. | 2,581 | 439,080 | ||||||
Innovative Industrial Properties, Inc. | 1,981 | 217,652 | ||||||
Rayonier, Inc. | 20,550 | 768,159 | ||||||
SBA Communications Corp. | 2,961 | 947,668 | ||||||
STORE Capital Corp. | 27,219 | 709,872 | ||||||
Sun Communities, Inc. | 1,828 | 291,310 | ||||||
|
| |||||||
5,560,174 | ||||||||
Food Products – 1.2% |
| |||||||
Archer-Daniels-Midland Co. | 6,291 | 488,181 | ||||||
J.M. Smucker Co. | 2,060 | 263,701 | ||||||
Mondelez International, Inc., Class A | 17,679 | 1,097,689 | ||||||
Oatly Group AB, ADR(1) | 48,293 | 167,094 | ||||||
|
| |||||||
2,016,665 | ||||||||
Health Care Equipment & Supplies – 3.8% |
| |||||||
Align Technology, Inc.(1) | 630 | 149,102 | ||||||
Becton Dickinson and Co. | 5,788 | 1,426,916 | ||||||
Boston Scientific Corp.(1) | 39,314 | 1,465,233 | ||||||
Envista Holdings Corp.(1) | 10,140 | 390,796 | ||||||
IDEXX Laboratories, Inc.(1) | 587 | 205,878 | ||||||
Medtronic PLC | 15,835 | 1,421,191 | ||||||
QuidelOrtho Corp.(1) | 7,078 | 687,840 | ||||||
STERIS PLC | 2,659 | 548,153 | ||||||
|
| |||||||
6,295,109 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Health Care Providers & Services – 2.8% |
| |||||||
Cigna Corp. | 8,572 | $ | 2,258,893 | |||||
Humana, Inc. | 2,333 | 1,092,007 | ||||||
McKesson Corp. | 3,870 | 1,262,433 | ||||||
|
| |||||||
4,613,333 | ||||||||
Hotels, Restaurants & Leisure – 2.0% |
| |||||||
Booking Holdings, Inc.(1) | 213 | 372,535 | ||||||
International Game Technology PLC | 14,055 | 260,861 | ||||||
Las Vegas Sands Corp.(1) | 2,533 | 85,083 | ||||||
Marriott International, Inc., Class A | 2,981 | 405,446 | ||||||
Starbucks Corp. | 17,854 | 1,363,867 | ||||||
Wendy’s Co. | 38,509 | 727,050 | ||||||
|
| |||||||
3,214,842 | ||||||||
Household Products – 1.3% | ||||||||
Colgate-Palmolive Co. | 9,491 | 760,609 | ||||||
Kimberly-Clark Corp. | 4,477 | 605,067 | ||||||
Procter & Gamble Co. | 5,713 | 821,472 | ||||||
|
| |||||||
2,187,148 | ||||||||
Industrial Conglomerates – 0.6% |
| |||||||
Honeywell International, Inc. | 5,391 | 937,010 | ||||||
|
| |||||||
937,010 | ||||||||
Insurance – 3.6% |
| |||||||
Aon PLC, Class A | 5,482 | 1,478,386 | ||||||
Arthur J Gallagher & Co. | 5,590 | 911,393 | ||||||
Chubb Ltd. | 5,733 | 1,126,993 | ||||||
Hartford Financial Services Group, Inc. | 7,927 | 518,664 | ||||||
MetLife, Inc. | 7,634 | 479,339 | ||||||
Primerica, Inc. | 3,510 | 420,112 | ||||||
Reinsurance Group of America, Inc. | 3,518 | 412,626 | ||||||
Willis Towers Watson PLC | 2,782 | 549,139 | ||||||
|
| |||||||
5,896,652 | ||||||||
Interactive Media & Services – 3.9% |
| |||||||
Alphabet, Inc., Class A(1) | 2,932 | 6,389,590 | ||||||
|
| |||||||
6,389,590 | ||||||||
Internet & Direct Marketing Retail – 2.9% |
| |||||||
Amazon.com, Inc.(1) | 43,813 | 4,653,379 | ||||||
Vivid Seats, Inc., Class A | 14,854 | 110,959 | ||||||
|
| |||||||
4,764,338 | ||||||||
IT Services – 4.4% |
| |||||||
Accenture PLC, Class A | 5,274 | 1,464,326 | ||||||
Amdocs Ltd. | 6,537 | 544,598 | ||||||
Block, Inc.(1) | 3,679 | 226,111 | ||||||
Fidelity National Information Services, Inc. | 7,260 | 665,524 | ||||||
Fiserv, Inc.(1) | 7,561 | 672,702 | ||||||
Global Payments, Inc. | 4,640 | 513,370 | ||||||
PayPal Holdings, Inc.(1) | 2,854 | 199,323 | ||||||
Thoughtworks Holding, Inc.(1) | 19,888 | 280,620 | ||||||
Visa, Inc., Class A | 13,793 | 2,715,704 | ||||||
|
| |||||||
7,282,278 |
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN ALL CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Life Sciences Tools & Services – 1.9% |
| |||||||
ICON PLC(1) | 4,136 | $ | 896,271 | |||||
Illumina, Inc.(1) | 983 | 181,226 | ||||||
Maravai LifeSciences Holdings, Inc., Class A(1) | 46,483 | 1,320,582 | ||||||
Oxford Nanopore Technologies PLC (United Kingdom)(1) | 23,748 | 80,171 | ||||||
Syneos Health, Inc.(1) | 6,397 | 458,537 | ||||||
Thermo Fisher Scientific, Inc. | 191 | 103,767 | ||||||
|
| |||||||
3,040,554 | ||||||||
Machinery – 1.7% | ||||||||
Dover Corp. | 3,899 | 473,027 | ||||||
Ingersoll Rand, Inc. | 21,754 | 915,408 | ||||||
Otis Worldwide Corp. | 4,046 | 285,931 | ||||||
PACCAR, Inc. | 8,128 | 669,259 | ||||||
Westinghouse Air Brake Technologies Corp. | 5,827 | 478,280 | ||||||
|
| |||||||
2,821,905 | ||||||||
Media – 0.7% | ||||||||
Altice USA, Inc., Class A(1) | 25,894 | 239,519 | ||||||
Cable One, Inc. | 97 | 125,064 | ||||||
Liberty Broadband Corp., Class C(1) | 7,228 | 835,846 | ||||||
|
| |||||||
1,200,429 | ||||||||
Multi-Utilities – 0.5% |
| |||||||
CenterPoint Energy, Inc. | 20,874 | 617,453 | ||||||
Dominion Energy, Inc. | 3,370 | 268,960 | ||||||
|
| |||||||
886,413 | ||||||||
Multiline Retail – 1.8% |
| |||||||
Dollar General Corp. | 5,143 | 1,262,298 | ||||||
Dollar Tree, Inc.(1) | 6,565 | 1,023,155 | ||||||
Target Corp. | 4,782 | 675,362 | ||||||
|
| |||||||
2,960,815 | ||||||||
Oil, Gas & Consumable Fuels – 3.7% |
| |||||||
Cheniere Energy, Inc. | 2,647 | 352,130 | ||||||
ConocoPhillips | 10,303 | 925,313 | ||||||
Diamondback Energy, Inc. | 4,021 | 487,144 | ||||||
Enterprise Products Partners LP | 13,762 | 335,380 | ||||||
Exxon Mobil Corp. | 34,419 | 2,947,643 | ||||||
Hess Corp. | 5,536 | 586,484 | ||||||
Valero Energy Corp. | 4,279 | 454,772 | ||||||
|
| |||||||
6,088,866 | ||||||||
Pharmaceuticals – 5.7% |
| |||||||
Eli Lilly and Co. | 6,181 | 2,004,066 | ||||||
Johnson & Johnson | 15,681 | 2,783,534 | ||||||
Merck & Co., Inc. | 27,757 | 2,530,606 | ||||||
Organon & Co. | 20,574 | 694,372 | ||||||
Zoetis, Inc. | 7,943 | 1,365,322 | ||||||
|
| |||||||
9,377,900 | ||||||||
Professional Services – 0.7% |
| |||||||
CACI International, Inc., Class A(1) | 706 | 198,936 | ||||||
Clarivate PLC(1) | 54,487 | 755,190 | ||||||
Leidos Holdings, Inc. | 2,149 | 216,426 | ||||||
|
| |||||||
1,170,552 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Road & Rail – 1.1% |
| |||||||
Canadian Pacific Railway Ltd. | 15,265 | $ | 1,066,108 | |||||
CSX Corp. | 19,274 | 560,102 | ||||||
Saia, Inc.(1) | 864 | 162,432 | ||||||
|
| |||||||
1,788,642 | ||||||||
Semiconductors & Semiconductor Equipment – 4.7% |
| |||||||
Advanced Micro Devices, Inc.(1) | 11,931 | 912,363 | ||||||
Analog Devices, Inc. | 5,396 | 788,302 | ||||||
Applied Materials, Inc. | 9,520 | 866,130 | ||||||
Broadcom, Inc. | 3,087 | 1,499,695 | ||||||
Enphase Energy, Inc.(1) | 667 | 130,225 | ||||||
Intel Corp. | 11,657 | 436,088 | ||||||
Lam Research Corp. | 1,725 | 735,109 | ||||||
Monolithic Power Systems, Inc. | 1,046 | 401,706 | ||||||
NXP Semiconductors NV | 6,098 | 902,687 | ||||||
Texas Instruments, Inc. | 6,458 | 992,272 | ||||||
|
| |||||||
7,664,577 | ||||||||
Software – 11.2% |
| |||||||
Adobe, Inc.(1) | 4,556 | 1,667,770 | ||||||
Atlassian Corp. PLC, Class A(1) | 4,133 | 774,524 | ||||||
Avalara, Inc.(1) | 3,757 | 265,244 | ||||||
Black Knight, Inc.(1) | 4,934 | 322,634 | ||||||
Cadence Design Systems, Inc.(1) | 9,702 | 1,455,591 | ||||||
Elastic NV(1) | 2,118 | 143,325 | ||||||
Microsoft Corp. | 37,353 | 9,593,371 | ||||||
Nice Ltd., ADR(1) | 2,753 | 529,815 | ||||||
Ping Identity Holding Corp.(1) | 8,731 | 158,380 | ||||||
Rapid7, Inc.(1) | 5,160 | 344,688 | ||||||
Roper Technologies, Inc. | 807 | 318,483 | ||||||
Salesforce, Inc.(1) | 8,570 | 1,414,393 | ||||||
ServiceNow, Inc.(1) | 2,900 | 1,379,008 | ||||||
|
| |||||||
18,367,226 | ||||||||
Specialty Retail – 1.8% |
| |||||||
Home Depot, Inc. | 6,975 | 1,913,033 | ||||||
Ross Stores, Inc. | 13,562 | 952,459 | ||||||
|
| |||||||
2,865,492 | ||||||||
Technology Hardware, Storage & Peripherals – 6.0% |
| |||||||
Apple, Inc. | 72,378 | 9,895,520 | ||||||
|
| |||||||
9,895,520 | ||||||||
Textiles, Apparel & Luxury Goods – 0.4% |
| |||||||
NIKE, Inc., Class B | 3,464 | 354,021 | ||||||
Skechers USA, Inc., Class A(1) | 9,905 | 352,420 | ||||||
|
| |||||||
706,441 | ||||||||
Tobacco – 0.5% |
| |||||||
Philip Morris International, Inc. | 8,586 | 847,782 | ||||||
|
| |||||||
847,782 | ||||||||
Wireless Telecommunication Services – 1.3% |
| |||||||
T-Mobile US, Inc.(1) | 16,027 | 2,156,273 | ||||||
|
| |||||||
2,156,273 | ||||||||
Total Common Stocks (Cost $177,082,294) |
| 162,442,368 | ||||||
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS — GUARDIAN ALL CAP CORE VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 0.8% |
| |||||||
Repurchase Agreements – 0.8% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $1,345,647, due 7/1/2022(2) | $ | 1,345,638 | $ | 1,345,638 | ||||
Total Repurchase Agreements (Cost $1,345,638) |
| 1,345,638 | ||||||
Total Investments – 100.0% (Cost $178,427,932) |
| 163,788,006 | ||||||
Assets in excess of other liabilities – 0.0% |
| 13,669 | ||||||
Total Net Assets – 100.0% |
| $ | 163,801,675 |
(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 | 3.00% | 6/30/2024 | $ | 1,374,100 | $ | 1,372,597 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 162,362,197 | $ | 80,171 | * | $ | — | $ | 162,442,368 | |||||||
Repurchase Agreements | — | 1,345,638 | — | 1,345,638 | ||||||||||||
Total | $ | 162,362,197 | $ | 1,425,809 | $ | — | $ | 163,788,006 |
* | 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. |
FINANCIAL INFORMATION — GUARDIAN ALL CAP CORE VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 616,930 | ||
Interest | 188 | |||
Withholding taxes on foreign dividends | (1,673 | ) | ||
|
| |||
Total Investment Income | 615,445 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 163,967 | |||
Distribution fees | 93,163 | |||
Custodian and accounting fees | 19,936 | |||
Professional fees | 17,494 | |||
Transfer agent fees | 5,662 | |||
Trustees’ and officers’ fees | 4,798 | |||
Shareholder reports | 4,252 | |||
Administrative fees | 4,088 | |||
Other expenses | 911 | |||
|
| |||
Total Expenses | 314,271 | |||
Less: Fees waived | (23,603 | ) | ||
|
| |||
Total Expenses, Net | 290,668 | |||
|
| |||
Net Investment Income/(Loss) | 324,777 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | (1,254,168 | ) | ||
Net realized gain/(loss) from foreign currency transactions | 193 | |||
Net change in unrealized appreciation/(depreciation) on investments | (15,397,651 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | 13 | |||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (16,651,613 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (16,326,836 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 7 |
FINANCIAL INFORMATION — GUARDIAN ALL CAP CORE VIP FUND
1 | Commenced operations on October 25, 2021. |
8 | The accompanying notes are an integral part of these financial statements. |
This Page Intentionally Left Blank
9 |
FINANCIAL INFORMATION — GUARDIAN ALL 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 6/30/22 | $ | 10.26 | $ | 0.04 | $ | (2.02 | ) | $ | (1.98 | ) | $ | 8.28 | (19.30)% | |||||||||||
Period Ended 12/31/21(5) | 10.00 | 0.01 | 0.25 | 0.26 | 10.26 | 2.60% |
10 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN ALL 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) | |||||||||||||||||
$ | 163,802 | 0.78% | 0.84% | 0.87% | 0.81% | 20% | ||||||||||||||||
31,370 | 0.38% | 1.14% | 1.06% | 0.30% | 7% |
(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. For the period ended December 31, 2021, 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 25, 2021. |
The accompanying notes are an integral part of these financial statements. | 11 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN ALL CAP CORE VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian All Cap Core VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 25, 2021. 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 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”). 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.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued in accordance with policies and procedures adopted by the Board of Trustees. In addition, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities. Certain foreign equity instruments are valued by applying international fair value factors provided by approved pricing services. The factors seek to adjust the local closing price for movements of local markets post closing, but prior to the time the NAVs are calculated. Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events and/or issuer related events after the report date and prior to issuance of the report are not reflected herein.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN ALL 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, 2022, 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, 2022 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, 2022, 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, 2022, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN ALL 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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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 0.44% of the first $500 million, and 0.40% 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, 2023 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 0.78% 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $23,603.
Park Avenue has entered into a Sub-Advisory Agreement with Massachusetts Financial Services Company (“MFS”). MFS is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustees. Sub-advisory fees are paid by Park Avenue and do not represent a separate or additional expense to the Fund.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN ALL CAP CORE VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted
by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $93,163 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 $161,719,322 and $13,744,758, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN ALL CAP CORE VIP FUND
(a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements.
The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers 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.
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the |
22 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that |
would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher |
23 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
PUB11407
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Balanced Allocation VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
TABLE OF CONTENTS
Guardian Balanced Allocation VIP Fund
1 | ||||
4 | ||||
Financial Information | ||||
Schedule of Investments | 5 | |||
Statement of Assets and Liabilities | 13 | |||
Statement of Operations | 13 | |||
Statement of Changes in Net Assets | 14 | |||
Financial Highlights | 16 | |||
Notes to Financial Statements | 18 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 26 | |||
Recent Rulemaking | 27 | |||
Approval of Investment Management and Sub-advisory Agreements | 28 | |||
Portfolio Holdings and Proxy Voting Procedures | 31 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN BALANCED ALLOCATION VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $224,446,538 |
Portfolio Composition1 As of June 30, 2022 |
1 |
GUARDIAN BALANCED ALLOCATION VIP FUND
Sector Allocation1 As of June 30, 2022 |
Equity Sector2,3 |
Bond Sector3 |
2 |
GUARDIAN BALANCED ALLOCATION VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 4.34% | |||
U.S. Treasury Note, 2.750% due 4/30/2027 | 4.25% | |||
Alphabet, Inc., Class A | 2.72% | |||
Amazon.com, Inc. | 2.63% | |||
U.S. Treasury Note, 2.625% due 4/15/2025 | 2.57% | |||
U.S. Treasury Note, 2.500% due 4/30/2024 | 2.53% | |||
U.S. Treasury Bond, 2.375% due 2/15/2042 | 2.17% | |||
Apple, Inc. | 2.00% | |||
Shell PLC, ADR | 1.80% | |||
Performance Food Group Co. | 1.37% | |||
Total | 26.38% |
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. |
3 | A sector may comprise several industries. |
3 |
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 May 2, 2022 (commencement of operations) to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return* | $1,000.00 | $ 942.00 | $1.31 | 0.82% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses)** | $1,000.00 | $1,020.73 | $4.11 | 0.82% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 60/365 (to reflect the period from May 2, 2022 (commencement of operations) through June 30, 2022). |
** | Expenses (hypothetical expenses if the Fund had been in existence from 1/1/2022) are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
4 |
SCHEDULE OF INVESTMENTS – GUARDIAN BALANCED ALLOCATION VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 64.4% |
| |||||||
Aerospace & Defense – 1.4% |
| |||||||
Boeing Co.(1) | 3,511 | $ | 480,024 | |||||
General Dynamics Corp. | 3,849 | 851,592 | ||||||
L3Harris Technologies, Inc. | 2,556 | 617,785 | ||||||
Raytheon Technologies Corp. | 13,284 | 1,276,725 | ||||||
|
| |||||||
3,226,126 | ||||||||
Air Freight & Logistics – 0.2% |
| |||||||
FedEx Corp. | 1,961 | 444,578 | ||||||
|
| |||||||
444,578 | ||||||||
Airlines – 0.2% |
| |||||||
JetBlue Airways Corp.(1) | 50,097 | 419,312 | ||||||
|
| |||||||
419,312 | ||||||||
Automobiles – 0.6% |
| |||||||
Ford Motor Co. | 21,865 | 243,358 | ||||||
Tesla, Inc.(1) | 1,672 | 1,125,958 | ||||||
|
| |||||||
1,369,316 | ||||||||
Banks – 0.5% |
| |||||||
PNC Financial Services Group, Inc. | 7,832 | 1,235,655 | ||||||
|
| |||||||
1,235,655 | ||||||||
Beverages – 1.2% |
| |||||||
Constellation Brands, Inc., Class A | 8,197 | 1,910,393 | ||||||
Monster Beverage Corp.(1) | 8,621 | 799,167 | ||||||
|
| |||||||
2,709,560 | ||||||||
Biotechnology – 1.1% |
| |||||||
Alnylam Pharmaceuticals, Inc.(1) | 484 | 70,591 | ||||||
Apellis Pharmaceuticals, Inc.(1) | 1,103 | 49,878 | ||||||
Ascendis Pharma A/S, ADR(1) | 928 | 86,267 | ||||||
Biogen, Inc.(1) | 1,063 | 216,788 | ||||||
Blueprint Medicines Corp.(1) | 607 | 30,660 | ||||||
Celldex Therapeutics, Inc.(1) | 1,063 | 28,658 | ||||||
Exact Sciences Corp.(1) | 1,493 | 58,809 | ||||||
Genmab A/S, ADR(1) | 2,701 | 87,756 | ||||||
Horizon Therapeutics PLC(1) | 1,066 | 85,024 | ||||||
Incyte Corp.(1) | 1,511 | 114,791 | ||||||
Kymera Therapeutics, Inc.(1) | 912 | 17,957 | ||||||
Mirati Therapeutics, Inc.(1) | 611 | 41,016 | ||||||
Moderna, Inc.(1) | 386 | 55,140 | ||||||
Myovant Sciences Ltd.(1) | 13,590 | 168,924 | ||||||
Neurocrine Biosciences, Inc.(1) | 576 | 56,148 | ||||||
PTC Therapeutics, Inc.(1) | 1,011 | 40,501 | ||||||
Regeneron Pharmaceuticals, Inc.(1) | 551 | 325,713 | ||||||
REVOLUTION Medicines, Inc.(1) | 1,830 | 35,667 | ||||||
Sarepta Therapeutics, Inc.(1) | 492 | 36,880 | ||||||
Seagen, Inc.(1) | 1,081 | 191,272 | ||||||
United Therapeutics Corp.(1) | 337 | 79,411 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 2,117 | 596,549 | ||||||
|
| |||||||
2,474,400 | ||||||||
Building Products – 0.5% |
| |||||||
Builders FirstSource, Inc.(1) | 7,921 | 425,358 | ||||||
Fortune Brands Home & Security, Inc. | 2,437 | 145,927 | ||||||
June 30, 2022 (unaudited) | Shares | Value | ||||||
Building Products (continued) | ||||||||
Johnson Controls International PLC | 10,968 | $ | 525,148 | |||||
|
| |||||||
1,096,433 | ||||||||
Capital Markets – 3.6% |
| |||||||
Ares Management Corp., Class A | 21,901 | 1,245,291 | ||||||
Charles Schwab Corp. | 31,438 | 1,986,253 | ||||||
CME Group, Inc. | 6,073 | 1,243,143 | ||||||
Morgan Stanley | 22,990 | 1,748,619 | ||||||
S&P Global, Inc. | 5,252 | 1,770,239 | ||||||
|
| |||||||
7,993,545 | ||||||||
Chemicals – 1.9% |
| |||||||
Cabot Corp. | 9,714 | 619,656 | ||||||
Celanese Corp. | 4,728 | 556,060 | ||||||
FMC Corp. | 7,127 | 762,661 | ||||||
Ingevity Corp.(1) | 3,823 | 241,384 | ||||||
Linde PLC | 3,908 | 1,123,667 | ||||||
Livent Corp.(1) | 9,492 | 215,374 | ||||||
PPG Industries, Inc. | 5,630 | 643,734 | ||||||
|
| |||||||
4,162,536 | ||||||||
Commercial Services & Supplies – 0.2% |
| |||||||
Aurora Innovation, Inc.(1) | 19,829 | 37,873 | ||||||
Clean Harbors, Inc.(1) | 1,295 | 113,533 | ||||||
Waste Connections, Inc. | 3,020 | 374,359 | ||||||
|
| |||||||
525,765 | ||||||||
Communications Equipment – 0.3% |
| |||||||
Arista Networks, Inc.(1) | 6,984 | 654,680 | ||||||
|
| |||||||
654,680 | ||||||||
Construction & Engineering – 0.1% |
| |||||||
Fluor Corp.(1) | 13,469 | 327,835 | ||||||
|
| |||||||
327,835 | ||||||||
Consumer Finance – 0.1% |
| |||||||
OneMain Holdings, Inc. | 5,666 | 211,795 | ||||||
|
| |||||||
211,795 | ||||||||
Containers & Packaging – 0.1% |
| |||||||
Ball Corp. | 3,631 | 249,704 | ||||||
|
| |||||||
249,704 | ||||||||
Diversified Financial Services – 0.5% |
| |||||||
Equitable Holdings, Inc. | 32,286 | 841,696 | ||||||
Voya Financial, Inc. | 3,606 | 214,665 | ||||||
|
| |||||||
1,056,361 | ||||||||
Diversified Telecommunication Services – 0.4% |
| |||||||
AT&T, Inc. | 38,971 | 816,832 | ||||||
|
| |||||||
816,832 | ||||||||
Electric Utilities – 2.3% |
| |||||||
Constellation Energy Corp. | 7,954 | 455,446 | ||||||
Duke Energy Corp. | 14,314 | 1,534,604 | ||||||
Edison International | 15,993 | 1,011,397 | ||||||
Exelon Corp. | 23,502 | 1,065,111 | ||||||
FirstEnergy Corp. | 29,658 | 1,138,571 | ||||||
|
| |||||||
5,205,129 |
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS – GUARDIAN BALANCED ALLOCATION VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Electrical Equipment – 0.1% |
| |||||||
Emerson Electric Co. | 1,608 | $ | 127,900 | |||||
|
| |||||||
127,900 | ||||||||
Energy Equipment & Services – 0.3% |
| |||||||
Schlumberger NV | 16,009 | 572,482 | ||||||
|
| |||||||
572,482 | ||||||||
Entertainment – 0.3% | ||||||||
Electronic Arts, Inc. | 1,620 | 197,073 | ||||||
Roku, Inc.(1) | 5,950 | 488,733 | ||||||
|
| |||||||
685,806 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 1.5% |
| |||||||
American Tower Corp. | 3,256 | 832,201 | ||||||
AvalonBay Communities, Inc. | 1,866 | 362,470 | ||||||
Rexford Industrial Realty, Inc. | 12,318 | 709,394 | ||||||
Ryman Hospitality Properties, Inc.(1) | 6,895 | 524,227 | ||||||
Welltower, Inc. | 10,569 | 870,357 | ||||||
|
| |||||||
3,298,649 | ||||||||
Food & Staples Retailing – 2.0% |
| |||||||
Performance Food Group Co.(1) | 66,948 | 3,078,269 | ||||||
Sysco Corp. | 16,856 | 1,427,872 | ||||||
|
| |||||||
4,506,141 | ||||||||
Food Products – 1.4% |
| |||||||
Hershey Co. | 4,630 | 996,191 | ||||||
Mondelez International, Inc., Class A | 32,876 | 2,041,271 | ||||||
|
| |||||||
3,037,462 | ||||||||
Health Care Equipment & Supplies – 1.9% |
| |||||||
Align Technology, Inc.(1) | 1,336 | 316,191 | ||||||
Baxter International, Inc. | 11,402 | 732,350 | ||||||
Boston Scientific Corp.(1) | 21,777 | 811,629 | ||||||
Dexcom, Inc.(1) | 2,568 | 191,393 | ||||||
Edwards Lifesciences Corp.(1) | 6,165 | 586,230 | ||||||
Inari Medical, Inc.(1) | 3,030 | 206,010 | ||||||
Insulet Corp.(1) | 1,451 | 316,231 | ||||||
Stryker Corp. | 4,008 | 797,311 | ||||||
Teleflex, Inc. | 1,640 | 403,194 | ||||||
|
| |||||||
4,360,539 | ||||||||
Health Care Providers & Services – 2.8% |
| |||||||
agilon health, Inc.(1) | 23,278 | 508,159 | ||||||
Centene Corp.(1) | 9,837 | 832,308 | ||||||
Elevance Health, Inc. | 2,019 | 974,329 | ||||||
HCA Healthcare, Inc. | 3,381 | 568,211 | ||||||
Humana, Inc. | 3,581 | 1,676,159 | ||||||
Laboratory Corp. of America Holdings | 982 | 230,141 | ||||||
McKesson Corp. | 1,566 | 510,845 | ||||||
UnitedHealth Group, Inc. | 1,725 | 886,012 | ||||||
|
| |||||||
6,186,164 | ||||||||
Hotels, Restaurants & Leisure – 1.1% |
| |||||||
Airbnb, Inc., Class A(1) | 14,232 | 1,267,786 | ||||||
Hyatt Hotels Corp., Class A(1) | 4,927 | 364,155 | ||||||
Starbucks Corp. | 11,648 | 889,791 | ||||||
|
| |||||||
2,521,732 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Industrial Conglomerates – 0.3% |
| |||||||
Honeywell International, Inc. | 4,325 | $ | 751,728 | |||||
|
| |||||||
751,728 | ||||||||
Insurance – 2.2% |
| |||||||
American International Group, Inc. | 16,467 | 841,958 | ||||||
Assurant, Inc. | 2,105 | 363,849 | ||||||
Assured Guaranty Ltd. | 9,106 | 508,024 | ||||||
Chubb Ltd. | 5,690 | 1,118,540 | ||||||
Hartford Financial Services Group, Inc. | 7,901 | 516,962 | ||||||
Marsh & McLennan Cos., Inc. | 4,947 | 768,022 | ||||||
MetLife, Inc. | 7,045 | 442,356 | ||||||
Trupanion, Inc.(1) | 6,997 | 421,639 | ||||||
|
| |||||||
4,981,350 | ||||||||
Interactive Media & Services – 4.8% |
| |||||||
Alphabet, Inc., Class A(1) | 2,804 | 6,110,645 | ||||||
Bumble, Inc., Class A(1) | 28,453 | 800,952 | ||||||
Cargurus, Inc.(1) | 20,248 | 435,130 | ||||||
Match Group, Inc.(1) | 5,343 | 372,354 | ||||||
Meta Platforms, Inc., Class A(1) | 16,573 | 2,672,396 | ||||||
Snap, Inc., Class A(1) | 22,342 | 293,350 | ||||||
|
| |||||||
10,684,827 | ||||||||
Internet & Direct Marketing Retail – 3.2% |
| |||||||
Amazon.com, Inc.(1) | 55,617 | 5,907,081 | ||||||
Etsy, Inc.(1) | 18,179 | 1,330,885 | ||||||
|
| |||||||
7,237,966 | ||||||||
IT Services ��� 2.1% |
| |||||||
Block, Inc.(1) | 5,593 | 343,746 | ||||||
FleetCor Technologies, Inc.(1) | 2,158 | 453,417 | ||||||
Genpact Ltd. | 8,822 | 373,700 | ||||||
Global Payments, Inc. | 11,668 | 1,290,947 | ||||||
GoDaddy, Inc., Class A(1) | 7,742 | 538,534 | ||||||
Okta, Inc.(1) | 648 | 58,579 | ||||||
PayPal Holdings, Inc.(1) | 1,055 | 73,681 | ||||||
Snowflake, Inc., Class A(1) | 345 | 47,976 | ||||||
Visa, Inc., Class A | 5,019 | 988,191 | ||||||
WEX, Inc.(1) | 3,162 | 491,881 | ||||||
|
| |||||||
4,660,652 | ||||||||
Life Sciences Tools & Services – 1.6% |
| |||||||
Agilent Technologies, Inc. | 6,715 | 797,540 | ||||||
Danaher Corp. | 6,515 | 1,651,683 | ||||||
ICON PLC(1) | 1,278 | 276,943 | ||||||
NanoString Technologies, Inc.(1) | 11,987 | 152,235 | ||||||
Syneos Health, Inc.(1) | 6,045 | 433,305 | ||||||
Waters Corp.(1) | 1,100 | 364,078 | ||||||
|
| |||||||
3,675,784 | ||||||||
Machinery – 1.3% |
| |||||||
Caterpillar, Inc. | 2,147 | 383,798 | ||||||
Flowserve Corp. | 11,171 | 319,826 | ||||||
Fortive Corp. | 5,526 | 300,504 | ||||||
Ingersoll Rand, Inc. | 8,564 | 360,373 | ||||||
Kennametal, Inc. | 6,036 | 140,216 | ||||||
Middleby Corp.(1) | 1,672 | 209,602 | ||||||
6 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS – GUARDIAN BALANCED ALLOCATION VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Machinery (continued) | ||||||||
PACCAR, Inc. | 4,991 | $ | 410,959 | |||||
Westinghouse Air Brake Technologies Corp. | 9,186 | 753,987 | ||||||
|
| |||||||
2,879,265 | ||||||||
Media – 1.3% |
| |||||||
Charter Communications, Inc., Class A(1) | 2,750 | 1,288,458 | ||||||
New York Times Co., Class A | 10,779 | 300,734 | ||||||
Omnicom Group, Inc. | 21,963 | 1,397,066 | ||||||
|
| |||||||
2,986,258 | ||||||||
Oil, Gas & Consumable Fuels – 3.0% |
| |||||||
ConocoPhillips | 15,736 | 1,413,250 | ||||||
Marathon Petroleum Corp. | 8,272 | 680,041 | ||||||
Pioneer Natural Resources Co. | 2,568 | 572,870 | ||||||
Shell PLC, ADR | 77,342 | 4,044,213 | ||||||
|
| |||||||
6,710,374 | ||||||||
Pharmaceuticals – 4.1% |
| |||||||
Aclaris Therapeutics, Inc.(1) | 2,094 | 29,232 | ||||||
AstraZeneca PLC, ADR | 12,459 | 823,166 | ||||||
Bristol Myers Squibb Co. | 19,131 | 1,473,087 | ||||||
Elanco Animal Health, Inc.(1) | 14,667 | 287,913 | ||||||
Eli Lilly and Co. | 8,035 | 2,605,188 | ||||||
Intra-Cellular Therapies, Inc.(1) | 2,493 | 142,301 | ||||||
Novartis AG, ADR | 8,085 | 683,425 | ||||||
Pfizer, Inc. | 44,626 | 2,339,741 | ||||||
Royalty Pharma PLC, Class A | 1,332 | 55,997 | ||||||
Zoetis, Inc. | 5,093 | 875,436 | ||||||
|
| |||||||
9,315,486 | ||||||||
Professional Services – 0.3% |
| |||||||
Science Applications International Corp. | 3,863 | 359,645 | ||||||
TriNet Group, Inc.(1) | 3,719 | 288,669 | ||||||
|
| |||||||
648,314 | ||||||||
Semiconductors & Semiconductor Equipment – 2.7% |
| |||||||
Advanced Micro Devices, Inc.(1) | 14,481 | 1,107,362 | ||||||
KLA Corp. | 2,235 | 713,144 | ||||||
Marvell Technology, Inc. | 12,766 | 555,704 | ||||||
Micron Technology, Inc. | 14,567 | 805,264 | ||||||
NVIDIA Corp. | 3,018 | 457,499 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 1,796 | 146,823 | ||||||
Teradyne, Inc. | 6,990 | 625,954 | ||||||
Texas Instruments, Inc. | 10,975 | 1,686,309 | ||||||
|
| |||||||
6,098,059 | ||||||||
Software – 5.9% |
| |||||||
Adobe, Inc.(1) | 996 | 364,596 | ||||||
Avalara, Inc.(1) | 804 | 56,762 | ||||||
Ceridian HCM Holding, Inc.(1) | 7,487 | 352,488 | ||||||
Guidewire Software, Inc.(1) | 2,177 | 154,545 | ||||||
HashiCorp, Inc., Class A(1) | 5,941 | 174,903 | ||||||
Microsoft Corp. | 37,971 | 9,752,092 | ||||||
June 30, 2022 (unaudited) | Shares | Value | ||||||
Software (continued) | ||||||||
Palo Alto Networks, Inc.(1) | 295 | $ | 145,712 | |||||
Qualtrics International, Inc., Class A(1) | 5,869 | 73,421 | ||||||
Rapid7, Inc.(1) | 908 | 60,655 | ||||||
Salesforce, Inc.(1) | 6,163 | 1,017,142 | ||||||
SentinelOne, Inc., Class A(1) | 2,692 | 62,804 | ||||||
ServiceNow, Inc.(1) | 1,311 | 623,407 | ||||||
UiPath, Inc., Class A(1) | 4,594 | 83,565 | ||||||
Varonis Systems, Inc.(1) | 3,354 | 98,339 | ||||||
Workday, Inc., Class A(1) | 2,240 | 312,659 | ||||||
|
| |||||||
13,333,090 | ||||||||
Specialty Retail – 1.3% |
| |||||||
TJX Cos., Inc. | 25,066 | 1,399,936 | ||||||
Ulta Beauty, Inc.(1) | 4,024 | 1,551,172 | ||||||
|
| |||||||
2,951,108 | ||||||||
Technology Hardware, Storage & Peripherals – 2.0% |
| |||||||
Apple, Inc. | 32,846 | 4,490,705 | ||||||
|
| |||||||
4,490,705 | ||||||||
Tobacco – 0.8% |
| |||||||
Philip Morris International, Inc. | 18,277 | 1,804,671 | ||||||
|
| |||||||
1,804,671 | ||||||||
Trading Companies & Distributors – 0.1% |
| |||||||
WESCO International, Inc.(1) | 2,374 | 254,255 | ||||||
|
| |||||||
254,255 | ||||||||
Wireless Telecommunication Services – 0.8% |
| |||||||
T-Mobile US, Inc.(1) | 12,539 | 1,686,997 | ||||||
|
| |||||||
1,686,997 | ||||||||
Total Common Stocks (Cost $157,030,981) |
| 144,627,326 | ||||||
Principal Amount | Value | |||||||
Agency Mortgage–Backed Securities – 9.5% |
| |||||||
Federal Home Loan Mortgage Corp. | $ | 1,400,000 | 1,217,453 | |||||
2.50% due 7/1/2041 | 426,793 | 392,104 | ||||||
2.50% due 2/1/2042 | 615,296 | 566,106 | ||||||
3.00% due 10/1/2051 | 333,505 | 312,442 | ||||||
Federal National Mortgage Association | 443,529 | 385,631 | ||||||
2.50% due 2/1/2041 | 75,318 | 69,635 | ||||||
2.50% due 5/1/2051 | 1,338,861 | 1,208,126 | ||||||
3.50% due 7/1/2051 | 617,529 | 597,442 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 500,000 | 411,614 | ||||||
Government National Mortgage Association | 700,000 | 620,871 | ||||||
The accompanying notes are an integral part of these financial statements. | 7 |
SCHEDULE OF INVESTMENTS – GUARDIAN BALANCED ALLOCATION VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities (continued) |
| |||||||
2.50% due 7/1/2052(2) | $ | 1,147,000 | $ | 1,048,519 | ||||
3.00% due 7/1/2052(2) | 1,025,000 | 965,720 | ||||||
4.00% due 7/1/2052(2) | 325,000 | 323,527 | ||||||
4.50% due 7/1/2052(2) | 200,000 | 202,928 | ||||||
Uniform Mortgage-Backed Security | 1,140,000 | 988,899 | ||||||
2.00% due 8/1/2052(2) | 2,535,000 | 2,196,430 | ||||||
2.50% due 7/1/2037(2) | 525,000 | 501,471 | ||||||
2.50% due 7/1/2052(2) | 1,300,000 | 1,168,470 | ||||||
2.50% due 8/1/2052(2) | 1,300,000 | 1,166,945 | ||||||
3.00% due 7/1/2037(2) | 225,000 | 219,807 | ||||||
3.00% due 7/1/2052(2) | 1,775,000 | 1,652,349 | ||||||
3.50% due 7/1/2037(2) | 1,300,000 | 1,292,144 | ||||||
3.50% due 7/1/2052(2) | 2,191,000 | 2,106,811 | ||||||
4.00% due 7/1/2052(2) | 1,075,000 | 1,059,844 | ||||||
4.50% due 7/1/2052(2) | 450,000 | 451,665 | ||||||
5.00% due 7/1/2052(2) | 175,000 | 178,610 | ||||||
Total Agency Mortgage–Backed Securities (Cost $21,259,639) |
| 21,305,563 | ||||||
Asset–Backed Securities – 0.3% |
| |||||||
Domino’s Pizza Master Issuer LLC 2021-1A A2I | 148,500 | 129,507 | ||||||
New Economy Assets Phase 1 Sponsor LLC | 235,000 | 204,544 | ||||||
Taco Bell Funding LLC | 149,250 | 129,985 | ||||||
Vantage Data Centers Issuer LLC 2021-1A A2 | 200,000 | 178,488 | ||||||
Total Asset–Backed Securities (Cost $663,080) |
| 642,524 | ||||||
Corporate Bonds & Notes – 9.4% |
| |||||||
Aerospace & Defense – 0.2% |
| |||||||
BAE Systems Holdings, Inc. | 420,000 | 412,759 | ||||||
Raytheon Technologies Corp. | 88,000 | 88,369 | ||||||
|
| |||||||
501,128 | ||||||||
Agriculture – 0.2% |
| |||||||
BAT Capital Corp. | 526,000 | 481,669 | ||||||
|
| |||||||
481,669 | ||||||||
Airlines – 0.0% |
| |||||||
United Airlines Pass-Through Trust 2016-1 AA | 45,753 | 41,154 | ||||||
|
| |||||||
41,154 | ||||||||
Auto Manufacturers – 0.1% |
| |||||||
Hyundai Capital America | 221,000 | 215,665 | ||||||
|
| |||||||
215,665 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Beverages – 0.1% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. | $ | 285,000 | $ | 291,233 | ||||
|
| |||||||
291,233 | ||||||||
Biotechnology – 0.3% |
| |||||||
CSL Finance PLC | 210,000 | 208,186 | ||||||
4.25% due 4/27/2032(3) | 420,000 | 410,667 | ||||||
|
| |||||||
618,853 | ||||||||
Commercial Banks – 2.7% |
| |||||||
Bank of America Corp. | 256,000 | 228,155 | ||||||
2.299% (2.299% fixed rate until 7/21/2031; SOFR + 1.22% thereafter) | 185,000 | 149,535 | ||||||
2.651% (2.651% fixed rate until 3/11/2031; SOFR + 1.22% thereafter) | 300,000 | 251,868 | ||||||
4.20% due 8/26/2024 | 94,000 | 94,209 | ||||||
Barclays PLC | 212,000 | 170,592 | ||||||
BPCE SA | 353,000 | 353,914 | ||||||
Citigroup, Inc. | 176,000 | 175,930 | ||||||
Credit Suisse Group AG | 544,000 | 435,059 | ||||||
Danske Bank A/S | 256,000 | 228,936 | ||||||
Goldman Sachs Group, Inc. | 291,000 | 258,725 | ||||||
3.50% due 1/23/2025 | 500,000 | 494,250 | ||||||
HSBC Holdings PLC | 291,000 | 255,853 | ||||||
2.099% (2.099% fixed rate until 6/4/2025; SOFR + 1.93% thereafter) | 445,000 | 411,580 | ||||||
8 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks (continued) |
| |||||||
2.206% (2.206% fixed rate until 8/17/2028; SOFR + 1.29% thereafter) | $ | 250,000 | $ | 209,972 | ||||
JPMorgan Chase & Co. | 665,000 | 622,885 | ||||||
2.069% (2.069% fixed rate until 6/1/2028; SOFR + 1.02% thereafter) | 6,000 | 5,160 | ||||||
2.95% due 10/1/2026 | 235,000 | 224,357 | ||||||
Morgan Stanley | 123,000 | 97,577 | ||||||
2.511% (2.511% fixed rate until 10/20/2031; SOFR + 1.20% thereafter) | 644,000 | 533,258 | ||||||
4.35% due 9/8/2026 | 268,000 | 265,256 | ||||||
PNC Financial Services Group, Inc. | 29,000 | 29,113 | ||||||
U.S. Bancorp | 360,000 | 293,904 | ||||||
UBS Group AG | 226,000 | 197,384 | ||||||
Wells Fargo & Co. | 88,000 | 86,072 | ||||||
|
| |||||||
6,073,544 | ||||||||
Computers – 0.1% |
| |||||||
Kyndryl Holdings, Inc. | 444,000 | 325,217 | ||||||
|
| |||||||
325,217 | ||||||||
Diversified Financial Services – 0.5% |
| |||||||
Aviation Capital Group LLC | 241,000 | 205,043 | ||||||
Avolon Holdings Funding Ltd. | 328,000 | 269,672 | ||||||
Capital One Financial Corp. | 62,000 | 61,095 | ||||||
Intercontinental Exchange, Inc. | 423,000 | 331,226 | ||||||
4.35% due 6/15/2029 | 55,000 | 54,231 | ||||||
4.60% due 3/15/2033 | 110,000 | 109,347 | ||||||
4.95% due 6/15/2052 | 45,000 | 44,277 | ||||||
|
| |||||||
1,074,891 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Electric – 1.4% |
| |||||||
Alabama Power Co. | $ | 18,000 | $ | 14,641 | ||||
American Transmission Systems, Inc. | 171,000 | 144,711 | ||||||
Appalachian Power Co. | 118,000 | 116,480 | ||||||
Consolidated Edison Co. of New York, Inc. | 123,000 | 93,473 | ||||||
4.50% due 5/15/2058 | 155,000 | 139,060 | ||||||
Duke Energy Corp. | 41,000 | 38,482 | ||||||
3.75% due 4/15/2024 | 132,000 | 131,951 | ||||||
Enel Finance International NV | 385,000 | 372,137 | ||||||
Georgia Power Co. | 38,000 | 34,462 | ||||||
Mid-Atlantic Interstate Transmission LLC | 235,000 | 229,452 | ||||||
NextEra Energy Capital Holdings, Inc. | 173,000 | 150,574 | ||||||
5.00% due 7/15/2032 | 60,000 | 61,468 | ||||||
Niagara Mohawk Power Corp. | 197,000 | 163,039 | ||||||
Oglethorpe Power Corp. | 255,000 | 218,775 | ||||||
Oncor Electric Delivery Co. LLC | 172,000 | 167,359 | ||||||
Pacific Gas and Electric Co. | 115,000 | 111,062 | ||||||
Pennsylvania Electric Co. | 34,000 | 31,912 | ||||||
San Diego Gas & Electric Co. | 673,000 | 553,294 | ||||||
Southern California Edison Co. 3.70% due 8/1/2025 | 26,000 | 25,596 | ||||||
4.00% due 4/1/2047 | 29,000 | 23,522 | ||||||
4.65% due 10/1/2043 | 12,000 | 10,849 | ||||||
Southern Co. | 171,000 | 169,059 | ||||||
Texas Electric Market Stabilization Funding LLC | 215,000 | 212,340 | ||||||
|
| |||||||
3,213,698 | ||||||||
Food – 0.1% |
| |||||||
Conagra Brands, Inc. | 123,000 | 102,541 | ||||||
4.60% due 11/1/2025 | 59,000 | 59,299 | ||||||
|
| |||||||
161,840 | ||||||||
Gas – 0.2% |
| |||||||
Boston Gas Co. | 35,000 | 32,551 | ||||||
The accompanying notes are an integral part of these financial statements. | 9 |
SCHEDULE OF INVESTMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Gas (continued) | ||||||||
CenterPoint Energy Resources Corp. | $ | 4,000 | $ | 3,987 | ||||
KeySpan Gas East Corp. | 162,000 | 152,844 | ||||||
Southern California Gas Co. | 165,000 | 156,573 | ||||||
|
| |||||||
345,955 | ||||||||
Healthcare–Products – 0.0% |
| |||||||
Boston Scientific Corp. | 18,000 | 15,718 | ||||||
|
| |||||||
15,718 | ||||||||
Healthcare–Services – 0.6% |
| |||||||
Aetna, Inc. | 123,000 | 121,493 | ||||||
Bon Secours Mercy Health, Inc. | 200,000 | 164,994 | ||||||
CommonSpirit Health | 165,000 | 140,912 | ||||||
3.91% due 10/1/2050 | 55,000 | 44,010 | ||||||
Dignity Health | 210,000 | 191,927 | ||||||
Elevance Health, Inc. | 430,000 | 414,533 | ||||||
3.50% due 8/15/2024 | 44,000 | 43,824 | ||||||
Kaiser Foundation Hospitals | 100,000 | 74,770 | ||||||
Sutter Health | 50,000 | 42,778 | ||||||
UnitedHealth Group, Inc. | 75,000 | 75,018 | ||||||
4.75% due 5/15/2052 | 10,000 | 10,002 | ||||||
|
| |||||||
1,324,261 | ||||||||
Insurance – 0.7% |
| |||||||
Athene Global Funding | 445,000 | 415,367 | ||||||
2.50% due 3/24/2028(3) | 382,000 | 328,489 | ||||||
CNO Global Funding | 312,000 | 272,526 | ||||||
Corebridge Financial, Inc. | 225,000 | 201,901 | ||||||
Equitable Financial Life Global Funding | 162,000 | 140,754 | ||||||
Five Corners Funding Trust II | 100,000 | 87,129 | ||||||
Liberty Mutual Group, Inc. | 220,000 | 210,012 | ||||||
Northwestern Mutual Life Insurance Co. | 18,000 | 13,496 | ||||||
|
| |||||||
1,669,674 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Media – 0.3% |
| |||||||
Comcast Corp. | $ | 620,000 | $ | 623,156 | ||||
|
| |||||||
623,156 | ||||||||
Oil & Gas – 0.3% |
| |||||||
Equinor ASA | 359,000 | 345,566 | ||||||
3.125% due 4/6/2030 | 24,000 | 22,224 | ||||||
Hess Corp. | 85,000 | 82,830 | ||||||
7.30% due 8/15/2031 | 271,000 | 303,274 | ||||||
|
| |||||||
753,894 | ||||||||
Pipelines – 0.1% |
| |||||||
Eastern Gas Transmission & Storage, Inc. | 24,000 | 23,856 | ||||||
Energy Transfer LP | 12,000 | 11,825 | ||||||
Enterprise Products Operating LLC | 29,000 | 20,801 | ||||||
Gray Oak Pipeline LLC | 85,000 | 79,478 | ||||||
3.45% due 10/15/2027(3) | 15,000 | 13,880 | ||||||
|
| |||||||
149,840 | ||||||||
Real Estate Investment Trusts (REITs) – 0.2% |
| |||||||
CubeSmart LP | 156,000 | 133,209 | ||||||
EPR Properties | 210,000 | 196,585 | ||||||
|
| |||||||
329,794 | ||||||||
Semiconductors – 0.3% |
| |||||||
Broadcom, Inc. | 350,000 | 269,906 | ||||||
3.419% due 4/15/2033(3) | 176,000 | 145,494 | ||||||
4.30% due 11/15/2032 | 29,000 | 26,382 | ||||||
QUALCOMM, Inc. | 175,000 | 177,761 | ||||||
|
| |||||||
619,543 | ||||||||
Software – 0.1% |
| |||||||
Oracle Corp. | 82,000 | 75,556 | ||||||
3.60% due 4/1/2050 | 118,000 | 82,354 | ||||||
3.85% due 4/1/2060 | 41,000 | 28,288 | ||||||
3.95% due 3/25/2051 | 147,000 | 107,935 | ||||||
|
| |||||||
294,133 | ||||||||
Telecommunications – 0.6% |
| |||||||
AT&T, Inc. | 95,000 | 74,255 | ||||||
3.85% due 6/1/2060 | 19,000 | 14,714 | ||||||
4.30% due 12/15/2042 | 26,000 | 22,594 | ||||||
T-Mobile USA, Inc. | 605,000 | 581,998 | ||||||
Verizon Communications, Inc. | 402,000 | 333,479 | ||||||
2.625% due 8/15/2026 | 440,000 | 415,888 | ||||||
|
| |||||||
1,442,928 |
10 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Trucking & Leasing – 0.3% |
| |||||||
DAE Funding LLC | $ | 294,000 | $ | 273,985 | ||||
Penske Truck Leasing Co. LP / PTL Finance Corp. | 65,000 | 62,455 | ||||||
3.95% due 3/10/2025(3) | 203,000 | 199,912 | ||||||
4.875% due 7/11/2022(3) | 29,000 | 29,010 | ||||||
|
| |||||||
565,362 | ||||||||
Total Corporate Bonds & Notes (Cost $21,483,967) |
| 21,133,150 | ||||||
Municipals – 0.6% |
| |||||||
California Health Facilities Financing Authority | 100,000 | 97,286 | ||||||
Chicago Transit Authority Sales & Transfer Tax Receipts Revenue | 50,000 | 59,288 | ||||||
Dallas Fort Worth International Airport | 100,000 | 96,810 | ||||||
Metropolitan Transportation Authority | 105,000 | 109,731 | ||||||
Municipal Electric Authority of Georgia | 150,000 | 176,594 | ||||||
Regents of the University of California Medical Center Pooled Revenue | 125,000 | 94,245 | ||||||
State of Illinois | 700,000 | 703,039 | ||||||
Total Municipals (Cost $1,352,890) |
| 1,336,993 | ||||||
Non–Agency Mortgage–Backed Securities – 0.6% |
| |||||||
BX Commercial Mortgage Trust | 425,000 | 410,135 | ||||||
BXHPP Trust | 225,000 | 213,285 | ||||||
Fannie Mae REMICS | 256,967 | 244,694 | ||||||
2013-86 NZ | 273,130 | 267,758 | ||||||
Freddie Mac REMICS | 266,681 | 268,595 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $1,421,393) |
| 1,404,467 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
U.S. Government Securities – 14.4% |
| |||||||
U.S. Treasury Bond | $ | 3,395,000 | $ | 2,793,979 | ||||
2.375% due 2/15/2042 | 5,755,000 | 4,879,161 | ||||||
2.875% due 5/15/2052 | 715,000 | 675,228 | ||||||
3.25% due 5/15/2042 | 205,000 | 200,099 | ||||||
U.S. Treasury Note | 95,000 | 86,064 | ||||||
2.50% due 4/30/2024 | 5,735,000 | 5,685,491 | ||||||
2.625% due 4/15/2025 | 5,840,000 | 5,776,581 | ||||||
2.625% due 5/31/2027 | 30,000 | 29,433 | ||||||
2.75% due 5/15/2025 | 535,000 | 530,904 | ||||||
2.75% due 4/30/2027 | 9,665,000 | 9,535,126 | ||||||
2.75% due 5/31/2029 | 150,000 | 147,094 | ||||||
2.875% due 6/15/2025 | 380,000 | 378,478 | ||||||
2.875% due 4/30/2029 | 20,000 | 19,769 | ||||||
2.875% due 5/15/2032 | 1,635,000 | 1,616,862 | ||||||
Total U.S. Government Securities (Cost $32,661,866) |
| 32,354,269 | ||||||
Short–Term Investments – 9.1% |
| |||||||
U.S. Treasury Bills – 0.4% |
| |||||||
U.S. Treasury Bill | 854,300 | 836,231 | ||||||
Total U.S. Treasury Bills (Cost $840,394) |
| 836,231 | ||||||
Repurchase Agreements – 8.7% |
| |||||||
Fixed Income Clearing Corp., | 19,498,439 | 19,498,439 | ||||||
Total Repurchase Agreements (Cost $19,498,439) |
| 19,498,439 | ||||||
Total Investments(8) – 108.3% (Cost $256,212,649) |
| 243,138,962 | ||||||
Liabilities in excess of other assets(9) – (8.3)% |
| (18,692,424 | ) | |||||
Total Net Assets – 100.0% |
| $ | 224,446,538 |
(1) | Non–income–producing security. |
(2) | TBA — To be announced. |
(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, 2022, the aggregate market value of these securities amounted to $8,641,517, representing 3.9% 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. |
(4) | Variable rate securities, which may include step-up bonds or adjustable rate mortgages. The rate shown is the rate in effect at June 30, 2022. |
(5) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(6) | Interest rate shown reflects the discount rate at time of purchase. |
The accompanying notes are an integral part of these financial statements. | 11 |
SCHEDULE OF INVESTMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
(7) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 19,910,200 | $19,888,418 |
(8) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
(9) | Liabilities in excess of other assets include net unrealized depreciation on futures contracts as follows: |
Open futures contracts at June 30, 2022:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2022 | 1 | Long | $ | 209,994 | $ | 210,015 | $ | 21 | |||||||||||||||
U.S. 5-Year Treasury Note | September 2022 | 8 | Long | 897,866 | 898,000 | 134 | ||||||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2022 | 1 | Long | 128,451 | 127,375 | (1,076 | ) | |||||||||||||||||
Total | $ | 1,236,311 | $ | 1,235,390 | $ | (921 | ) |
Legend:
ADR — American Depositary Receipt
H15T5Y — 5-year Constant Maturity Treasury Rate
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 144,627,326 | $ | — | $ | — | $ | 144,627,326 | ||||||||
Agency Mortgage–Backed Securities | — | 21,305,563 | — | 21,305,563 | ||||||||||||
Asset–Backed Securities | — | 642,524 | — | 642,524 | ||||||||||||
Corporate Bonds & Notes | — | 21,133,150 | — | 21,133,150 | ||||||||||||
Municipals | — | 1,336,993 | — | 1,336,993 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 1,404,467 | — | 1,404,467 | ||||||||||||
U.S. Government Securities | — | 32,354,269 | — | 32,354,269 | ||||||||||||
U.S. Treasury Bills | — | 836,231 | — | 836,231 | ||||||||||||
Repurchase Agreements | — | 19,498,439 | — | 19,498,439 | ||||||||||||
Total | $ | 144,627,326 | $ | 98,511,636 | $ | — | $ | 243,138,962 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Assets | $ | 155 | $ | — | $ | — | $ | 155 | ||||||||
Liabilities | (1,076) | — | — | (1,076 | ) | |||||||||||
Total | $ | (921 | ) | $ | — | $ | — | $ | (921 | ) |
12 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN BALANCED ALLOCATION VIP FUND
For the Period Ended June 30, 2022 (unaudited)1 | ||||
Investment Income | ||||
Dividends | $ | 447,435 | ||
Interest | 348,821 | |||
Withholding taxes on foreign dividends | (264 | ) | ||
|
| |||
Total Investment Income | 795,992 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 184,086 | |||
Distribution fees | 95,878 | |||
Professional fees | 14,231 | |||
Trustees’ and officers’ fees | 7,187 | |||
Custodian and accounting fees | 6,679 | |||
Administrative fees | 5,483 | |||
Transfer agent fees | 2,509 | |||
Shareholder reports | 2,196 | |||
Other expenses | 2,387 | |||
|
| |||
Total Expenses | 320,636 | |||
|
| |||
Net Investment Income/(Loss) | 475,356 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | (1,255,620 | ) | ||
Net realized gain/(loss) from futures contracts | (2,762 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (13,073,687 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | (921 | ) | ||
|
| |||
Net Loss on Investments and Derivative Contracts | (14,332,990 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (13,857,634 | ) | |
|
| |||
1 | Commenced operations on May 2, 2022. |
The accompanying notes are an integral part of these financial statements. | 13 |
FINANCIAL INFORMATION — GUARDIAN BALANCED ALLOCATION VIP FUND
1 | Commenced operations on May 2, 2022. |
14 | The accompanying notes are an integral part of these financial statements. |
This Page Intentionally Left Blank
15 |
FINANCIAL INFORMATION — GUARDIAN BALANCED ALLOCATION 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 Period Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Loss | Total Operations | Net Asset Value, End of Period | Total Return(2),(3) | |||||||||||||||||||
Period Ended 6/30/22(5) | $ | 10.00 | $ | 0.02 | $ | (0.60 | ) | $ | (0.58 | ) | $ | 9.42 | (5.80 | )% |
16 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN BALANCED ALLOCATION 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 | 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) | |||||||||||||||||
$ | 224,447 | 0.82% | 0.82% | 1.26% | 1.26% | 15% |
(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 May 2, 2022. |
The accompanying notes are an integral part of these financial statements. | 17 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Balanced Allocation VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on May 2, 2022. 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 capital appreciation and moderate current income while seeking to manage volatility.
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 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”). 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.
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.
Exchange-traded financial futures contracts are valued at the last settlement price on the market where they are primarily traded.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but
18 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
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.
• | 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 period ended June 30, 2022, 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, 2022 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, 2022, the Fund had no securities classified as Level 3.
19 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
Derivatives Exchange-traded derivatives, such as futures contracts, exchange-traded option contracts and certain swaps, are typically classified within Level 1 or Level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. Certain non-exchange-traded derivatives, such as generic forwards, certain swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within Level 2.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
c. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the 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, 2022.
e. 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
20 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
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.
f. 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.
g. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.
h. 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 0.48% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2023 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 0.89%% 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, and 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 period ended June 30, 2022, Park Avenue did not waive any fees or pay any Fund expenses.
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 period ended June 30, 2022, the Fund paid distribution fees in the amount of $95,878 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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
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 period ended June 30, 2022, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 200,174,876 | $ | 52,809,436 | ||||
Sales | 18,135,814 | 14,196,673 |
b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.
c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require
the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
e. 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, 2022, the Fund did not hold any restricted, other than 144A restricted securities, or illiquid securities.
g. 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
h. 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.
i. 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.
j. LIBOR Replacement Risk The terms of many investments, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments, or the value or return on certain other fund investments. As a result, LIBOR may be relevant to,
and directly affect, a Fund’s performance. In July 2017, the Chief Executive of the UK Financial Conduct Authority (the “FCA”) announced that the FCA would no longer persuade nor compel banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative, immediately after December 31, 2021, for all four non-U.S. dollar LIBORs (British Pound (“GBP”), Euro, Swiss Franc and Japanese Yen) and for one-week and two-month U.S. dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings, including three-month U.S. dollar LIBOR. In addition, in connection with supervisory guidance from regulators, some regulated entities will cease to enter into most new LIBOR contracts after January 1, 2022. Although a Fund may continue to invest in instruments that reference LIBOR or otherwise use LIBOR reference rates due to favorable liquidity or pricing, new LIBOR assets may no longer be available. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. Replacement rates that have been identified include the Secured Overnight Financing Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities, and the Sterling Overnight Index Average Rate (“SONIA”), which is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market, although other replacement rates could be adopted by market participants. At this time, it is not possible to predict the effect of the establishment of SOFR, SONIA or any other replacement rates or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
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.
k. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the period ended June 30, 2022 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, 2022, 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 | $ | 155 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (1,076 | ) |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivative investments for the period ended June 30, 2022 were as follows:
Interest Rate Contracts | ||||
Net Realized Gain/(Loss) | ||||
Futures Contracts1 | $ | (2,762 | ) | |
Net Change in Unrealized Appreciation/(Depreciation) |
| |||
Futures Contracts2 | $ | (921 | ) | |
Average Number of Notional Amounts | ||||
Futures Contracts3 | 7 |
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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN BALANCED ALLOCATION VIP FUND
day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the period ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange
Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by
funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management 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 June 16-17, 2020 (the “Meeting”), the Board considered and approved the proposed investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian All Cap Core VIP Fund, Guardian Balanced Allocation VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund (the “New Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”). The Board also considered and approved the proposed 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 New Funds, namely Wellington Management Company LLP, Wells Capital Management Incorporated, AllianceBernstein L.P., Massachusetts Financial Services Company (“MFS”) and FIAM, LLC (the “Sub-advisers”). The Trustees who are not parties to the Agreements or “interested persons” (as defined in the 1940 Act) of a party to the Agreements (the “Independent Trustees”) unanimously approved the Agreements for an initial term of two years.1
The Board is responsible for overseeing the management of each Fund. In determining whether to approve 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. At meetings held on March 24-25 and May 14, the Board received presentations from the Manager and each Sub-adviser regarding the services to be rendered and the proposed investment strategies for the New Funds. The Trustees received written responses from the Manager and each Sub-adviser to a series of questions and requests for information covering a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. 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 approve the Agreements, the Board took into account the materials and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 to be provided to the New Funds by the Manager and the Sub-advisers; (ii) the investment performance of accounts managed by each Sub-adviser with strategies similar to the applicable New Fund; (iii) the fees to be charged and estimated profitability; (iv) the extent to which economies of scale may in the
1 | Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund each commenced operations on October 25, 2021. Guardian Balanced Allocation VIP Fund commenced operations on May 2, 2022. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
future exist for a New Fund, and the extent to which a New Fund may benefit from future economies of scale; and (v) any other benefits anticipated to be derived by the Manager or the Sub-advisers (or their respective affiliates) from their relationships with the New Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services to be provided to the New Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services to be provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services to be provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the implementation of compliance policies and procedures, the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials and assisting the Board with certain valuation matters.
The Trustees considered that the New Funds would operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager would have 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 New 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 its ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the New Funds may benefit from the Manager’s ability to use similar resources and capabilities of its affiliates in providing services to the New Funds.
The Trustees considered information regarding the nature, extent and quality of services to be provided to the New 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 to be provided by the Sub-advisers under the oversight of the Manager and the experience of several of the Sub-advisers with managing other
funds that are series of the Trust. In evaluating these investment advisory services, the Trustees considered, among other things, the Sub-advisers’ investment philosophies, styles and/or processes and approach to managing risk. The Trustees also considered information regarding funds or accounts managed by the Sub-advisers with similar strategies as the applicable New Fund, including performance and portfolio characteristics, when available. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals that would serve as portfolio managers for the New Funds and the capabilities, resources and reputations of the Sub-advisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations and in light of the New Funds’ anticipated operations, that the nature, extent and quality of services to be provided to the New Funds by the Manager and each Sub-adviser were appropriate.
Investment Performance
The New Funds had not commenced operations prior to the Meeting. Accordingly, the New Funds did not yet have an investment performance record. The Board considered historical performance information with respect to funds or accounts managed by the Sub-advisers with similar investment strategies as the New Funds, and comparisons to relevant benchmarks and peer groups, when available. The Trustees concluded that the historical performance records available, viewed together with the other relevant factors and information considered by the Trustees, supported a decision to approve each Agreement. The Trustees also concluded that it was appropriate to revisit the New Funds’ investment performance in connection with future reviews of the Agreements.
Costs and Profitability
The Trustees considered the proposed management fees to be paid by the New 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 proposed 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 Financial Solutions, Inc., an independent provider of industry data, which showed that each New Fund’s proposed contractual management fees was lower than its respective peer group median.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Trustees considered the proposed sub-advisory fees to be paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees to be paid to the Sub-advisers would be paid by the Manager and not the New 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 New Fund’s anticipated operating expense ratios and the actual operating expense ratios of a peer group of funds. In this regard, the Board noted that each New Fund’s anticipated operating expense ratio was below its respective peer group median. The Trustees considered estimates of the New Funds’ projected asset levels and the Manager’s commitment to initially limit each New Fund’s operating expenses through an expense limitation agreement with the Trust. Although the Board recognized that the comparisons between the proposed management fees and anticipated operating expenses of the New 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 proposed management fees and evaluation of the anticipated operating expenses.
The Trustees reviewed information regarding the Manager’s projected costs of sponsoring the New Funds and projected profitability of the New Funds to the Manager based on the anticipated assets and expenses of the New Funds. The Trustees noted that the information, including with respect to revenues and expenses, contained estimates because the New Funds had not yet commenced operations at the time of the Board meeting. The Trustees did not consider any projected profitability information from the Sub-advisers because 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 Trustees concluded that the proposed management and sub-advisory fees were reasonable in light of the nature, extent and quality of services expected to be rendered to the New Funds by the Manager and the Sub-advisers. The Trustees also concluded that the projected profitability of the New Funds to the Manager was acceptable and the Trustees determined it was appropriate to revisit this information in connection with future reviews of the Agreements.
Economies of Scale
The New Funds had not commenced operations prior to the Board meeting. As a result, no specific information was available concerning the possible effect that asset growth and economies of scale have on a New Fund’s expenses. The Trustees concluded that it was appropriate to revisit potential economies of scale in connection with future reviews of the Agreements or earlier, if appropriate, and that they were satisfied with the extent to which economies of scale would be shared for the benefit of shareholders based on anticipated asset levels.
Ancillary Benefits
The Trustees 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 New Funds. The Trustees acknowledged that the New 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 New Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the New 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 New 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 New 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 New 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.
30 |
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.
31 |
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
PUB11738
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Equity Income VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Equity Income VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statement of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Recent Rulemaking | 16 | |||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 20 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN EQUITY INCOME VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $144,577,564
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Pfizer, Inc. | 3.31% | |||
Johnson & Johnson | 3.16% | |||
Merck & Co., Inc. | 2.43% | |||
Mondelez International, Inc., Class A | 2.41% | |||
ConocoPhillips | 2.38% | |||
Morgan Stanley | 2.35% | |||
Chubb Ltd. | 2.24% | |||
MetLife, Inc. | 2.19% | |||
Cisco Systems, Inc. | 2.19% | |||
Elevance Health, Inc. | 2.16% | |||
Total | 24.82% |
1 | The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
1 |
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, if any, 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 May 2, 2022 (commencement of operations) to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return* | $1,000.00 | $ 957.00 | $0.84 | 0.52% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses)** | $1,000.00 | $1,022.22 | $2.61 | 0.52% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 60/365 (to reflect the period from May 2, 2022 (commencement of operations) through June 30, 2022). |
** | Expenses (hypothetical expenses if the Fund had been in existence from 1/1/2022) are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN EQUITY INCOME VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 97.4% |
| |||||||
Aerospace & Defense – 4.9% |
| |||||||
General Dynamics Corp. | 11,210 | $ | 2,480,213 | |||||
L3Harris Technologies, Inc. | 7,498 | 1,812,267 | ||||||
Northrop Grumman Corp. | 2,604 | 1,246,196 | ||||||
Raytheon Technologies Corp. | 15,847 | 1,523,055 | ||||||
|
| |||||||
7,061,731 | ||||||||
Banks – 6.7% |
| |||||||
JPMorgan Chase & Co. | 26,974 | 3,037,542 | ||||||
M&T Bank Corp. | 9,749 | 1,553,893 | ||||||
PNC Financial Services Group, Inc. | 10,501 | 1,656,743 | ||||||
Royal Bank of Canada (Canada) | 16,369 | 1,585,016 | ||||||
Truist Financial Corp. | 38,765 | 1,838,624 | ||||||
|
| |||||||
9,671,818 | ||||||||
Building Products – 1.5% |
| |||||||
Johnson Controls International PLC | 45,753 | 2,190,654 | ||||||
|
| |||||||
2,190,654 | ||||||||
Capital Markets – 5.0% |
| |||||||
Ares Management Corp., Class A | 33,199 | 1,887,695 | ||||||
BlackRock, Inc. | 3,072 | 1,870,971 | ||||||
Morgan Stanley | 44,751 | 3,403,761 | ||||||
|
| |||||||
7,162,427 | ||||||||
Chemicals – 3.2% |
| |||||||
Celanese Corp. | 7,674 | 902,539 | ||||||
LyondellBasell Industries NV, Class A | 17,624 | 1,541,395 | ||||||
PPG Industries, Inc. | 19,021 | 2,174,861 | ||||||
|
| |||||||
4,618,795 | ||||||||
Communications Equipment – 2.2% |
| |||||||
Cisco Systems, Inc. | 74,090 | 3,159,198 | ||||||
|
| |||||||
3,159,198 | ||||||||
Diversified Telecommunication Services – 0.8% |
| |||||||
Verizon Communications, Inc. | 23,042 | 1,169,381 | ||||||
|
| |||||||
1,169,381 | ||||||||
Electric Utilities – 4.5% |
| |||||||
American Electric Power Co., Inc. | 20,943 | 2,009,271 | ||||||
Constellation Energy Corp. | 13,887 | 795,170 | ||||||
Duke Energy Corp. | 14,231 | 1,525,706 | ||||||
Exelon Corp. | 48,419 | 2,194,349 | ||||||
|
| |||||||
6,524,496 | ||||||||
Electrical Equipment – 2.5% |
| |||||||
Eaton Corp. PLC | 14,439 | 1,819,170 | ||||||
Hubbell, Inc. | 10,294 | 1,838,302 | ||||||
|
| |||||||
3,657,472 | ||||||||
Electronic Equipment, Instruments & Components – 2.4% |
| |||||||
Corning, Inc. | 55,050 | 1,734,626 | ||||||
TE Connectivity Ltd. | 14,856 | 1,680,956 | ||||||
|
| |||||||
3,415,582 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 3.4% |
| |||||||
Crown Castle International Corp. | 12,155 | 2,046,659 | ||||||
Gaming and Leisure Properties, Inc. | 42,742 | 1,960,148 | ||||||
Welltower, Inc. | 11,894 | 979,471 | ||||||
|
| |||||||
4,986,278 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Food Products – 4.2% |
| |||||||
Archer-Daniels-Midland Co. | 16,102 | $ | 1,249,515 | |||||
Kellogg Co. | 18,994 | 1,355,032 | ||||||
Mondelez International, Inc., Class A | 56,104 | 3,483,497 | ||||||
|
| |||||||
6,088,044 | ||||||||
Health Care Equipment & Supplies – 3.5% |
| |||||||
Baxter International, Inc. | 28,113 | 1,805,698 | ||||||
Becton Dickinson and Co. | 7,402 | 1,824,815 | ||||||
Medtronic PLC | 15,459 | 1,387,445 | ||||||
|
| |||||||
5,017,958 | ||||||||
Health Care Providers & Services – 4.2% |
| |||||||
Elevance Health, Inc. | 6,462 | 3,118,432 | ||||||
UnitedHealth Group, Inc. | 5,666 | 2,910,227 | ||||||
|
| |||||||
6,028,659 | ||||||||
Hotels, Restaurants & Leisure – 0.6% |
| |||||||
Starbucks Corp. | 10,437 | 797,282 | ||||||
|
| |||||||
797,282 | ||||||||
Household Products – 2.1% |
| |||||||
Kimberly-Clark Corp. | 10,792 | 1,458,539 | ||||||
Procter & Gamble Co. | 11,406 | 1,640,068 | ||||||
|
| |||||||
3,098,607 | ||||||||
Industrial Conglomerates – 1.2% |
| |||||||
Honeywell International, Inc. | 10,070 | 1,750,267 | ||||||
|
| |||||||
1,750,267 | ||||||||
Insurance – 6.0% |
| |||||||
Chubb Ltd. | 16,508 | 3,245,142 | ||||||
MetLife, Inc. | 50,414 | 3,165,495 | ||||||
Progressive Corp. | 19,277 | 2,241,337 | ||||||
|
| |||||||
8,651,974 | ||||||||
IT Services – 0.6% |
| |||||||
Fidelity National Information Services, Inc. | 9,184 | 841,897 | ||||||
|
| |||||||
841,897 | ||||||||
Machinery – 0.2% |
| |||||||
Caterpillar, Inc. | 2,003 | 358,056 | ||||||
|
| |||||||
358,056 | ||||||||
Media – 1.8% |
| |||||||
Comcast Corp., Class A | 67,225 | 2,637,909 | ||||||
|
| |||||||
2,637,909 | ||||||||
Metals & Mining – 0.3% |
| |||||||
Rio Tinto PLC, ADR | 6,393 | 389,973 | ||||||
|
| |||||||
389,973 | ||||||||
Multi-Utilities – 2.6% |
| |||||||
Dominion Energy, Inc. | 21,011 | 1,676,888 | ||||||
Sempra Energy | 14,340 | 2,154,872 | ||||||
|
| |||||||
3,831,760 | ||||||||
Oil, Gas & Consumable Fuels – 6.6% |
| |||||||
ConocoPhillips | 38,264 | 3,436,490 | ||||||
Coterra Energy, Inc. | 77,688 | 2,003,574 | ||||||
EOG Resources, Inc. | 6,432 | 710,350 | ||||||
Phillips 66 | 9,679 | 793,581 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN EQUITY INCOME VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Oil, Gas & Consumable Fuels (continued) |
| |||||||
Pioneer Natural Resources Co. | 3,181 | $ | 709,617 | |||||
TC Energy Corp. (Canada) | 35,618 | 1,845,097 | ||||||
|
| |||||||
9,498,709 | ||||||||
Personal Products – 1.4% |
| |||||||
Unilever PLC, ADR | 43,985 | 2,015,833 | ||||||
|
| |||||||
2,015,833 | ||||||||
Pharmaceuticals – 13.1% |
| |||||||
AstraZeneca PLC, ADR | 30,345 | 2,004,894 | ||||||
Eli Lilly and Co. | 7,614 | 2,468,687 | ||||||
Johnson & Johnson | 25,772 | 4,574,788 | ||||||
Merck & Co., Inc. | 38,548 | 3,514,421 | ||||||
Pfizer, Inc. | 91,187 | 4,780,935 | ||||||
Roche Holding AG (Switzerland) | 4,578 | 1,528,263 | ||||||
|
| |||||||
18,871,988 | ||||||||
Road & Rail – 1.2% |
| |||||||
Canadian National Railway Co. (Canada) | 16,079 | 1,808,638 | ||||||
|
| |||||||
1,808,638 | ||||||||
Semiconductors & Semiconductor Equipment – 5.2% |
| |||||||
Analog Devices, Inc. | 15,905 | 2,323,562 | ||||||
Broadcom, Inc. | 2,130 | 1,034,775 | ||||||
NXP Semiconductors NV | 8,926 | 1,321,316 | ||||||
QUALCOMM, Inc. | 9,087 | 1,160,773 | ||||||
Texas Instruments, Inc. | 10,595 | 1,627,922 | ||||||
|
| |||||||
7,468,348 | ||||||||
Specialty Retail – 3.4% |
| |||||||
Home Depot, Inc. | 5,080 | 1,393,292 | ||||||
Lowe’s Cos., Inc. | 10,452 | 1,825,651 | ||||||
TJX Cos., Inc. | 31,258 | 1,745,759 | ||||||
|
| |||||||
4,964,702 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Tobacco – 2.1% |
| |||||||
Philip Morris International, Inc. | 30,881 | $ | 3,049,190 | |||||
|
| |||||||
3,049,190 | ||||||||
Total Common Stocks (Cost $148,174,141) |
| 140,787,626 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 2.8% |
| |||||||
Repurchase Agreements – 2.8% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $4,126,239, due 7/1/2022(1) | $ | 4,126,211 | 4,126,211 | |||||
Total Repurchase Agreements (Cost $4,126,211) |
| 4,126,211 | ||||||
Total Investments – 100.2% (Cost $152,300,352) |
| 144,913,837 | ||||||
Liabilities in excess of other assets – (0.2)% |
| (336,273 | ) | |||||
Total Net Assets – 100.0% |
| $ | 144,577,564 |
(1) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 4,213,400 | $ | 4,208,791 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 139,259,363 | $ | 1,528,263 | * | $ | — | $ | 140,787,626 | |||||||
Repurchase Agreements | — | 4,126,211 | — | 4,126,211 | ||||||||||||
Total | $ | 139,259,363 | $ | 5,654,474 | $ | — | $ | 144,913,837 |
* | 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. |
FINANCIAL INFORMATION — GUARDIAN EQUITY INCOME VIP FUND
For the Period Ended June 30, 2022 (unaudited)1 | ||||
Investment Income | ||||
Dividends | $ | 962,366 | ||
Interest | 626 | |||
Withholding taxes on foreign dividends | (6,176 | ) | ||
|
| |||
Total Investment Income | 956,816 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 124,241 | |||
Professional fees | 11,846 | |||
Custodian and accounting fees | 5,770 | |||
Trustees’ and officers’ fees | 4,696 | |||
Administrative fees | 4,335 | |||
Transfer agent fees | 2,472 | |||
Shareholder reports | 1,762 | |||
Other expenses | 1,578 | |||
|
| |||
Total Expenses | 156,700 | |||
Less: Fees waived | (20,036 | ) | ||
|
| |||
Total Expenses, Net | 136,664 | |||
|
| |||
Net Investment Income/(Loss) | 820,152 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | (15,349 | ) | ||
Net realized gain/(loss) from foreign currency transactions | 501 | |||
Net change in unrealized appreciation/(depreciation) on investments | (7,386,515 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (13 | ) | ||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (7,401,376 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (6,581,224 | ) | |
|
| |||
1 | Commenced operations on May 2, 2022. |
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN EQUITY INCOME VIP FUND
1 | Commenced operations on May 2, 2022. |
6 | The accompanying notes are an integral part of these financial statements. |
This Page Intentionally Left Blank
7 |
FINANCIAL INFORMATION — GUARDIAN EQUITY 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 Period Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Loss | Total Operations | Net Asset Value, End of Period | Total Return(2),(3) | |||||||||||||||||||
Period Ended 6/30/22(5) | $ | 10.00 | $ | 0.05 | $ | (0.48) | $ | (0.43) | $ | 9.57 | (4.30)% |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN EQUITY INCOME 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) | |||||||||||||||||
$ | 144,578 | 0.52% | 0.60% | 3.33% | 3.25% | 8% |
(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 May 2, 2022. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN EQUITY INCOME VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Equity Income VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on May 2, 2022. 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 a high level of current income consistent with 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 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”). 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.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued in accordance with policies and procedures adopted by the Board of Trustees. In addition, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities. Certain foreign equity instruments are valued by applying international fair value factors provided by approved pricing services. The factors seek to adjust the local closing price for movements of local markets post closing, but prior to the time the NAVs are calculated. Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events and/or issuer related events after the report date and prior to issuance of the report are not reflected herein.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN EQUITY 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 period ended June 30, 2022, 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, 2022 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, 2022, 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 period ended June 30, 2022, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN EQUITY INCOME VIP FUND
sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates in effect on the dates of the respective transactions. The Fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included in the Net change in net realized and unrealized gain/(loss) from investments on the Statement of Operations.
Reported realized foreign currency gains and losses arise from the disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. These reported realized foreign currency gains and losses, if any, are included in Net realized gain/(loss) from foreign currency transactions on the Statement of Operations. Unrealized foreign currency gains and losses arise from changes (due to changes in exchange rates) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end, if any, and are included in Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies on the Statement of Operations.
d. Foreign Capital Gains Tax The Fund may be subject to foreign taxes on income, gains on investments or currency purchases/repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest.
e. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the
ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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 0.50% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2023 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 0.55%% 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 and 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 period ended June 30, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $20,036.
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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN EQUITY INCOME VIP FUND
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.
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 $159,581,257 and $11,379,263, respectively, for the period ended June 30, 2022. During the period ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the period ended June 30, 2022.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN EQUITY INCOME VIP FUND
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global
economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange
Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management 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 December 8-9, 2020 (the “Meeting”), the Board considered and approved a proposed investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Equity Income VIP Fund, Guardian Core Fixed Income VIP Fund and Guardian Short Duration Bond VIP Fund (the “New Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”). The Board also considered and approved a proposed sub-advisory agreement (the “Sub-advisory Agreement,” collectively with the Management Agreement, the “Agreements”) between the Manager and Wellington Management Company LLP (“Wellington”) with respect to the Guardian Equity Income VIP Fund. The Trustees who are not parties to the Agreements or “interested persons” (as defined in the 1940 Act) of a party to the Agreements (the “Independent Trustees”) unanimously approved the Agreements for an initial term of two years.1
The Board is responsible for overseeing the management of each Fund. In determining whether to approve 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. At a Board meeting held on September 23-24, 2020, the Board received presentations from the Manager and Wellington regarding the services to be rendered and the proposed investment strategies for
1 | Each New Fund commenced operations on May 2, 2022. |
the New Funds. In advance of the Meeting, the Trustees received written responses from the Manager and Wellington 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 Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements.
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 Wellington.
In reaching its decisions to approve the Agreements, the Board took into account the materials and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 to be provided to the New Funds by the Manager and Wellington; (ii) the investment performance of accounts managed by the Manager and Wellington with strategies similar to the applicable New Funds; (iii) the fees to be charged and estimated profitability; (iv) the extent to which economies of scale may in the future exist for a New Fund, and the extent to which a New Fund may benefit from future economies of scale; and (v) any other benefits anticipated to be derived by the Manager or Wellington (or their respective affiliates) from their relationships with the New Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services to be provided to the New Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services to be provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services to be 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.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Trustees considered that the Guardian Equity Income VIP Fund would operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager would have under this structure, including monitoring and evaluating the performance of Wellington, monitoring the Wellington for adherence to the stated investment objectives, strategies, policies and restrictions of the Guardian Equity Income VIP Fund and supervising Wellington with respect to the services that Wellington would provide under the Sub-advisory Agreement. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend Wellington, and its ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the New Funds may benefit from the Manager’s ability to use similar resources and capabilities of its affiliates in providing services to the New Funds.
The Trustees considered information regarding the nature, extent and quality of services to be provided to the Guardian Equity Income VIP Fund by Wellington. The Trustees also considered, among other things, the terms of the Sub-advisory Agreement and the range of investment advisory services to be provided by Wellington under the oversight of the Manager and Wellington’s experience with managing other funds that are a series of the Trust. In evaluating these investment advisory services, the Trustees considered, among other things, Wellington’s investment philosophy, investment approach and approach to portfolio construction, and its approach to managing risk. The Trustees also considered information regarding accounts managed by Wellington with a similar strategy as the Guardian Equity Income VIP Fund, including performance and portfolio characteristics. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals that would serve as portfolio managers for the Guardian Equity Income VIP Fund and the capabilities, resources and reputation of Wellington.
The Trustees considered that Guardian Core Fixed Income VIP Fund and Guardian Short Duration Bond VIP Fund would be managed without a sub-adviser by the Manager. In evaluating the investment advisory services to be provided by the Manager with respect to these New Funds, the Trustees considered, among other things, the
Manager’s investment philosophy and style, research and securities selection process and approach to portfolio construction, and the Manager’s approach to managing risk. The Trustees also considered information regarding accounts managed by the Manager with similar strategies as the applicable New Fund, including performance and portfolio characteristics. The Trustees received and evaluated information regarding the background, expertise and/or experience of the investment professionals that would serve as portfolio managers for the New Funds and the capabilities, resources and reputations of the Manager and its affiliates.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations and in light of the New Funds’ anticipated operations, that the nature, extent and quality of services to be provided to the New Funds by the Manager and Wellington were appropriate.
Investment Performance
The New Funds had not commenced operations prior to the Meeting. Accordingly, the New Funds did not yet have an investment performance record. The Board considered historical performance information with respect to other accounts managed by the Manager and Wellington with similar investment strategies as the New Funds, and comparisons to relevant benchmarks. The Trustees concluded that the historical performance records of similarly managed accounts, viewed together with the other relevant factors and information considered by the Trustees, supported a decision to approve each Agreement. The Trustees also concluded that it was appropriate to revisit the New Funds’ investment performance in connection with future reviews of the Agreements.
Costs and Profitability
The Trustees considered the proposed management fees to be 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 proposed 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 Financial
Solutions, Inc., an independent provider of industry data, which showed that the New Funds’ proposed management fees fell within the following quintiles (with the first quintile representing the lowest management fees and the fifth quintile representing the highest management fees): the second quintile for the Guardian
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Core Fixed Income VIP Fund and the Guardian Equity Income VIP Fund and the third quintile for the Guardian Short Duration Bond VIP Fund.
The Trustees considered the proposed sub-advisory fee to be paid under the Sub-advisory Agreement and evaluated the reasonableness of that fee. The Trustees also considered that the fees to be paid to Wellington would be paid by the Manager and not the Guardian Equity Income VIP Fund and that the Manager had negotiated the fees with Wellington at arm’s-length.
The Trustees received comparative information relating to each New Fund’s anticipated operating expense ratio and the actual operating expense ratio of a peer group of funds. In this regard, the Board noted that the New Funds’ anticipated operating expense ratios within the following quintiles (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios): the second quintile for Guardian Core Fixed Income VIP Fund and Guardian Equity Income VIP Fund and the third quintile for Guardian Short Duration Bond VIP Fund. The Trustees considered estimates of the New Funds’ projected asset levels and the Manager’s commitment to limit the New Funds’ operating expenses through an expense limitation agreement with the Trust through at least April 20, 2022. Although the Board recognized that the comparisons between the proposed management fees and anticipated operating expenses of the New 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 proposed management fees and evaluation of the anticipated operating expenses.
The Trustees reviewed information regarding the Manager’s projected costs of sponsoring the New Funds and projected profitability of the New Funds to the Manager based on the anticipated assets and expenses of the New Funds. The Trustees noted that the information, including with respect to revenues and expenses, contained estimates because the New Funds had not yet commenced operations at the time of the Board meeting. The Trustees did not consider any projected profitability information from Wellington because the Manager would be responsible for payment of the sub-advisory fee and had negotiated the fee with Wellington at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Trustees concluded that the proposed management and sub-advisory fees were reasonable in light of the nature, extent and quality of services expected to be rendered to the New Funds by
the Manager and Wellington. The Trustees also concluded that the projected profitability of the New Funds to the Manager was acceptable and the Trustees determined it was appropriate to revisit this information in connection with future reviews of the Agreements.
Economies of Scale
The New Funds had not commenced operations prior to the Board meeting. As a result, no specific information was available concerning the possible effect that asset growth and economies of scale have on a New Fund’s expenses. The Trustees concluded that it was appropriate to revisit potential economies of scale in connection with future reviews of the Agreements or earlier, if appropriate, and that they were satisfied with the extent to which economies of scale would be shared for the benefit of shareholders based on anticipated asset levels.
Ancillary Benefits
The Trustees 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 New Funds. The Trustees acknowledged that the New Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts. 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 Wellington and its affiliates may receive because of their relationships with the Guardian Equity Income VIP Fund, 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 Wellington and its affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable New 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.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
20 |
This Page Intentionally Left Blank
21 |
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
PUB11739
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Select Mid Cap Core VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Select Mid Cap Core VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 8 | |||
Statement of Operations | 8 | |||
Statements of Changes in Net Assets | 9 | |||
Financial Highlights | 10 | |||
Notes to Financial Statements | 12 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 18 | |||
Recent Rulemaking | 19 | |||
Approval of Investment Management and Sub-advisory Agreements | 20 | |||
Portfolio Holdings and Proxy Voting Procedures | 26 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN SELECT MID CAP CORE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $220,092,820
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
CoreCivic, Inc. | 1.41% | |||
Steel Dynamics, Inc. | 1.34% | |||
Sensata Technologies Holding PLC | 1.27% | |||
Frontdoor, Inc. | 1.24% | |||
East West Bancorp, Inc. | 1.19% | |||
Brink’s Co. | 1.16% | |||
Fluor Corp. | 1.12% | |||
Targa Resources Corp. | 1.10% | |||
Churchill Downs, Inc. | 1.08% | |||
First Horizon Corp. | 1.07% | |||
Total | 11.98% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 815.50 | $3.92 | 0.87% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.48 | $4.36 | 0.87% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.4% |
| |||||||
Aerospace & Defense – 0.6% |
| |||||||
Curtiss-Wright Corp. | 10,714 | $ | 1,414,891 | |||||
|
| |||||||
1,414,891 | ||||||||
Auto Components – 1.3% |
| |||||||
Adient PLC(1) | 31,054 | 920,130 | ||||||
Lear Corp. | 13,221 | 1,664,392 | ||||||
Novem Group SA | 22,343 | 180,746 | ||||||
|
| |||||||
2,765,268 | ||||||||
Automobiles – 0.7% |
| |||||||
Aston Martin Lagonda Global Holdings PLC (United Kingdom)(1)(2) | 15,852 | 85,415 | ||||||
Harley-Davidson, Inc. | 42,834 | 1,356,125 | ||||||
|
| |||||||
1,441,540 | ||||||||
Banks – 6.0% |
| |||||||
Associated Banc-Corp | 61,411 | 1,121,365 | ||||||
Bancorp, Inc.(1) | 4,930 | 96,233 | ||||||
BankUnited, Inc. | 3,100 | 110,267 | ||||||
East West Bancorp, Inc. | 40,500 | 2,624,400 | ||||||
First Horizon Corp. | 107,874 | 2,358,126 | ||||||
Meta Financial Group, Inc. | 26,200 | 1,013,154 | ||||||
Metropolitan Bank Holding Corp.(1) | 12,600 | 874,692 | ||||||
PacWest Bancorp | 84,501 | 2,252,797 | ||||||
Pinnacle Financial Partners, Inc. | 19,800 | 1,431,738 | ||||||
Piraeus Financial Holdings SA (Greece)(1) | 126,400 | 125,126 | ||||||
Silvergate Capital Corp., Class A(1) | 1,522 | 81,473 | ||||||
Wintrust Financial Corp. | 14,270 | 1,143,740 | ||||||
|
| |||||||
13,233,111 | ||||||||
Beverages – 0.2% |
| |||||||
Boston Beer Co., Inc., Class A(1) | 1,577 | 477,784 | ||||||
|
| |||||||
477,784 | ||||||||
Biotechnology – 1.3% |
| |||||||
Argenx SE, ADR(1) | 2,750 | 1,041,920 | ||||||
Exelixis, Inc.(1) | 91,000 | 1,894,620 | ||||||
|
| |||||||
2,936,540 | ||||||||
Building Products – 1.1% |
| |||||||
JELD-WEN Holding, Inc.(1) | 161,300 | 2,353,367 | ||||||
|
| |||||||
2,353,367 | ||||||||
Capital Markets – 0.5% |
| |||||||
Lazard Ltd., Class A | 13,212 | 428,201 | ||||||
Patria Investments Ltd., Class A | 42,143 | 557,130 | ||||||
|
| |||||||
985,331 | ||||||||
Chemicals – 2.8% |
| |||||||
Chemours Co. | 61,196 | 1,959,496 | ||||||
RPM International, Inc. | 23,553 | 1,854,092 | ||||||
Trinseo PLC | 27,311 | 1,050,381 | ||||||
Valvoline, Inc. | 45,270 | 1,305,134 | ||||||
|
| |||||||
6,169,103 | ||||||||
Commercial Services & Supplies – 3.5% |
| |||||||
Brink’s Co. | 41,996 | 2,549,577 | ||||||
CoreCivic, Inc.(1) | 280,114 | 3,112,067 | ||||||
GEO Group, Inc.(1) | 324,955 | 2,144,703 | ||||||
|
| |||||||
7,806,347 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Construction & Engineering – 3.6% |
| |||||||
AECOM | 28,246 | $ | 1,842,204 | |||||
API Group Corp.(1) | 109,929 | 1,645,637 | ||||||
Fluor Corp.(1) | 101,569 | 2,472,189 | ||||||
Granite Construction, Inc. | 68,905 | 2,007,892 | ||||||
|
| |||||||
7,967,922 | ||||||||
Construction Materials – 0.9% |
| |||||||
Eagle Materials, Inc. | 17,417 | 1,914,825 | ||||||
|
| |||||||
1,914,825 | ||||||||
Consumer Finance – 1.2% |
| |||||||
FirstCash Holdings, Inc. | 8,598 | 597,647 | ||||||
NerdWallet, Inc., Class A(1) | 38,700 | 306,891 | ||||||
OneMain Holdings, Inc. | 46,969 | 1,755,701 | ||||||
|
| |||||||
2,660,239 | ||||||||
Containers & Packaging – 0.6% |
| |||||||
Berry Global Group, Inc.(1) | 23,000 | 1,256,720 | ||||||
|
| |||||||
1,256,720 | ||||||||
Distributors – 0.6% |
| |||||||
LKQ Corp. | 25,076 | 1,230,981 | ||||||
|
| |||||||
1,230,981 | ||||||||
Diversified Consumer Services – 1.2% |
| |||||||
Frontdoor, Inc.(1) | 113,390 | 2,730,431 | ||||||
|
| |||||||
2,730,431 | ||||||||
Diversified Financial Services – 0.3% |
| |||||||
Cairo Mezz PLC (Cyprus)(1) | 775,200 | 114,316 | ||||||
Cannae Holdings, Inc.(1) | 33,071 | 639,593 | ||||||
|
| |||||||
753,909 | ||||||||
Diversified Telecommunication Services – 0.1% |
| |||||||
Iridium Communications, Inc.(1) | 8,346 | 313,476 | ||||||
|
| |||||||
313,476 | ||||||||
Electric Utilities – 1.5% | ||||||||
ALLETE, Inc. | 11,974 | 703,832 | ||||||
IDACORP, Inc. | 5,200 | 550,784 | ||||||
OGE Energy Corp. | 33,547 | 1,293,572 | ||||||
PNM Resources, Inc. | 14,261 | 681,391 | ||||||
|
| |||||||
3,229,579 | ||||||||
Electrical Equipment – 1.4% | ||||||||
Sensata Technologies Holding PLC | 67,411 | 2,784,748 | ||||||
Vertiv Holdings Co. | 43,471 | 357,332 | ||||||
|
| |||||||
3,142,080 | ||||||||
Electronic Equipment, Instruments & Components – 2.7% |
| |||||||
Avnet, Inc. | 51,811 | 2,221,656 | ||||||
Cognex Corp. | 27,549 | 1,171,383 | ||||||
Jabil, Inc. | 14,100 | 722,061 | ||||||
Trimble, Inc.(1) | 13,283 | 773,469 | ||||||
TTM Technologies, Inc.(1) | 62,245 | 778,063 | ||||||
Vishay Intertechnology, Inc. | 14,028 | 249,979 | ||||||
|
| |||||||
5,916,611 | ||||||||
Energy Equipment & Services – 0.3% |
| |||||||
John Wood Group PLC (United Kingdom)(1) | 22,432 | 42,600 | ||||||
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Energy Equipment & Services (continued) |
| |||||||
Liberty Energy, Inc.(1) | 43,332 | $ | 552,916 | |||||
|
| |||||||
595,516 | ||||||||
Entertainment – 0.3% | ||||||||
Cinemark Holdings, Inc.(1) | 3,629 | 54,508 | ||||||
Endeavor Group Holdings, Inc., Class A(1) | 7,206 | 148,155 | ||||||
Liberty Media Corp-Liberty Formula One, Class C(1) | 4,049 | 256,990 | ||||||
Warner Music Group Corp., Class A | 5,451 | 132,786 | ||||||
|
| |||||||
592,439 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 7.7% |
| |||||||
American Homes 4 Rent, Class A | 42,645 | 1,511,339 | ||||||
Camden Property Trust | 4,900 | 658,952 | ||||||
CubeSmart | 40,479 | 1,729,263 | ||||||
Douglas Emmett, Inc. | 49,040 | 1,097,515 | ||||||
EastGroup Properties, Inc. | 14,100 | 2,176,053 | ||||||
Equity LifeStyle Properties, Inc. | 22,307 | 1,571,974 | ||||||
Gaming and Leisure Properties, Inc. | 12,739 | 584,211 | ||||||
Postal Realty Trust, Inc., Class A | 85,758 | 1,277,794 | ||||||
Ryman Hospitality Properties, Inc.(1) | 14,300 | 1,087,229 | ||||||
SITE Centers Corp. | 81,654 | 1,099,879 | ||||||
Spirit Realty Capital, Inc. | 31,380 | 1,185,536 | ||||||
Terreno Realty Corp. | 14,530 | 809,757 | ||||||
Ventas, Inc. | 40,113 | 2,063,012 | ||||||
Washington Real Estate Investment Trust | 390 | 8,311 | ||||||
|
| |||||||
16,860,825 | ||||||||
Food & Staples Retailing – 1.7% |
| |||||||
BJ’s Wholesale Club Holdings, Inc.(1) | 19,667 | 1,225,647 | ||||||
Casey’s General Stores, Inc. | 1,602 | 296,338 | ||||||
Grocery Outlet Holding Corp.(1) | 15,375 | 655,436 | ||||||
Performance Food Group Co.(1) | 13,321 | 612,500 | ||||||
Sprouts Farmers Market, Inc.(1) | 18,607 | 471,129 | ||||||
US Foods Holding Corp.(1) | 16,500 | 506,220 | ||||||
|
| |||||||
3,767,270 | ||||||||
Food Products – 1.6% | ||||||||
Bunge Ltd. | 2,473 | 224,276 | ||||||
Darling Ingredients, Inc.(1) | 21,483 | 1,284,683 | ||||||
Freshpet, Inc.(1) | 2,813 | 145,967 | ||||||
Greencore Group PLC (Ireland)(1) | 53,554 | 64,741 | ||||||
Ingredion, Inc. | 8,629 | 760,733 | ||||||
Lamb Weston Holdings, Inc. | 2,409 | 172,147 | ||||||
Nomad Foods Ltd.(1) | 8,099 | 161,899 | ||||||
Post Holdings, Inc.(1) | 3,258 | 268,296 | ||||||
Sovos Brands, Inc.(1) | 9,802 | 155,558 | ||||||
TreeHouse Foods, Inc.(1) | 5,058 | 211,526 | ||||||
|
| |||||||
3,449,826 | ||||||||
Gas Utilities – 1.2% | ||||||||
National Fuel Gas Co. | 12,858 | 849,271 | ||||||
ONE Gas, Inc. | 6,486 | 526,598 | ||||||
June 30, 2022 (unaudited) | Shares | Value | ||||||
Gas Utilities (continued) |
| |||||||
Southwest Gas Holdings, Inc.(1) | 10,188 | $ | 887,171 | |||||
UGI Corp. | 9,033 | 348,764 | ||||||
|
| |||||||
2,611,804 | ||||||||
Health Care Equipment & Supplies – 3.0% |
| |||||||
Hologic, Inc.(1) | 14,600 | 1,011,780 | ||||||
Masimo Corp.(1) | 13,400 | 1,750,978 | ||||||
Nanosonics Ltd. (Australia)(1) | 250,000 | 579,165 | ||||||
Penumbra, Inc.(1) | 15,400 | 1,917,608 | ||||||
Tandem Diabetes Care, Inc.(1) | 24,200 | 1,432,398 | ||||||
|
| |||||||
6,691,929 | ||||||||
Health Care Providers & Services – 3.6% |
| |||||||
agilon health, Inc.(1) | 62,000 | 1,353,460 | ||||||
Alignment Healthcare, Inc.(1) | 84,000 | 958,440 | ||||||
LHC Group, Inc.(1) | 6,100 | 950,014 | ||||||
Molina Healthcare, Inc.(1) | 7,200 | 2,013,192 | ||||||
Oak Street Health, Inc.(1) | 60,000 | 986,400 | ||||||
Privia Health Group, Inc.(1) | 32,000 | 931,840 | ||||||
Surgery Partners, Inc.(1) | 23,400 | 676,728 | ||||||
|
| |||||||
7,870,074 | ||||||||
Hotels, Restaurants & Leisure – 4.1% |
| |||||||
Aramark | 24,470 | 749,516 | ||||||
Brinker International, Inc.(1) | 15,100 | 332,653 | ||||||
Caesars Entertainment, Inc.(1) | 36,195 | 1,386,268 | ||||||
Churchill Downs, Inc. | 12,447 | 2,383,974 | ||||||
Domino’s Pizza, Inc. | 3,168 | 1,234,601 | ||||||
Planet Fitness, Inc., Class A(1) | 6,952 | 472,806 | ||||||
Vail Resorts, Inc. | 3,519 | 767,318 | ||||||
Wyndham Hotels & Resorts, Inc. | 24,485 | 1,609,154 | ||||||
|
| |||||||
8,936,290 | ||||||||
Household Durables – 2.0% | ||||||||
Leggett & Platt, Inc. | 26,332 | 910,560 | ||||||
Mohawk Industries, Inc.(1) | 9,787 | 1,214,469 | ||||||
NVR, Inc.(1) | 301 | 1,205,246 | ||||||
Taylor Morrison Home Corp.(1) | 48,349 | 1,129,433 | ||||||
|
| |||||||
4,459,708 | ||||||||
Household Products – 0.4% | ||||||||
Energizer Holdings, Inc. | 15,012 | 425,590 | ||||||
Reynolds Consumer Products, Inc. | 5,059 | 137,959 | ||||||
Spectrum Brands Holdings, Inc. | 3,760 | 308,395 | ||||||
|
| |||||||
871,944 | ||||||||
Insurance – 3.8% | ||||||||
American Financial Group, Inc. | 13,919 | 1,932,096 | ||||||
Assurant, Inc. | 8,624 | 1,490,659 | ||||||
Globe Life, Inc. | 18,500 | 1,803,195 | ||||||
Primerica, Inc. | 15,587 | 1,865,608 | ||||||
Talanx AG (Germany) | 9,563 | 363,882 | ||||||
Unum Group | 29,300 | 996,786 | ||||||
|
| |||||||
8,452,226 | ||||||||
Interactive Media & Services – 0.2% |
| |||||||
TripAdvisor, Inc.(1) | 6,053 | 107,744 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Interactive Media & Services (continued) |
| |||||||
Ziff Davis, Inc.(1) | 3,446 | $ | 256,830 | |||||
|
| |||||||
364,574 | ||||||||
IT Services – 3.4% | ||||||||
Akamai Technologies, Inc.(1) | 13,789 | 1,259,349 | ||||||
AvidXchange Holdings, Inc.(1) | 843 | 5,176 | ||||||
Cyxtera Technologies, Inc.(1) | 73,713 | 835,906 | ||||||
ExlService Holdings, Inc.(1) | 6,815 | 1,004,054 | ||||||
GoDaddy, Inc., Class A(1) | 17,632 | 1,226,482 | ||||||
Nuvei Corp. (Canada)(1)(2) | 6,013 | 217,313 | ||||||
Repay Holdings Corp.(1) | 49,225 | 632,541 | ||||||
Thoughtworks Holding, Inc.(1) | 1,000 | 14,110 | ||||||
WEX, Inc.(1) | 9,370 | 1,457,597 | ||||||
Wix.com Ltd.(1) | 13,475 | 883,286 | ||||||
|
| |||||||
7,535,814 | ||||||||
Life Sciences Tools & Services – 0.8% |
| |||||||
Bruker Corp. | 28,500 | 1,788,660 | ||||||
|
| |||||||
1,788,660 | ||||||||
Machinery – 1.8% | ||||||||
Allison Transmission Holdings, Inc. | 56,876 | 2,186,882 | ||||||
Flowserve Corp. | 58,035 | 1,661,542 | ||||||
|
| |||||||
3,848,424 | ||||||||
Marine – 1.0% | ||||||||
Genco Shipping & Trading Ltd. | 29,171 | 563,584 | ||||||
Golden Ocean Group Ltd. | 34,162 | 397,646 | ||||||
Kirby Corp.(1) | 13,402 | 815,378 | ||||||
Navios Maritime Partners LP | 1,600 | 36,800 | ||||||
Star Bulk Carriers Corp. | 13,639 | 340,838 | ||||||
|
| |||||||
2,154,246 | ||||||||
Media – 1.0% | ||||||||
Cable One, Inc. | 642 | 827,744 | ||||||
Gray Television, Inc. | 8,045 | 135,880 | ||||||
Interpublic Group of Cos., Inc. | 11,078 | 304,977 | ||||||
Liberty Media Corp-Liberty SiriusXM, Class A(1) | 3,132 | 112,877 | ||||||
New York Times Co., Class A | 13,731 | 383,095 | ||||||
Nexstar Media Group, Inc., Class A | 2,620 | 426,746 | ||||||
S4 Capital PLC (United | 22,405 | 62,605 | ||||||
|
| |||||||
2,253,924 | ||||||||
Metals & Mining – 2.4% | ||||||||
Cleveland-Cliffs, Inc.(1) | 85,249 | 1,310,277 | ||||||
Steel Dynamics, Inc. | 44,562 | 2,947,776 | ||||||
Yamana Gold, Inc. | 238,033 | 1,106,854 | ||||||
|
| |||||||
5,364,907 | ||||||||
Mortgage Real Estate Investment Trusts (REITs) – 0.9% |
| |||||||
New Residential Investment Corp. | 215,143 | 2,005,133 | ||||||
|
| |||||||
2,005,133 | ||||||||
Multi-Utilities – 0.6% | ||||||||
Black Hills Corp. | 1,979 | 144,012 | ||||||
NiSource, Inc. | 17,279 | 509,558 | ||||||
NorthWestern Corp. | 12,380 | 729,553 | ||||||
|
| |||||||
1,383,123 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Multiline Retail – 0.3% | ||||||||
Nordstrom, Inc. | 28,760 | $ | 607,699 | |||||
|
| |||||||
607,699 | ||||||||
Oil, Gas & Consumable Fuels – 3.7% |
| |||||||
APA Corp. | 23,506 | 820,359 | ||||||
Coterra Energy, Inc. | 31,638 | 815,944 | ||||||
Denbury, Inc.(1) | 8,844 | 530,552 | ||||||
EQT Corp. | 61,766 | 2,124,750 | ||||||
HF Sinclair Corp. | 32,590 | 1,471,764 | ||||||
Targa Resources Corp. | 40,447 | 2,413,473 | ||||||
|
| |||||||
8,176,842 | ||||||||
Paper & Forest Products – 0.7% | ||||||||
Louisiana-Pacific Corp. | 29,453 | 1,543,632 | ||||||
|
| |||||||
1,543,632 | ||||||||
Personal Products – 0.4% |
| |||||||
Beauty Health Co.(1) | 66,900 | 860,334 | ||||||
BellRing Brands, Inc.(1) | 4,850 | 120,717 | ||||||
|
| |||||||
981,051 | ||||||||
Pharmaceuticals – 0.7% | ||||||||
Royalty Pharma PLC, Class A | 34,000 | 1,429,360 | ||||||
|
| |||||||
1,429,360 | ||||||||
Professional Services – 1.3% | ||||||||
CACI International, Inc., Class A(1) | 5,438 | 1,532,319 | ||||||
Nielsen Holdings PLC | 56,253 | 1,306,195 | ||||||
|
| |||||||
2,838,514 | ||||||||
Real Estate Management & Development – 1.3% |
| |||||||
DigitalBridge Group, Inc.(1) | 88,700 | 432,856 | ||||||
Doma Holdings, Inc.(1) | 153,537 | 158,143 | ||||||
Jones Lang LaSalle, Inc.(1) | 8,759 | 1,531,599 | ||||||
WeWork, Inc., Class A(1) | 144,500 | 725,390 | ||||||
|
| |||||||
2,847,988 | ||||||||
Road & Rail – 1.8% | ||||||||
Knight-Swift Transportation Holdings, Inc. | 48,183 | 2,230,391 | ||||||
XPO Logistics, Inc.(1) | 36,741 | 1,769,447 | ||||||
|
| |||||||
3,999,838 | ||||||||
Semiconductors & Semiconductor Equipment – 1.7% |
| |||||||
ON Semiconductor Corp.(1) | 31,260 | 1,572,691 | ||||||
SolarEdge Technologies, Inc.(1) | 7,520 | 2,058,073 | ||||||
|
| |||||||
3,630,764 | ||||||||
Software – 5.5% | ||||||||
Aspen Technology, Inc.(1) | 3,543 | 650,778 | ||||||
Black Knight, Inc.(1) | 12,002 | 784,811 | ||||||
Blackbaud, Inc.(1) | 24,537 | 1,424,863 | ||||||
Blend Labs, Inc., Class A(1) | 4,900 | 11,564 | ||||||
Braze, Inc., Class A(1) | 300 | 10,869 | ||||||
BTRS Holdings, Inc., Class 1(1) | 62,300 | 310,254 | ||||||
Ceridian HCM Holding, Inc.(1) | 21,246 | 1,000,261 | ||||||
Citrix Systems, Inc. | 7,633 | 741,698 | ||||||
Coupa Software, Inc.(1) | 8,168 | 466,393 | ||||||
Elastic NV(1) | 14,528 | 983,110 | ||||||
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Software (continued) | ||||||||
Gitlab, Inc., Class A(1) | 200 | $ | 10,628 | |||||
Guidewire Software, Inc.(1) | 7,328 | 520,215 | ||||||
HashiCorp, Inc., Class A(1) | 100 | 2,944 | ||||||
LiveRamp Holdings, Inc.(1) | 9,027 | 232,987 | ||||||
NortonLifeLock, Inc. | 53,403 | 1,172,730 | ||||||
PTC, Inc.(1) | 15,126 | 1,608,499 | ||||||
Samsara, Inc., Class A(1) | 400 | 4,468 | ||||||
Tenable Holdings, Inc.(1) | 32,573 | 1,479,140 | ||||||
Zendesk, Inc.(1) | 10,067 | 745,663 | ||||||
|
| |||||||
12,161,875 | ||||||||
Specialty Retail – 1.3% | ||||||||
Burlington Stores, Inc.(1) | 7,828 | 1,066,408 | ||||||
Camping World Holdings, Inc., Class A | 10,574 | 228,293 | ||||||
Five Below, Inc.(1) | 14,235 | 1,614,676 | ||||||
|
| |||||||
2,909,377 | ||||||||
Technology Hardware, Storage & Peripherals – 0.3% |
| |||||||
Western Digital Corp.(1) | 16,938 | 759,331 | ||||||
|
| |||||||
759,331 | ||||||||
Textiles, Apparel & Luxury Goods – 2.4% |
| |||||||
Capri Holdings Ltd.(1) | 37,656 | 1,544,272 | ||||||
PRADA SpA (Italy) | 117,065 | 656,885 | ||||||
PVH Corp. | 19,629 | 1,116,890 | ||||||
Tapestry, Inc. | 61,704 | 1,883,206 | ||||||
|
| |||||||
5,201,253 | ||||||||
Thrifts & Mortgage Finance – 0.8% |
| |||||||
MGIC Investment Corp. | 145,931 | 1,838,731 | ||||||
|
| |||||||
1,838,731 | ||||||||
Trading Companies & Distributors – 1.6% |
| |||||||
Beacon Roofing Supply, Inc.(1) | 10,593 | 544,057 | ||||||
MRC Global, Inc.(1) | 211,792 | 2,109,448 | ||||||
NOW, Inc.(1) | 95,242 | 931,467 | ||||||
|
| |||||||
3,584,972 | ||||||||
Water Utilities – 0.7% | ||||||||
Essential Utilities, Inc. | 32,832 | 1,505,347 | ||||||
|
| |||||||
1,505,347 | ||||||||
Total Common Stocks (Cost $263,069,756) |
| 216,575,285 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Corporate Bonds & Notes – 0.1% |
| |||||||
Commercial Services – 0.1% |
| |||||||
Affirm Holdings, Inc., Convertible 0.00% due | $ | 282,000 | $ | 160,689 | ||||
|
| |||||||
160,689 | ||||||||
Total Corporate Bonds & Notes (Cost $168,300) |
| 160,689 | ||||||
Short–Term Investments – 1.7% |
| |||||||
U.S. Treasury Bills – 0.0% | ||||||||
U.S. Treasury Bill | 20,000 | 19,970 | ||||||
1.543% due 9/1/2022 | 50,000 | 49,868 | ||||||
Total U.S. Treasury Bills (Cost $69,883) |
| 69,838 | ||||||
Repurchase Agreements – 1.7% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $3,733,118, due 7/1/2022(4) | 3,733,093 | 3,733,093 | ||||||
Total Repurchase Agreements (Cost $3,733,093) |
| 3,733,093 | ||||||
Total Investments(5) – 100.2% (Cost $267,041,032) |
| 220,538,905 | ||||||
Liabilities in excess of other assets(6) – (0.2)% |
| (446,085 | ) | |||||
Total Net Assets – 100.0% | $ | 220,092,820 |
(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, 2022, the aggregate market value of these securities amounted to $463,417, representing 0.2% of net assets. These securities have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
(3) | Zero coupon bond. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 3,812,000 | $ | 3,807,830 |
(5) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
(6) | Liabilities in excess of other assets include net unrealized appreciation on futures contracts as follows: |
Open futures contracts at June 30, 2022:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||||||
S&P Midcap 400 E-Mini | September 2022 | 1 | Long | $ | 225,106 | $ | 226,800 | $ | 1,694 | |||||||||||||||
Total |
| $ | 225,106 | $ | 226,800 | $ | 1,694 |
Legend:
ADR — American Depositary Receipt
6 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 214,299,804 | $ | 2,275,481 | * | $ | — | $ | 216,575,285 | |||||||
Corporate Bonds & Notes | — | 160,689 | — | 160,689 | ||||||||||||
U.S. Treasury Bills | — | 69,838 | — | 69,838 | ||||||||||||
Repurchase Agreements | — | 3,733,093 | — | 3,733,093 | ||||||||||||
Total | $ | 214,299,804 | $ | 6,239,101 | $ | — | $ | 220,538,905 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Assets | $ | 1,694 | $ | — | $ | — | $ | 1,694 | ||||||||
Total | $ | 1,694 | $ | — | $ | — | $ | 1,694 |
* | 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. | 7 |
FINANCIAL INFORMATION — GUARDIAN SELECT MID CAP CORE VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,946,831 | ||
Interest | 789 | |||
Withholding taxes on foreign dividends | (5,751 | ) | ||
|
| |||
Total Investment Income | 1,941,869 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 639,678 | |||
Distribution fees | 301,735 | |||
Professional fees | 31,400 | |||
Trustees’ and officers’ fees | 27,593 | |||
Custodian and accounting fees | 22,663 | |||
Administrative fees | 19,047 | |||
Transfer agent fees | 5,980 | |||
Shareholder reports | 5,961 | |||
Other expenses | 6,516 | |||
|
| |||
Total Expenses | 1,060,573 | |||
Less: Fees waived | (10,536 | ) | ||
|
| |||
Total Expenses, Net | 1,050,037 | |||
|
| |||
Net Investment Income/(Loss) | 891,832 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments, Derivative Contracts and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | (1,486,895 | ) | ||
Net realized gain/(loss) from futures contracts | (335,238 | ) | ||
Net realized gain/(loss) from foreign currency transactions | (1,436 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (47,908,965 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 1,694 | |||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (57 | ) | ||
|
| |||
Net Loss on Investments, Derivative Contracts and Foreign Currency Transactions | (49,730,897 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (48,839,065) | ||
|
| |||
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN SELECT MID CAP CORE VIP FUND
1 | Commenced operations on October 25, 2021. |
2 | Includes in-kind subscriptions of $262,899,145. 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. | 9 |
FINANCIAL INFORMATION — GUARDIAN SELECT MID 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 6/30/22 | $ | 10.08 | $ | 0.03 | $ | (1.89 | ) | $ | (1.86 | ) | $ | 8.22 | (18.45)% | |||||||||||
Period Ended 12/31/21(5) | 10.00 | 0.02 | 0.06 | 0.08 | 10.08 | 0.80% |
10 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN SELECT MID 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) | |||||||||||||||||
$220,093 | 0.87% | 0.88% | 0.74% | 0.73% | 35% | |||||||||||||||||
261,849 | 0.82% | 0.90% | 0.96% | 0.88% | 93% |
(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. For the period ended December 31, 2021, 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 25, 2021. |
The accompanying notes are an integral part of these financial statements. | 11 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Select Mid Cap Core VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 25, 2021. 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 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”). 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.
Exchange-traded financial futures contracts are valued at the last settlement price on the market where they are primarily traded.
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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SELECT MID 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, 2022, 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, 2022 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, 2022, 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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SELECT MID 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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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 0.53% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly.
Park Avenue has contractually agreed through April 30, 2023 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $10,536.
Park Avenue has entered into a Sub-Advisory Agreement with FIAM LLC (“FIAM”). FIAM 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.
14 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $301,735 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 $89,477,427 and $83,016,274, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, there were no purchases or sales of U.S. government securities.
b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include,
but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.
c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
e. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into equity futures contracts for the six months ended June 30, 2022 to equitize cash and keep the Fund fully invested. Using futures contracts involves various risks, including market, interest rate and equity risks. Risks of entering into futures contracts include the possibility that there may be an illiquid market or that a change in the value of the contract may not correlate with the changes in the value of the underlying securities. To the extent that market prices move in an unexpected direction, there is a risk that a Fund will not achieve the anticipated benefits of the futures contract or may realize a loss.
15 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
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, 2022, the Fund had the following derivatives at fair value, grouped into appropriate risk categories that illustrate the Fund’s use of derivative instruments:
Equity Contracts | ||||
Asset Derivatives | ||||
Futures Contracts1 | $ | 1,694 |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2022 were as follows:
Equity Contracts | ||||
Net Realized Gain/(Loss) | ||||
Futures Contracts1 | $ | (335,238 | ) | |
Net Change in Unrealized Appreciation/(Depreciation) |
| |||
Futures Contracts2 | $ | 1,694 | ||
Average Number of Notional Amounts | ||||
Futures Contracts3 | 2 |
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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SELECT MID CAP CORE VIP FUND
general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic
disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in
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SUPPLEMENTAL INFORMATION (UNAUDITED)
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 Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk
management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the
Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of
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SUPPLEMENTAL INFORMATION (UNAUDITED)
economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is
considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board |
also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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.
25 |
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.
26 |
This Page Intentionally Left Blank
27 |
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
PUB11408
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Small-Mid Cap Core VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Small-Mid Cap Core VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Recent Rulemaking | 16 | |||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN SMALL-MID CAP CORE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $292,406,340
Sector Allocation1 As of June 30, 2022 | ||
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Carlisle Cos., Inc. | 2.42% | |||
Sun Communities, Inc. REIT | 2.21% | |||
VICI Properties, Inc. REIT | 2.14% | |||
Bio-Rad Laboratories, Inc., Class A | 2.13% | |||
Arch Capital Group Ltd. | 2.00% | |||
Masonite International Corp. | 1.91% | |||
Atkore, Inc. | 1.84% | |||
Axis Capital Holdings Ltd. | 1.83% | |||
SBA Communications Corp. REIT | 1.82% | |||
Ashland Global Holdings, Inc. | 1.82% | |||
Total | 20.12% |
1 | The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
1 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22 - 6/30/22 | Expense Ratio During Period 1/1/22 - 6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 777.00 | $4.10 | 0.93% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.18 | $4.66 | 0.93% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL-MID CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.5% |
| |||||||
Aerospace & Defense – 1.4% |
| |||||||
MTU Aero Engines AG (Germany) | 22,093 | $ | 4,021,641 | |||||
|
| |||||||
4,021,641 | ||||||||
Auto Components – 1.2% |
| |||||||
Dana, Inc. | 241,879 | 3,403,238 | ||||||
|
| |||||||
3,403,238 | ||||||||
Banks – 2.1% |
| |||||||
Pinnacle Financial Partners, Inc. | 36,764 | 2,658,405 | ||||||
Webster Financial Corp. | 81,685 | 3,443,023 | ||||||
|
| |||||||
6,101,428 | ||||||||
Biotechnology – 0.2% |
| |||||||
Sage Therapeutics, Inc.(1) | 15,671 | 506,173 | ||||||
|
| |||||||
506,173 | ||||||||
Building Products – 8.3% |
| |||||||
Advanced Drainage Systems, Inc. | 26,381 | 2,376,137 | ||||||
Armstrong World Industries, Inc. | 60,626 | 4,544,525 | ||||||
AZEK Co., Inc.(1) | 170,349 | 2,851,642 | ||||||
Carlisle Cos., Inc. | 29,684 | 7,082,899 | ||||||
Masonite International Corp.(1) | 72,680 | 5,584,004 | ||||||
Tecnoglass, Inc. | 99,472 | 1,745,734 | ||||||
|
| |||||||
24,184,941 | ||||||||
Capital Markets – 1.9% |
| |||||||
Cboe Global Markets, Inc. | 33,896 | 3,836,688 | ||||||
Raymond James Financial, Inc. | 20,949 | 1,873,050 | ||||||
|
| |||||||
5,709,738 | ||||||||
Chemicals – 4.3% |
| |||||||
Ashland Global Holdings, Inc. | 51,513 | 5,308,415 | ||||||
Quaker Chemical Corp. | 24,587 | 3,676,248 | ||||||
Westlake Corp. | 37,203 | 3,646,638 | ||||||
|
| |||||||
12,631,301 | ||||||||
Commercial Services & Supplies – 3.5% |
| |||||||
IAA, Inc.(1) | 118,192 | 3,873,152 | ||||||
Republic Services, Inc. | 30,322 | 3,968,240 | ||||||
Stericycle, Inc.(1) | 52,637 | 2,308,132 | ||||||
|
| |||||||
10,149,524 | ||||||||
Construction & Engineering – 0.8% |
| |||||||
API Group Corp.(1) | 160,677 | 2,405,335 | ||||||
|
| |||||||
2,405,335 | ||||||||
Containers & Packaging – 1.0% |
| |||||||
Crown Holdings, Inc. | 33,113 | 3,052,025 | ||||||
|
| |||||||
3,052,025 | ||||||||
Diversified Consumer Services – 0.9% |
| |||||||
Service Corp. International | 36,750 | 2,540,160 | ||||||
|
| |||||||
2,540,160 | ||||||||
Electrical Equipment – 2.9% |
| |||||||
Atkore, Inc.(1) | 64,890 | 5,386,519 | ||||||
Regal Rexnord Corp. | 28,637 | 3,250,872 | ||||||
|
| |||||||
| 8,637,391 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Electronic Equipment, Instruments & Components – 1.7% |
| |||||||
Teledyne Technologies, Inc.(1) | 13,027 | $ | 4,886,558 | |||||
|
| |||||||
4,886,558 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 10.3% |
| |||||||
American Homes 4 Rent, Class A | 133,204 | 4,720,750 | ||||||
Apartment Income REIT Corp. | 85,196 | 3,544,154 | ||||||
Life Storage, Inc. | 34,563 | 3,859,305 | ||||||
SBA Communications Corp. | 16,610 | 5,316,030 | ||||||
Sun Communities, Inc. | 40,576 | 6,466,191 | ||||||
VICI Properties, Inc. | 209,846 | 6,251,312 | ||||||
|
| |||||||
30,157,742 | ||||||||
Food Products – 1.3% |
| |||||||
Nomad Foods Ltd.(1) | 196,021 | 3,918,460 | ||||||
|
| |||||||
3,918,460 | ||||||||
Health Care Equipment & Supplies – 4.5% |
| |||||||
Haemonetics Corp.(1) | 63,988 | 4,170,738 | ||||||
Integer Holdings Corp.(1) | 52,909 | 3,738,550 | ||||||
LivaNova PLC(1) | 83,463 | 5,213,933 | ||||||
|
| |||||||
13,123,221 | ||||||||
Health Care Providers & Services – 3.3% |
| |||||||
HealthEquity, Inc.(1) | 72,655 | 4,460,291 | ||||||
Humana, Inc. | 11,130 | 5,209,619 | ||||||
|
| |||||||
9,669,910 | ||||||||
Health Care Technology – 0.4% |
| |||||||
Schrodinger, Inc.(1) | 50,127 | 1,323,854 | ||||||
|
| |||||||
1,323,854 | ||||||||
Hotels, Restaurants & Leisure – 1.3% |
| |||||||
Planet Fitness, Inc., Class A(1) | 54,831 | 3,729,056 | ||||||
|
| |||||||
3,729,056 | ||||||||
Household Durables – 1.2% |
| |||||||
Mohawk Industries, Inc.(1) | 27,288 | 3,386,168 | ||||||
|
| |||||||
3,386,168 | ||||||||
Household Products – 1.3% |
| |||||||
Church & Dwight Co., Inc. | 42,497 | 3,937,772 | ||||||
|
| |||||||
3,937,772 | ||||||||
Insurance – 5.5% |
| |||||||
Arch Capital Group Ltd.(1) | 128,883 | 5,862,888 | ||||||
Axis Capital Holdings Ltd. | 93,730 | 5,351,046 | ||||||
Reinsurance Group of America, Inc. | 40,536 | 4,754,467 | ||||||
|
| |||||||
15,968,401 | ||||||||
Interactive Media & Services – 1.0% |
| |||||||
Bumble, Inc., Class A(1) | 105,612 | 2,972,978 | ||||||
|
| |||||||
2,972,978 | ||||||||
Internet & Direct Marketing Retail – 1.5% |
| |||||||
RealReal, Inc.(1) | 279,544 | 696,065 | ||||||
Revolve Group, Inc.(1) | 137,655 | 3,566,641 | ||||||
|
| |||||||
4,262,706 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL-MID CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
IT Services – 2.3% |
| |||||||
Evo Payments, Inc., Class A(1) | 172,085 | $ | 4,047,439 | |||||
Genpact Ltd. | 64,368 | 2,726,629 | ||||||
|
| |||||||
6,774,068 | ||||||||
Life Sciences Tools & Services – 4.4% |
| |||||||
Azenta, Inc. | 41,778 | 3,012,194 | ||||||
Bio-Rad Laboratories, Inc., Class A(1) | 12,554 | 6,214,230 | ||||||
Codexis, Inc.(1) | 130,133 | 1,361,191 | ||||||
Sotera Health Co.(1) | 109,672 | 2,148,474 | ||||||
|
| |||||||
12,736,089 | ||||||||
Machinery – 1.2% |
| |||||||
Ingersoll Rand, Inc. | 82,602 | 3,475,892 | ||||||
|
| |||||||
3,475,892 | ||||||||
Metals & Mining – 1.0% |
| |||||||
Steel Dynamics, Inc. | 43,997 | 2,910,402 | ||||||
|
| |||||||
2,910,402 | ||||||||
Personal Products – 1.8% |
| |||||||
elf Beauty, Inc.(1) | 146,465 | 4,493,546 | ||||||
Honest Co., Inc.(1) | 270,695 | 790,430 | ||||||
|
| |||||||
5,283,976 | ||||||||
Professional Services – 2.5% |
| |||||||
Booz Allen Hamilton Holding Corp. | 44,758 | 4,044,333 | ||||||
Dun & Bradstreet Holdings, Inc.(1) | 210,797 | 3,168,279 | ||||||
|
| |||||||
7,212,612 | ||||||||
Semiconductors & Semiconductor Equipment – 2.7% |
| |||||||
Marvell Technology, Inc. | 74,794 | 3,255,783 | ||||||
ON Semiconductor Corp.(1) | 91,045 | 4,580,474 | ||||||
|
| |||||||
7,836,257 | ||||||||
Software – 12.5% |
| |||||||
8x8, Inc.(1) | 198,358 | 1,021,544 | ||||||
Black Knight, Inc.(1) | 73,825 | 4,827,417 | ||||||
Fair Isaac Corp.(1) | 10,795 | 4,327,715 | ||||||
Instructure Holdings, Inc.(1) | 199,999 | 4,539,977 | ||||||
New Relic, Inc.(1) | 31,815 | 1,592,341 | ||||||
PagerDuty, Inc.(1) | 179,322 | 4,443,599 | ||||||
Q2 Holdings, Inc.(1) | 76,394 | 2,946,517 | ||||||
Qualtrics International, Inc., Class A(1) | 162,055 | 2,027,308 | ||||||
Riskified Ltd., Class A(1) | 101,757 | 451,801 | ||||||
SPS Commerce, Inc.(1) | 28,071 | 3,173,426 | ||||||
WalkMe Ltd.(1) | 287,799 | 2,915,404 | ||||||
Zendesk, Inc.(1) | 56,657 | 4,196,584 | ||||||
|
| |||||||
36,463,633 | ||||||||
Specialty Retail – 3.6% |
| |||||||
Burlington Stores, Inc.(1) | 24,896 | 3,391,582 | ||||||
Leslie’s, Inc.(1) | 199,833 | 3,033,465 | ||||||
National Vision Holdings, Inc.(1) | 84,070 | 2,311,925 | ||||||
Tractor Supply Co. | 9,398 | 1,821,802 | ||||||
|
| |||||||
10,558,774 | ||||||||
Textiles, Apparel & Luxury Goods – 1.3% |
| |||||||
Deckers Outdoor Corp.(1) | 15,212 | 3,884,384 | ||||||
|
| |||||||
3,884,384 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Thrifts & Mortgage Finance – 1.2% |
| |||||||
Essent Group Ltd. | 91,892 | $ | 3,574,599 | |||||
|
| |||||||
3,574,599 | ||||||||
Trading Companies & Distributors – 2.2% |
| |||||||
Air Lease Corp. | 95,820 | 3,203,262 | ||||||
United Rentals, Inc.(1) | 13,259 | 3,220,744 | ||||||
|
| |||||||
6,424,006 | ||||||||
Total Common Stocks (Cost $368,721,106) |
| 287,814,413 | ||||||
Exchange–Traded Funds – 1.2% |
| |||||||
SPDR S&P Biotech ETF(1) | 48,042 | 3,568,079 | ||||||
Total Exchange–Traded Funds (Cost $5,327,616) |
| 3,568,079 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 0.4% |
| |||||||
Repurchase Agreements – 0.4% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $1,208,715, due 7/1/2022(2) | $ | 1,208,707 | 1,208,707 | |||||
Total Repurchase Agreements (Cost $1,208,707) |
| 1,208,707 | ||||||
Total Investments – 100.1% (Cost $375,257,429) |
| 292,591,199 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (184,859 | ) | |||||
Total Net Assets – 100.0% |
| $ | 292,406,340 |
(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 | 3.00% | 6/30/2024 | $ | 1,234,300 | $ | 1,232,950 |
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL-MID CAP CORE VIP FUND
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 283,792,772 | $ | 4,021,641 | * | $ | — | $ | 287,814,413 | |||||||
Exchange–Traded Funds | 3,568,079 | — | — | 3,568,079 | ||||||||||||
Repurchase Agreements | — | 1,208,707 | — | 1,208,707 | ||||||||||||
Total | $ | 287,360,851 | $ | 5,230,348 | $ | — | $ | 292,591,199 |
* | 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 |
FINANCIAL INFORMATION — GUARDIAN SMALL-MID CAP CORE VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,235,696 | ||
Interest | 474 | |||
Withholding taxes on foreign dividends | (7,422 | ) | ||
|
| |||
Total Investment Income | 1,228,748 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 1,059,546 | |||
Distribution fees | 420,815 | |||
Trustees’ and officers’ fees | 40,221 | |||
Professional fees | 39,199 | |||
Administrative fees | 27,316 | |||
Custodian and accounting fees | 21,437 | |||
Shareholder reports | 6,815 | |||
Transfer agent fees | 6,186 | |||
Other expenses | 9,436 | |||
|
| |||
Total Expenses | 1,630,971 | |||
Less: Fees waived | (65,538 | ) | ||
|
| |||
Total Expenses, Net | 1,565,433 | |||
|
| |||
Net Investment Income/(Loss) | (336,685 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | (1,903,814 | ) | ||
Net realized gain/(loss) from foreign currency transactions | (364 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (83,161,509 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (50 | ) | ||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (85,065,737 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (85,402,422 | ) | |
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN SMALL-MID CAP CORE VIP FUND
1 | Commenced operations on October 25, 2021. |
2 | Includes in-kind subscriptions of $171,042,398. 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 |
FINANCIAL INFORMATION — GUARDIAN SMALL-MID CAP CORE VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Loss(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2),(3) | |||||||||||||||||||
Six Months Ended 6/30/22 | $ | 10.09 | $ | (0.01 | ) | $ | (2.24 | ) | $ | (2.25 | ) | $ | 7.84 | (22.30) | % | |||||||||
Period Ended 12/31/21(5) | 10.00 | (0.00 | )(6) | 0.09 | 0.09 | 10.09 | 0.90 | % |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN SMALL-MID 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 Loss to Average Net Assets(3),(4) | Gross Ratio of Net Investment Loss to Average Net Assets(3) | Portfolio Turnover Rate(3) | |||||||||||||||||
$ | 292,406 | 0.93% | 0.97% | (0.20)% | (0.24)% | 20% | ||||||||||||||||
385,128 | 0.90% | 0.98% | (0.12)% | (0.20)% | 59% |
(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. For the period ended December 31, 2021, 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 Loss to Average Net Assets include the effect of fee waivers and expense limitations. |
(5) | Commenced operations on October 25, 2021. |
(6) | Rounds to $(0.00) per share. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL-MID CAP CORE VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Small-Mid Cap Core VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 25, 2021. 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 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”). 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.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued in accordance with policies and procedures adopted by the Board of Trustees. In addition, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities. Certain foreign equity instruments are valued by applying international fair value factors provided by approved pricing services. The factors seek to adjust the local closing price for movements of local markets post closing, but prior to the time the NAVs are calculated. Valuations reflected in this report are as of the report date. As a result, changes in valuation due to market events and/or issuer related events after the report date and prior to issuance of the report are not reflected herein.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL-MID 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, 2022, 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, 2022 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, 2022, 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, 2022, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL-MID 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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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% of the first $200 million, and 0.60% in excess of $200 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, 2023 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 0.93% 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $65,538.
Park Avenue has entered into a Sub-Advisory Agreement with Allspring Global Investments, LLC (“Allspring”). Allspring is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustees. Sub-advisory fees are paid by Park Avenue and do not represent a separate or additional expense to the Fund.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL-MID CAP CORE VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $420,815 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 $66,975,552 and $73,299,595, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL-MID CAP CORE VIP FUND
(b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The
Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the
Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of
19 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
20 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period |
and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
PUB11409
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Strategic Large Cap Core VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Strategic Large Cap Core VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Recent Rulemaking | 16 | |||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN STRATEGIC LARGE CAP CORE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $288,327,047 |
Sector Allocation1 As of June 30, 2022 |
|
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 7.02% | |||
Alphabet, Inc., Class C | 4.05% | |||
Apple, Inc. | 3.46% | |||
AutoZone, Inc. | 2.91% | |||
Merck & Co., Inc. | 2.54% | |||
AbbVie, Inc. | 2.33% | |||
Coca-Cola Co. | 2.32% | |||
UnitedHealth Group, Inc. | 2.16% | |||
Procter & Gamble Co. | 2.08% | |||
Broadcom, Inc. | 2.07% | |||
Total | 30.94% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 862.40 | $3.88 | 0.84% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.63 | $4.21 | 0.84% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS – GUARDIAN STRATEGIC LARGE CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 97.3% | ||||||||
Aerospace & Defense – 2.0% | ||||||||
Lockheed Martin Corp. | 6,860 | $ | 2,949,526 | |||||
Northrop Grumman Corp. | 6,193 | 2,963,784 | ||||||
|
| |||||||
5,913,310 | ||||||||
Banks – 2.2% |
| |||||||
JPMorgan Chase & Co. | 39,916 | 4,494,941 | ||||||
U.S. Bancorp | 41,699 | 1,918,988 | ||||||
|
| |||||||
6,413,929 | ||||||||
Beverages – 3.1% |
| |||||||
Coca-Cola Co. | 106,305 | 6,687,648 | ||||||
Keurig Dr Pepper, Inc. | 60,570 | 2,143,572 | ||||||
|
| |||||||
8,831,220 | ||||||||
Biotechnology – 2.3% |
| |||||||
AbbVie, Inc. | 43,972 | 6,734,751 | ||||||
|
| |||||||
6,734,751 | ||||||||
Building Products – 0.4% |
| |||||||
Allegion PLC | 11,543 | 1,130,060 | ||||||
|
| |||||||
1,130,060 | ||||||||
Capital Markets – 3.4% |
| |||||||
CME Group, Inc. | 11,756 | 2,406,453 | ||||||
Houlihan Lokey, Inc. | 36,264 | 2,862,317 | ||||||
Intercontinental Exchange, Inc. | 31,770 | 2,987,651 | ||||||
S&P Global, Inc. | 4,400 | 1,483,064 | ||||||
|
| |||||||
9,739,485 | ||||||||
Communications Equipment – 0.4% |
| |||||||
Motorola Solutions, Inc. | 5,000 | 1,048,000 | ||||||
|
| |||||||
1,048,000 | ||||||||
Construction & Engineering – 0.6% |
| |||||||
AECOM | 26,680 | 1,740,070 | ||||||
|
| |||||||
1,740,070 | ||||||||
Diversified Consumer Services – 0.6% |
| |||||||
Service Corp. International | 25,028 | 1,729,935 | ||||||
|
| |||||||
1,729,935 | ||||||||
Diversified Telecommunication Services – 1.3% |
| |||||||
Verizon Communications, Inc. | 74,097 | 3,760,423 | ||||||
|
| |||||||
3,760,423 | ||||||||
Electric Utilities – 1.8% |
| |||||||
Alliant Energy Corp. | 20,330 | 1,191,541 | ||||||
American Electric Power Co., Inc. | 42,128 | 4,041,761 | ||||||
|
| |||||||
5,233,302 | ||||||||
Electronic Equipment, Instruments & Components – 0.7% |
| |||||||
CDW Corp. | 13,150 | 2,071,914 | ||||||
|
| |||||||
2,071,914 | ||||||||
Entertainment – 1.7% |
| |||||||
Electronic Arts, Inc. | 39,598 | 4,817,097 | ||||||
|
| |||||||
4,817,097 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 0.3% |
| |||||||
Sun Communities, Inc. | 4,653 | 741,502 | ||||||
|
| |||||||
741,502 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Food & Staples Retailing – 2.6% |
| |||||||
Koninklijke Ahold Delhaize NV, ADR | 127,734 | $ | 3,338,967 | |||||
Walmart, Inc. | 34,586 | 4,204,966 | ||||||
|
| |||||||
7,543,933 | ||||||||
Food Products – 0.8% |
| |||||||
General Mills, Inc. | 29,167 | 2,200,650 | ||||||
|
| |||||||
2,200,650 | ||||||||
Health Care Providers & Services – 5.1% |
| |||||||
Centene Corp.(1) | 21,161 | 1,790,432 | ||||||
CVS Health Corp. | 37,149 | 3,442,226 | ||||||
McKesson Corp. | 10,080 | 3,288,197 | ||||||
UnitedHealth Group, Inc. | 12,150 | 6,240,605 | ||||||
|
| |||||||
14,761,460 | ||||||||
Hotels, Restaurants & Leisure – 0.5% |
| |||||||
Booking Holdings, Inc.(1) | 754 | 1,318,738 | ||||||
|
| |||||||
1,318,738 | ||||||||
Household Products – 2.1% |
| |||||||
Procter & Gamble Co. | 41,746 | 6,002,657 | ||||||
|
| |||||||
6,002,657 | ||||||||
Insurance – 5.4% |
| |||||||
Everest Re Group Ltd. | 10,329 | 2,895,012 | ||||||
Marsh & McLennan Cos., Inc. | 21,148 | 3,283,227 | ||||||
Progressive Corp. | 35,128 | 4,084,333 | ||||||
Selective Insurance Group, Inc. | 18,477 | 1,606,390 | ||||||
Willis Towers Watson PLC | 18,954 | 3,741,330 | ||||||
|
| |||||||
15,610,292 | ||||||||
Interactive Media & Services – 4.6% |
| |||||||
Alphabet, Inc., Class C(1) | 5,335 | 11,670,045 | ||||||
Meta Platforms, Inc., Class A(1) | 9,663 | 1,558,159 | ||||||
|
| |||||||
13,228,204 | ||||||||
Internet & Direct Marketing Retail – 0.9% |
| |||||||
Amazon.com, Inc.(1) | 25,488 | 2,707,080 | ||||||
|
| |||||||
2,707,080 | ||||||||
IT Services – 11.5% |
| |||||||
Amdocs Ltd. | 37,818 | 3,150,618 | ||||||
Automatic Data Processing, Inc. | 18,084 | 3,798,363 | ||||||
Fidelity National Information Services, Inc. | 54,828 | 5,026,083 | ||||||
Genpact Ltd. | 120,936 | 5,122,849 | ||||||
Mastercard, Inc., Class A | 8,584 | 2,708,080 | ||||||
Paychex, Inc. | 42,940 | 4,889,578 | ||||||
VeriSign, Inc.(1) | 20,423 | 3,417,381 | ||||||
Visa, Inc., Class A | 26,315 | 5,181,160 | ||||||
|
| |||||||
33,294,112 | ||||||||
Life Sciences Tools & Services – 0.8% |
| |||||||
Thermo Fisher Scientific, Inc. | 4,131 | 2,244,290 | ||||||
|
| |||||||
2,244,290 | ||||||||
Machinery – 0.4% |
| |||||||
Oshkosh Corp. | 14,840 | 1,218,958 | ||||||
|
| |||||||
1,218,958 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN STRATEGIC LARGE CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Media – 1.3% |
| |||||||
Comcast Corp., Class A | 93,636 | $ | 3,674,277 | |||||
|
| |||||||
3,674,277 | ||||||||
Multi-Utilities – 2.0% |
| |||||||
Ameren Corp. | 43,942 | 3,970,599 | ||||||
CenterPoint Energy, Inc. | 56,925 | 1,683,842 | ||||||
|
| |||||||
5,654,441 | ||||||||
Oil, Gas & Consumable Fuels – 1.4% |
| |||||||
Shell PLC, ADR | 77,890 | 4,072,868 | ||||||
|
| |||||||
4,072,868 | ||||||||
Pharmaceuticals – 6.8% |
| |||||||
Eli Lilly and Co. | 12,080 | 3,916,698 | ||||||
Johnson & Johnson | 23,807 | 4,225,981 | ||||||
Merck & Co., Inc. | 80,220 | 7,313,657 | ||||||
Roche Holding AG, ADR | 99,421 | 4,146,850 | ||||||
|
| |||||||
19,603,186 | ||||||||
Professional Services – 1.8% |
| |||||||
Booz Allen Hamilton Holding Corp. | 41,367 | 3,737,922 | ||||||
RELX PLC, ADR | 53,740 | 1,447,756 | ||||||
|
| |||||||
5,185,678 | ||||||||
Semiconductors & Semiconductor Equipment – 4.6% |
| |||||||
Analog Devices, Inc. | 12,717 | 1,857,827 | ||||||
Broadcom, Inc. | 12,307 | 5,978,864 | ||||||
KLA Corp. | 9,481 | 3,025,197 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 14,384 | 1,175,892 | ||||||
Texas Instruments, Inc. | 7,440 | 1,143,156 | ||||||
|
| |||||||
13,180,936 | ||||||||
Software – 12.9% |
| |||||||
Adobe, Inc.(1) | 10,221 | 3,741,499 | ||||||
Microsoft Corp. | 78,784 | 20,234,095 | ||||||
NortonLifeLock, Inc. | 198,780 | 4,365,209 | ||||||
Oracle Corp. | 80,374 | 5,615,731 | ||||||
ServiceNow, Inc.(1) | 4,696 | 2,233,042 | ||||||
VMware, Inc., Class A | 9,576 | 1,091,472 | ||||||
|
| |||||||
37,281,048 | ||||||||
Specialty Retail – 4.9% |
| |||||||
AutoZone, Inc.(1) | 3,906 | 8,394,463 | ||||||
Home Depot, Inc. | 4,068 | 1,115,730 | ||||||
O’Reilly Automotive, Inc.(1) | 7,329 | 4,630,169 | ||||||
|
| |||||||
14,140,362 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Technology Hardware, Storage & Peripherals – 3.4% |
| |||||||
Apple, Inc. | 72,889 | $ | 9,965,384 | |||||
|
| |||||||
9,965,384 | ||||||||
Tobacco – 2.7% |
| |||||||
Altria Group, Inc. | 76,761 | 3,206,307 | ||||||
Philip Morris International, Inc. | 46,390 | 4,580,548 | ||||||
|
| |||||||
7,786,855 | ||||||||
Total Common Stocks (Cost $306,967,132) |
| 280,580,407 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 2.7% |
| |||||||
Repurchase Agreements – 2.7% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $7,737,891, due 7/1/2022(2) | $ | 7,737,839 | 7,737,839 | |||||
Total Repurchase Agreements (Cost $7,737,839) |
| 7,737,839 | ||||||
Total Investments – 100.0% (Cost $314,704,971) |
| 288,318,246 | ||||||
Assets in excess of other liabilities – 0.0% |
| 8,801 | ||||||
Total Net Assets – 100.0% |
| $ | 288,327,047 |
(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 | 3.00% | 6/30/2024 | $ | 7,901,300 | $ | 7,892,656 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 280,580,407 | $ | — | $ | — | $ | 280,580,407 | ||||||||
Repurchase Agreements | — | 7,737,839 | — | 7,737,839 | ||||||||||||
Total | $ | 280,580,407 | $ | 7,737,839 | $ | — | $ | 288,318,246 |
4 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN STRATEGIC LARGE CAP CORE VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 2,645,157 | ||
Interest | 1,471 | |||
Withholding taxes on foreign dividends | (32,870 | ) | ||
|
| |||
Total Investment Income | 2,613,758 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 855,454 | |||
Distribution fees | 402,932 | |||
Trustees’ and officers’ fees | 38,708 | |||
Professional fees | 38,222 | |||
Administrative fees | 26,340 | |||
Custodian and accounting fees | 20,865 | |||
Shareholder reports | 6,694 | |||
Transfer agent fees | 6,256 | |||
Other expenses | 8,833 | |||
|
| |||
Total Expenses | 1,404,304 | |||
Less: Fees waived | (50,450 | ) | ||
|
| |||
Total Expenses, Net | 1,353,854 | |||
|
| |||
Net Investment Income/(Loss) | 1,259,904 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | (10,926,741 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (38,857,789 | ) | ||
|
| |||
Net Loss on Investments | (49,784,530 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (48,524,626 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN STRATEGIC LARGE CAP CORE VIP FUND
1 | Commenced operations on October 25, 2021. |
2 | Includes in-kind subscriptions of $331,230,005. 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. |
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7 |
FINANCIAL INFORMATION — GUARDIAN STRATEGIC LARGE 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 6/30/22 | $ | 10.32 | $ | 0.04 | $ | (1.46 | ) | $ | (1.42 | ) | $ | 8.90 | (13.76)% | |||||||||||
Period Ended 12/31/21(5) | 10.00 | 0.01 | 0.31 | 0.32 | 10.32 | 3.20% |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN STRATEGIC LARGE 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) | |||||||||||||||||
$ | 288,327 | 0.84% | 0.87% | 0.78% | 0.75% | 28% | ||||||||||||||||
372,001 | 0.81% | 0.89% | 0.82% | 0.74% | 80% |
(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. For the period ended December 31, 2021, 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 25, 2021. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN STRATEGIC LARGE CAP CORE VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Strategic Large Cap Core VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 25, 2021. 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 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”). 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.
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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN STRATEGIC LARGE 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, 2022, 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, 2022 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, 2022, 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, 2022, 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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN STRATEGIC LARGE 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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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% of the first $200 million, and 0.50% in excess of $200 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, 2023 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 0.84% 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $50,450.
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.
12 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN STRATEGIC LARGE CAP CORE VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $402,932 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 $87,353,521 and $112,439,985, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of
13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN STRATEGIC LARGE CAP CORE VIP FUND
(a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
14 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
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.
15 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
16 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and
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SUPPLEMENTAL INFORMATION (UNAUDITED)
evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk
management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations,
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SUPPLEMENTAL INFORMATION (UNAUDITED)
that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset
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SUPPLEMENTAL INFORMATION (UNAUDITED)
levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the |
1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB11410
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Integrated Research VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Integrated Research VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
16 | ||||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN INTEGRATED RESEARCH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $373,431,359
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 6.64% | |||
Apple, Inc. | 4.77% | |||
Alphabet, Inc., Class A | 4.44% | |||
Amazon.com, Inc. | 3.65% | |||
UnitedHealth Group, Inc. | 3.14% | |||
Eli Lilly and Co. | 2.38% | |||
Procter & Gamble Co. | 2.28% | |||
JPMorgan Chase & Co. | 2.03% | |||
Pfizer, Inc. | 1.84% | |||
Raytheon Technologies Corp. | 1.65% | |||
Total | 32.82% |
1 | The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
1 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 781.80 | $3.71 | 0.84% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.63 | $4.21 | 0.84% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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SCHEDULE OF INVESTMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.2% | ||||||||
Aerospace & Defense – 1.6% | ||||||||
Raytheon Technologies Corp. | 64,071 | $ | 6,157,864 | |||||
|
| |||||||
6,157,864 | ||||||||
Automobiles – 1.6% | ||||||||
Ford Motor Co. | 225,315 | 2,507,756 | ||||||
Tesla, Inc.(1) | 5,009 | 3,373,161 | ||||||
|
| |||||||
5,880,917 | ||||||||
Banks – 3.7% | ||||||||
Bank of America Corp. | 195,469 | 6,084,950 | ||||||
JPMorgan Chase & Co. | 67,486 | 7,599,598 | ||||||
|
| |||||||
13,684,548 | ||||||||
Beverages – 3.0% | ||||||||
Constellation Brands, Inc., Class A | 25,580 | 5,961,675 | ||||||
Monster Beverage Corp.(1) | 55,886 | 5,180,632 | ||||||
|
| |||||||
11,142,307 | ||||||||
Biotechnology – 3.4% | ||||||||
Regeneron Pharmaceuticals, Inc.(1) | 7,479 | 4,421,061 | ||||||
Seagen, Inc.(1) | 19,864 | 3,514,736 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 16,755 | 4,721,392 | ||||||
|
| |||||||
12,657,189 | ||||||||
Building Products – 1.8% | ||||||||
Fortune Brands Home & Security, Inc. | 49,986 | 2,993,162 | ||||||
Johnson Controls International PLC | 75,417 | 3,610,966 | ||||||
|
| |||||||
6,604,128 | ||||||||
Capital Markets – 2.4% | ||||||||
Charles Schwab Corp. | 51,991 | 3,284,791 | ||||||
Morgan Stanley | 76,126 | 5,790,144 | ||||||
|
| |||||||
9,074,935 | ||||||||
Chemicals – 2.2% | ||||||||
PPG Industries, Inc. | 34,060 | 3,894,420 | ||||||
Sherwin-Williams Co. | 19,256 | 4,311,611 | ||||||
|
| |||||||
8,206,031 | ||||||||
Communications Equipment – 0.8% | ||||||||
F5, Inc.(1) | 19,154 | 2,931,328 | ||||||
|
| |||||||
2,931,328 | ||||||||
Consumer Finance – 1.6% | ||||||||
American Express Co. | 43,351 | 6,009,316 | ||||||
|
| |||||||
6,009,316 | ||||||||
Diversified Telecommunication Services – 1.4% |
| |||||||
Verizon Communications, Inc. | 101,895 | 5,171,171 | ||||||
|
| |||||||
5,171,171 | ||||||||
Electric Utilities – 2.1% | ||||||||
American Electric Power Co., Inc. | 30,528 | 2,928,856 | ||||||
Duke Energy Corp. | 44,832 | 4,806,439 | ||||||
|
| |||||||
7,735,295 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Electrical Equipment – 1.0% | ||||||||
AMETEK, Inc. | 34,024 | $ | 3,738,897 | |||||
|
| |||||||
3,738,897 | ||||||||
Electronic Equipment, Instruments & Components – 1.6% |
| |||||||
CDW Corp. | 22,867 | 3,602,924 | ||||||
Corning, Inc. | 80,435 | 2,534,507 | ||||||
|
| |||||||
6,137,431 | ||||||||
Entertainment – 1.2% | ||||||||
Walt Disney Co.(1) | 48,113 | 4,541,867 | ||||||
|
| |||||||
4,541,867 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 1.9% |
| |||||||
AvalonBay Communities, Inc. | 15,982 | 3,104,504 | ||||||
Prologis, Inc. | 32,422 | 3,814,448 | ||||||
|
| |||||||
6,918,952 | ||||||||
Health Care Equipment & Supplies – 3.9% |
| |||||||
Abbott Laboratories | 33,932 | 3,686,712 | ||||||
Baxter International, Inc. | 56,938 | 3,657,128 | ||||||
Becton Dickinson and Co. | 15,935 | 3,928,455 | ||||||
Hologic, Inc.(1) | 47,921 | 3,320,925 | ||||||
|
| |||||||
14,593,220 | ||||||||
Health Care Providers & Services – 3.1% |
| |||||||
UnitedHealth Group, Inc. | 22,805 | 11,713,332 | ||||||
|
| |||||||
11,713,332 | ||||||||
Hotels, Restaurants & Leisure – 2.9% | ||||||||
Airbnb, Inc., Class A(1) | 24,368 | 2,170,701 | ||||||
Booking Holdings, Inc.(1) | 1,913 | 3,345,818 | ||||||
McDonald’s Corp. | 21,053 | 5,197,565 | ||||||
|
| |||||||
10,714,084 | ||||||||
Household Products – 3.6% | ||||||||
Colgate-Palmolive Co. | 60,579 | 4,854,801 | ||||||
Procter & Gamble Co. | 59,281 | 8,524,015 | ||||||
|
| |||||||
13,378,816 | ||||||||
Insurance – 2.5% | ||||||||
Chubb Ltd. | 24,080 | 4,733,646 | ||||||
Progressive Corp. | 39,072 | 4,542,902 | ||||||
|
| |||||||
9,276,548 | ||||||||
Interactive Media & Services – 6.7% | ||||||||
Alphabet, Inc., Class A(1) | 7,617 | 16,599,423 | ||||||
Alphabet, Inc., Class C(1) | 2,264 | 4,952,387 | ||||||
Meta Platforms, Inc., Class A(1) | 22,597 | 3,643,766 | ||||||
|
| |||||||
25,195,576 | ||||||||
Internet & Direct Marketing Retail – 3.6% |
| |||||||
Amazon.com, Inc.(1) | 128,260 | 13,622,495 | ||||||
|
| |||||||
13,622,495 | ||||||||
IT Services – 4.1% | ||||||||
Fidelity National Information Services, Inc. | 35,265 | 3,232,743 | ||||||
Global Payments, Inc. | 23,746 | 2,627,258 | ||||||
GoDaddy, Inc., Class A(1) | 45,306 | 3,151,485 | ||||||
Mastercard, Inc., Class A | 19,413 | 6,124,413 | ||||||
|
| |||||||
15,135,899 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Life Sciences Tools & Services – 2.9% |
| |||||||
Danaher Corp. | 19,096 | $ | 4,841,218 | |||||
Thermo Fisher Scientific, Inc. | 10,963 | 5,955,979 | ||||||
|
| |||||||
10,797,197 | ||||||||
Machinery – 3.0% | ||||||||
Deere & Co. | 14,233 | 4,262,356 | ||||||
Illinois Tool Works, Inc. | 19,685 | 3,587,591 | ||||||
Nordson Corp. | 15,874 | 3,213,533 | ||||||
|
| |||||||
11,063,480 | ||||||||
Oil, Gas & Consumable Fuels – 2.9% |
| |||||||
EOG Resources, Inc. | 47,763 | 5,274,946 | ||||||
Pioneer Natural Resources Co. | 25,628 | 5,717,094 | ||||||
|
| |||||||
10,992,040 | ||||||||
Pharmaceuticals – 4.2% |
| |||||||
Eli Lilly and Co. | 27,384 | 8,878,714 | ||||||
Pfizer, Inc. | 130,828 | 6,859,312 | ||||||
|
| |||||||
15,738,026 | ||||||||
Professional Services – 0.8% |
| |||||||
Leidos Holdings, Inc. | 29,735 | 2,994,612 | ||||||
|
| |||||||
2,994,612 | ||||||||
Semiconductors & Semiconductor Equipment – 6.1% |
| |||||||
Advanced Micro Devices, Inc.(1) | 45,462 | 3,476,479 | ||||||
KLA Corp. | 13,805 | 4,404,899 | ||||||
Marvell Technology, Inc. | 71,605 | 3,116,966 | ||||||
NVIDIA Corp. | 12,961 | 1,964,758 | ||||||
QUALCOMM, Inc. | 34,197 | 4,368,325 | ||||||
Texas Instruments, Inc. | 36,384 | 5,590,402 | ||||||
|
| |||||||
22,921,829 | ||||||||
Software – 9.4% |
| |||||||
Microsoft Corp. | 96,610 | 24,812,346 | ||||||
Palo Alto Networks, Inc.(1) | 6,642 | 3,280,750 | ||||||
Salesforce, Inc.(1) | 28,020 | 4,624,421 | ||||||
Workday, Inc., Class A(1) | 17,009 | 2,374,116 | ||||||
|
| |||||||
35,091,633 | ||||||||
Specialty Retail – 1.5% |
| |||||||
TJX Cos., Inc. | 100,310 | 5,602,314 | ||||||
|
| |||||||
5,602,314 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Technology Hardware, Storage & Peripherals – 5.6% |
| |||||||
Apple, Inc. | 130,205 | $ | 17,801,627 | |||||
NetApp, Inc. | 48,703 | 3,177,384 | ||||||
|
| |||||||
20,979,011 | ||||||||
Textiles, Apparel & Luxury Goods – 1.1% |
| |||||||
NIKE, Inc., Class B | 40,201 | 4,108,542 | ||||||
|
| |||||||
4,108,542 | ||||||||
Total Common Stocks (Cost $428,730,924) |
| 370,510,830 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 0.9% |
| |||||||
Repurchase Agreements – 0.9% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $3,209,096, due 7/1/2022(2) | $ | 3,209,075 | 3,209,075 | |||||
Total Repurchase Agreements (Cost $3,209,075) | 3,209,075 |
Total Investments – 100.1% (Cost $431,939,999) | 373,719,905 | |||||||
Liabilities in excess of other assets – (0.1)% |
| (288,546 | ) | |||||
Total Net Assets – 100.0% | $ | 373,431,359 |
(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 | 3.00% | 6/30/2024 | $ | 3,276,900 | $ | 3,273,315 |
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 370,510,830 | $ | — | $ | — | $ | 370,510,830 | ||||||||
Repurchase Agreements | — | 3,209,075 | — | 3,209,075 | ||||||||||||
Total | $ | 370,510,830 | $ | 3,209,075 | $ | — | $ | 373,719,905 |
4 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 2,280,507 | ||
Interest | 850 | |||
|
| |||
Total Investment Income | 2,281,357 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 750,775 | |||
Distribution fees | 398,956 | |||
Professional fees | 35,736 | |||
Trustees’ and officers’ fees | 35,120 | |||
Administrative fees | 23,922 | |||
Custodian and accounting fees | 21,236 | |||
Shareholder reports | 6,655 | |||
Transfer agent fees | 6,259 | |||
Other expenses | 8,020 | |||
|
| |||
Total Expenses | 1,286,679 | |||
Expenses recouped by adviser | 53,813 | |||
|
| |||
Total Expenses | 1,340,492 | |||
|
| |||
Net Investment Income/(Loss) | 940,865 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | (7,751,619 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (72,545,827 | ) | ||
|
| |||
Net Loss on Investments | (80,297,446 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (79,356,581 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN INTEGRATED RESEARCH VIP FUND
1 | Includes in-kind subscriptions of $306,866,493. 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. |
This Page Intentionally Left Blank
7 |
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, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/22 | $ | 21.86 | $ | 0.06 | $ | (4.83 | ) | $ | (4.77 | ) | $ | 17.09 | (21.82)% | (4) | ||||||||||
Year Ended 12/31/21 | 17.06 | 0.11 | 4.69 | 4.80 | 21.86 | 28.14% | ||||||||||||||||||
Year Ended 12/31/20 | 14.31 | 0.20 | (6) | 2.55 | 2.75 | 17.06 | 19.22% | |||||||||||||||||
Year Ended 12/31/19 | 11.26 | 0.14 | 2.91 | 3.05 | 14.31 | 27.09% | ||||||||||||||||||
Year Ended 12/31/18 | 12.28 | 0.12 | (1.14 | ) | (1.02 | ) | 11.26 | (8.31)% | ||||||||||||||||
Year Ended 12/31/17 | 10.24 | 0.09 | 1.95 | 2.04 | 12.28 | 19.92% |
8 | The accompanying notes are an integral part of these financial statements. |
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 | |||||||||||||||||
$ | 373,431 | 0.84% | (4) | 0.84% | (4) | 0.59% | (4) | 0.59% | (4) | 13% | (4) | |||||||||||
321,218 | 0.86% | 0.91% | 0.53% | 0.48% | 274% | (5) | ||||||||||||||||
12,432 | 0.96% | 2.08% | 1.36% | (6) | 0.24% | (6) | 61% | |||||||||||||||
11,852 | 0.96% | 2.30% | 1.08% | (0.26)% | 117% | |||||||||||||||||
9,814 | 0.96% | 2.39% | 0.93% | (0.50)% | 58% | |||||||||||||||||
12,171 | 0.96% | 1.91% | 0.84% | (0.11)% | 80% |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations, and recoupments, if any. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
(5) | The Fund’s portfolio turnover rate during the year reflects higher purchase and sale activities due to a significant inflow of assets into the fund. |
(6) | Reflects a special dividend paid out during the year by one of the Fund’s holdings. Had the Fund not received the special dividend, the Net Investment Income per share would have been $0.11, the Net Ratio of Net Investment Income to Average Net Assets would have been 0.76%, and the Gross Ratio of Net Investment Income/(Loss) to Average Net Assets would have been (0.36)%. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Integrated Research VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks capital appreciation.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
Various inputs are used in determining the valuation of the Fund’s investments. These inputs are summarized in three broad levels listed below.
• | Level 1 — unadjusted inputs using quoted prices in active markets for identical investments. |
• | Level 2 — other significant observable inputs, including, but not limited to, quoted prices for similar investments, inputs other than quoted prices that are observable for investments (such as interest rates, prepayment speeds, credit risks, etc.) or other market corroborated inputs. |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input; both individually and in aggregate, that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Trust. The Trust considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, and provided by independent sources that are actively involved in the relevant market. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of a financial instrument’s assigned level within the hierarchy.
The FASB requires reporting entities to make disclosures about purchases, sales, issuances and settlements of Level 3 securities on a gross basis. For the six months ended June 30, 2022, 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, 2022 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, 2022, 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, 2022, 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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates in effect on the dates of the respective transactions. The Fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included in the Net change in net realized and unrealized gain/(loss) from investments on the Statement of Operations.
Reported realized foreign currency gains and losses arise from the disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. These reported realized foreign currency gains and losses, if any, are included in Net realized gain/(loss) from foreign currency transactions on the Statement of Operations. Unrealized foreign currency gains and losses arise from changes (due to changes in exchange rates) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end, if any, and are included in Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies on the Statement of Operations.
d. Foreign Capital Gains Tax The Fund may be subject to foreign taxes on income, gains on investments or currency purchases/repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest.
e. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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 0.50% up to $200 million, 0.43% 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, 2024 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 0.84% 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 and may be terminated only upon approval of the Board of Trustees. For the six months ended June 30, 2022, Park Avenue did not waive any fees or pay any Fund expenses.
Park Avenue may be entitled to recoupment of previously waived fees and reimbursed expenses from the Fund for three years from the date of the waiver or reimbursement, subject to the expense limitation in effect at the time of the waiver or reimbursement and at the time of the recoupment, if any. Amounts waived or reimbursed by Park Avenue pursuant to any expense limitation after October 25, 2021 will not be subject to Park Avenue’s recoupment rights. For the six months ended June 30, 2022, Park Avenue recouped previously waived or reimbursed expenses in the amount of
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
$53,813. 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, 2022 are as follows:
Potential Recoupment Amounts | Expiration Date | |||||||
$ | 73,214 | 2022 | ||||||
$ | 125,043 | 2023 | ||||||
$ | 35,993 | 2024 | ||||||
|
| |||||||
Total Potential Recoupment Amounts | $ | 234,250 |
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, 2022, the Fund paid distribution fees in the amount of $398,956 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 $171,698,595 and $41,635,139, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, there were no purchases or sales of U.S. government securities.
b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.
c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral (although it may be prevented
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTEGRATED RESEARCH VIP FUND
or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
6. Temporary Borrowings
The Fund, with other funds managed by Park Avenue, is party to a credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in
the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange
Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by
funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including
the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio
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SUPPLEMENTAL INFORMATION (UNAUDITED)
managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers 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.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian International Equity VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian International Equity VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 7 | |||
Statement of Operations | 7 | |||
Statements of Changes in Net Assets | 8 | |||
Financial Highlights | 10 | |||
Notes to Financial Statements | 12 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 17 | |||
Recent Rulemaking | 18 | |||
Approval of Investment Management Agreement | 19 | |||
Portfolio Holdings and Proxy Voting Procedures | 25 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN INTERNATIONAL EQUITY VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $324,380,709
Geographic Region Allocation1 As of June 30, 2022 |
Sector Allocation2 As of June 30, 2022 |
1 |
GUARDIAN INTERNATIONAL EQUITY VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||||
Holding | Country | % of Total Net Assets | ||||
Shell PLC | United Kingdom | 3.23% | ||||
Nestle SA (Reg S) | Switzerland | 3.04% | ||||
AstraZeneca PLC | United Kingdom | 2.93% | ||||
Roche Holding AG | Switzerland | 2.46% | ||||
AIA Group Ltd. | Hong Kong | 2.21% | ||||
GSK PLC | United Kingdom | 2.17% | ||||
Reckitt Benckiser Group PLC | United Kingdom | 2.12% | ||||
HSBC Holdings PLC | United Kingdom | 1.96% | ||||
Sony Group Corp. | Japan | 1.96% | ||||
Iberdrola SA | Spain | 1.93% | ||||
Total | 24.01% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 780.10 | $4.77 | 1.08% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.44 | $5.41 | 1.08% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL EQUITY VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.4% |
| |||||||
Australia – 1.9% |
| |||||||
Macquarie Group Ltd. | 29,833 | $ | 3,390,627 | |||||
Rio Tinto Ltd. | 37,986 | 2,721,211 | ||||||
|
| |||||||
6,111,838 | ||||||||
Austria – 0.8% |
| |||||||
Erste Group Bank AG | 98,745 | 2,508,261 | ||||||
|
| |||||||
2,508,261 | ||||||||
Belgium – 1.8% |
| |||||||
UCB SA | 44,449 | 3,764,633 | ||||||
Umicore SA | 59,291 | 2,072,512 | ||||||
|
| |||||||
5,837,145 | ||||||||
Brazil – 0.4% |
| |||||||
B3 SA — Brasil Bolsa Balcao | 564,721 | 1,182,651 | ||||||
|
| |||||||
1,182,651 | ||||||||
Canada – 2.4% |
| |||||||
Canadian National Railway Co. | 32,402 | 3,644,721 | ||||||
Toronto-Dominion Bank | 63,567 | 4,168,498 | ||||||
|
| |||||||
7,813,219 | ||||||||
Cayman Islands – 1.5% |
| |||||||
Alibaba Group Holding Ltd.(1) | 197,300 | 2,814,428 | ||||||
Tencent Holdings Ltd. | 43,900 | 1,993,652 | ||||||
|
| |||||||
4,808,080 | ||||||||
Denmark – 1.1% |
| |||||||
Vestas Wind Systems A/S | 175,430 | 3,717,632 | ||||||
|
| |||||||
3,717,632 | ||||||||
France – 6.0% |
| |||||||
Amundi SA(2) | 27,683 | 1,532,419 | ||||||
Carrefour SA | 147,649 | 2,619,741 | ||||||
EssilorLuxottica SA | 21,469 | 3,247,357 | ||||||
Legrand SA | 28,072 | 2,089,244 | ||||||
Sanofi | 50,951 | 5,152,455 | ||||||
Schneider Electric SE | 40,394 | 4,785,404 | ||||||
|
| |||||||
19,426,620 | ||||||||
Germany – 8.7% |
| |||||||
Bayer AG (Reg S) | 47,275 | 2,808,774 | ||||||
Bayerische Motoren Werke AG | 62,220 | 4,790,137 | ||||||
Daimler Truck Holding AG(1) | 72,614 | 1,895,144 | ||||||
Infineon Technologies AG | 129,508 | 3,133,479 | ||||||
Knorr-Bremse AG | 30,762 | 1,755,053 | ||||||
Merck KGaA | 11,648 | 1,965,936 | ||||||
SAP SE | 60,671 | 5,527,290 | ||||||
Siemens AG (Reg S) | 47,493 | 4,833,724 | ||||||
Zalando SE(1)(2) | 54,071 | 1,414,216 | ||||||
|
| |||||||
28,123,753 | ||||||||
Hong Kong – 4.7% |
| |||||||
AIA Group Ltd. | 652,400 | 7,166,060 | ||||||
BOC Hong Kong Holdings Ltd. | 1,018,500 | 4,031,186 | ||||||
Hong Kong Exchanges & Clearing Ltd. | 46,800 | 2,336,170 | ||||||
Techtronic Industries Co. Ltd. | 152,000 | 1,589,091 | ||||||
|
| |||||||
15,122,507 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
India – 0.8% |
| |||||||
HDFC Bank Ltd., ADR | 47,493 | $ | 2,610,215 | |||||
|
| |||||||
2,610,215 | ||||||||
Indonesia – 0.6% |
| |||||||
Bank Central Asia Tbk PT | 4,174,300 | 2,034,036 | ||||||
|
| |||||||
2,034,036 | ||||||||
Israel – 0.7% |
| |||||||
Nice Ltd., ADR(1) | 11,615 | 2,235,307 | ||||||
|
| |||||||
2,235,307 | ||||||||
Italy – 1.9% |
| |||||||
FinecoBank Banca Fineco SpA | 203,157 | 2,449,004 | ||||||
Intesa Sanpaolo SpA | 1,930,120 | 3,628,994 | ||||||
|
| |||||||
6,077,998 | ||||||||
Japan – 17.8% |
| |||||||
Bridgestone Corp. | 130,800 | 4,775,113 | ||||||
Daikin Industries Ltd. | 20,800 | 3,338,311 | ||||||
Disco Corp. | 10,800 | 2,544,125 | ||||||
KDDI Corp. | 77,600 | 2,453,837 | ||||||
Keyence Corp. | 5,700 | 1,950,709 | ||||||
Kubota Corp. | 140,800 | 2,105,855 | ||||||
MISUMI Group, Inc. | 92,600 | 1,954,337 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 1,143,300 | 6,117,220 | ||||||
Murata Manufacturing Co. Ltd. | 46,600 | 2,523,879 | ||||||
Nabtesco Corp. | 99,200 | 2,320,134 | ||||||
Recruit Holdings Co. Ltd. | 85,900 | 2,533,138 | ||||||
Sekisui Chemical Co. Ltd. | 175,500 | 2,404,117 | ||||||
SMC Corp. | 8,600 | 3,837,632 | ||||||
Sony Group Corp. | 77,900 | 6,366,285 | ||||||
Terumo Corp. | 106,800 | 3,220,566 | ||||||
Tokio Marine Holdings, Inc. | 71,800 | 4,184,113 | ||||||
Toyota Motor Corp. | 326,800 | 5,032,949 | ||||||
|
| |||||||
57,662,320 | ||||||||
Netherlands – 3.8% |
| |||||||
Aalberts NV | 57,455 | 2,259,059 | ||||||
Adyen NV(1)(2) | 1,299 | 1,909,551 | ||||||
Akzo Nobel NV | 39,505 | 2,610,043 | ||||||
ASML Holding NV | 11,616 | 5,606,206 | ||||||
|
| |||||||
12,384,859 | ||||||||
Norway – 2.6% |
| |||||||
DNB Bank ASA | 148,800 | 2,677,983 | ||||||
Equinor ASA | 165,741 | 5,765,372 | ||||||
|
| |||||||
8,443,355 | ||||||||
Republic of Korea – 1.4% |
| |||||||
Samsung Electronics Co. Ltd. | 41,472 | 1,816,667 | ||||||
Samsung SDI Co. Ltd. | 7,047 | 2,892,014 | ||||||
|
| |||||||
4,708,681 | ||||||||
Spain – 2.6% |
| |||||||
Banco Bilbao Vizcaya Argentaria SA | 490,720 | 2,227,220 | ||||||
Iberdrola SA | 602,545 | 6,252,493 | ||||||
|
| |||||||
8,479,713 |
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL EQUITY VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Sweden – 1.7% |
| |||||||
Nibe Industrier AB, Class B | 26,564 | $ | 199,696 | |||||
Sandvik AB | 138,223 | 2,243,937 | ||||||
Svenska Handelsbanken AB, Class A | 381,601 | 3,263,949 | ||||||
|
| |||||||
5,707,582 | ||||||||
Switzerland – 8.4% |
| |||||||
Alcon, Inc. | 31,592 | 2,206,837 | ||||||
Chocoladefabriken Lindt & Spruengli AG | 163 | 1,657,893 | ||||||
Cie Financiere Richemont SA (Reg S) | 17,355 | 1,848,239 | ||||||
Lonza Group AG (Reg S) | 4,443 | 2,369,114 | ||||||
Nestle SA (Reg S) | 84,060 | 9,862,018 | ||||||
Roche Holding AG | 23,903 | 7,979,482 | ||||||
Sika AG (Reg S) | 6,547 | 1,510,362 | ||||||
|
| |||||||
27,433,945 | ||||||||
Taiwan – 1.0% |
| |||||||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 40,338 | 3,297,632 | ||||||
|
| |||||||
3,297,632 | ||||||||
United Kingdom – 24.7% |
| |||||||
Antofagasta PLC | 140,564 | 1,976,553 | ||||||
AstraZeneca PLC | 72,390 | 9,489,010 | ||||||
Bunzl PLC | 68,369 | 2,264,094 | ||||||
Burberry Group PLC | 156,387 | 3,128,541 | ||||||
Diageo PLC | 81,377 | 3,510,752 | ||||||
GSK PLC | 328,001 | 7,052,812 | ||||||
HSBC Holdings PLC | 975,950 | 6,366,939 | ||||||
Kingfisher PLC | 899,505 | 2,675,251 | ||||||
National Grid PLC | 369,676 | 4,737,498 | ||||||
Prudential PLC | 191,667 | 2,384,143 | ||||||
Reckitt Benckiser Group PLC | 91,593 | 6,879,645 | ||||||
RELX PLC | 141,407 | 3,818,550 | ||||||
Shell PLC | 403,955 | 10,475,188 | ||||||
Smith & Nephew PLC | 219,215 | 3,064,871 | ||||||
Tesco PLC | 1,165,289 | 3,624,455 | ||||||
Unilever PLC | 79,693 | 3,627,160 | ||||||
Vodafone Group PLC | 2,258,879 | 3,484,644 | ||||||
Whitbread PLC | 54,294 | 1,640,270 | ||||||
|
| |||||||
80,200,376 | ||||||||
United States – 2.1% |
| |||||||
Booking Holdings, Inc.(1) | 2,014 | 3,522,466 | ||||||
Lululemon Athletica, Inc.(1) | 8,400 | 2,289,924 | ||||||
MercadoLibre, Inc.(1) | 1,411 | 898,623 | ||||||
|
| |||||||
6,711,013 | ||||||||
Total Common Stocks (Cost $394,193,205) |
| 322,638,738 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 0.2% |
| |||||||
Repurchase Agreements – 0.2% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $532,154, due 7/1/2022(3) | $ | 532,150 | $ | 532,150 | ||||
Total Repurchase Agreements (Cost $532,150) |
| 532,150 | ||||||
Total Investments – 99.6% (Cost $394,725,355) |
| 323,170,888 | ||||||
Assets in excess of other liabilities – 0.4% |
| 1,209,821 | ||||||
Total Net Assets – 100.0% |
| $ | 324,380,709 |
(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, 2022, the aggregate market value of these securities amounted to $4,856,186, representing 1.5% 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 | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 543,400 | $ | 542,806 |
Legend:
ADR — American Depositary Receipt
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL EQUITY VIP FUND
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 6,111,838 | * | $ | — | $ | 6,111,838 | |||||||
Austria | — | 2,508,261 | * | — | 2,508,261 | |||||||||||
Belgium | — | 5,837,145 | * | — | 5,837,145 | |||||||||||
Brazil | 1,182,651 | — | — | 1,182,651 | ||||||||||||
Canada | 7,813,219 | — | — | 7,813,219 | ||||||||||||
Cayman Islands | — | 4,808,080 | * | — | 4,808,080 | |||||||||||
Denmark | — | 3,717,632 | * | — | 3,717,632 | |||||||||||
France | — | 19,426,620 | * | — | 19,426,620 | |||||||||||
Germany | — | 28,123,753 | * | — | 28,123,753 | |||||||||||
Hong Kong | — | 15,122,507 | * | — | 15,122,507 | |||||||||||
India | 2,610,215 | — | — | 2,610,215 | ||||||||||||
Indonesia | — | 2,034,036 | * | — | 2,034,036 | |||||||||||
Israel | 2,235,307 | — | — | 2,235,307 | ||||||||||||
Italy | — | 6,077,998 | * | — | 6,077,998 | |||||||||||
Japan | — | 57,662,320 | * | — | 57,662,320 | |||||||||||
Netherlands | — | 12,384,859 | * | — | 12,384,859 | |||||||||||
Norway | — | 8,443,355 | * | — | 8,443,355 | |||||||||||
Republic of Korea | — | 4,708,681 | * | — | 4,708,681 | |||||||||||
Spain | — | 8,479,713 | * | — | 8,479,713 | |||||||||||
Sweden | — | 5,707,582 | * | — | 5,707,582 | |||||||||||
Switzerland | — | 27,433,945 | * | — | 27,433,945 | |||||||||||
Taiwan | 3,297,632 | — | — | 3,297,632 | ||||||||||||
United Kingdom | — | 80,200,376 | * | — | 80,200,376 | |||||||||||
United States | 6,711,013 | — | — | 6,711,013 | ||||||||||||
Repurchase Agreements | — | 532,150 | — | 532,150 | ||||||||||||
Total | $ | 23,850,037 | $ | 299,320,851 | $ | — | $ | 323,170,888 |
* | 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. |
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL EQUITY VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||||
Investment Income | ||||||
Dividends | $ | 6,270,090 | ||||
Interest | 522 | |||||
Withholding taxes on foreign dividends | (625,753 | ) | ||||
|
| |||||
Total Investment Income | 5,644,859 | |||||
|
| |||||
Expenses | ||||||
Investment advisory fees | 1,385,828 | |||||
Distribution fees | 453,678 | |||||
Custodian and accounting fees | 47,041 | |||||
Trustees’ and officers’ fees | 43,402 | |||||
Professional fees | 40,692 | |||||
Administrative fees | 29,593 | |||||
Shareholder reports | 7,437 | |||||
Transfer agent fees | 6,988 | |||||
Other expenses | 11,729 | |||||
|
| |||||
Total Expenses | 2,026,388 | |||||
Less: Fees waived | (66,500 | ) | ||||
|
| |||||
Total Expenses, Net | 1,959,888 | |||||
|
| |||||
Net Investment Income/(Loss) | 3,684,971 | |||||
|
| |||||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments, Foreign Currency Transactions and Foreign Capital Gains Tax | ||||||
Net realized gain/(loss) from investments | 4,059,032 | |||||
Net realized gain/(loss) from foreign currency transactions | (73,757 | ) | ||||
Foreign capital gains taxes paid | (1,520 | ) | ||||
Net change in unrealized appreciation/(depreciation) on investments | (97,494,731 | ) | ||||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (40,576 | ) | ||||
|
| |||||
Net Loss on Investments, Foreign Currency Transactions and Foreign Capital Gains Tax | (93,551,552 | ) | ||||
|
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Net Decrease in Net Assets Resulting From Operations | $ | (89,866,581 | ) | |||
|
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The accompanying notes are an integral part of these financial statements. | 7 |
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL EQUITY VIP FUND
8 | The accompanying notes are an integral part of these financial statements. |
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9 |
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL EQUITY 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 Month 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 6/30/22 | $ | 13.87 | $ | 0.12 | $ | (3.17 | ) | $ | (3.05 | ) | $ | 10.82 | (21.99 | )%(4) | ||||||||||
Year Ended 12/31/21 | 13.16 | 0.30 | (5) | 0.41 | 0.71 | 13.87 | 5.40% | |||||||||||||||||
Year Ended 12/31/20 | 12.15 | 0.12 | 0.89 | 1.01 | 13.16 | 8.31% | ||||||||||||||||||
Year Ended 12/31/19 | 10.01 | 0.22 | 1.92 | 2.14 | 12.15 | 21.38% | ||||||||||||||||||
Year Ended 12/31/18 | 11.80 | 0.20 | (1.99 | ) | (1.79 | ) | 10.01 | (15.17 | )% | |||||||||||||||
Year Ended 12/31/17 | 9.63 | 0.15 | 2.02 | 2.17 | 11.80 | 22.53% |
10 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL EQUITY VIP FUND
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Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income to Average Net Assets(3) | Gross Ratio of Net Investment Income to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 324,381 | 1.08% | (4) | 1.12% | (4) | 2.03% | (4) | 1.99% | (4) | 112% | (4) | |||||||||||
411,907 | 1.06% | 1.13% | 2.20% | (5) | 2.13% | (5) | 40% | |||||||||||||||
234,233 | 1.00% | 1.18% | 1.03% | 0.85% | 38% | |||||||||||||||||
220,989 | 0.94% | 1.20% | 1.99% | 1.73% | 32% | |||||||||||||||||
208,182 | 0.94% | 1.23% | 1.79% | 1.50% | 74% | |||||||||||||||||
11,133 | 1.11% | 2.39% | 1.40% | 0.12% | 61% |
(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. |
(5) | Reflects a special dividend paid out during the year by one of the Fund’s holdings. Had the Fund not received the special dividend, the Net Investment Income per share would have been $0.19, the Net Ratio of Net Investment Income to Average Net Assets would have been 1.37%, and the Gross Ratio of Net Investment Income to Average Net Assets would have been 1.30%. |
The accompanying notes are an integral part of these financial statements. | 11 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL EQUITY VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian International Equity 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 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”). 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.
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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL EQUITY 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 period ended June 30, 2022, the Fund had one security classified as Level 3.
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, 2022 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, 2022, 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, 2022, 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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL EQUITY 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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 to waive certain fees and/or reimburse certain expenses incurred by the Fund to the extent necessary to limit the Fund’s total annual operating expenses after fee waiver and/or expense reimbursement to 1.08% of the Fund’s average daily net assets (excluding, if applicable, any acquired fund fees and expenses, taxes, interest, transaction costs and brokerage commissions, litigation and extraordinary expenses). The limitation may not be increased or terminated prior to this time without action by the Board of Trustees and may be terminated only upon approval of the Board of Trustees.
14 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL EQUITY VIP FUND
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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $66,500.
Park Avenue has entered into a Sub-Advisory Agreement with Schroder Investment Management North America, Inc. (“Schroder Inc.”). Schroder Inc. 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. Schroder Inc. also entered into a Sub-subadvisory Agreement with its affiliate, Schroder Investment Management North America Limited (“Schroder Limited”). The sub-subadvisory fees under the Sub-subadvisory Agreement are paid by Schroder Inc. to Schroder Limited 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, 2022, the Fund paid distribution fees in the amount of $453,678 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 $411,856,177 and $405,091,741, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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
15 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL EQUITY VIP FUND
right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
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, 2022, the Fund did not hold any restricted, other than 144A restricted securities, or illiquid securities.
6. Temporary Borrowings
The Fund, with other funds managed by Park Avenue, is party to a credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
16 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
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.
17 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
18 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management Agreement
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and
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SUPPLEMENTAL INFORMATION (UNAUDITED)
evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s
role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the
Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period |
and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8172
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian International Growth VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian International Growth VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
16 | ||||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN INTERNATIONAL GROWTH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $117,450,794 |
Geographic Region Allocation1 As of June 30, 2022 |
Sector Allocation2 As of June 30, 2022 |
1 |
GUARDIAN INTERNATIONAL GROWTH VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||||
Holding | Country | % of Total Net Assets | ||||
Nestle SA (Reg S) | Switzerland | 5.47% | ||||
Roche Holding AG | Switzerland | 4.60% | ||||
ASML Holding NV | Netherlands | 4.32% | ||||
Novo Nordisk A/S, Class B | Denmark | 4.18% | ||||
LVMH Moet Hennessy Louis Vuitton SE | France | 3.85% | ||||
AIA Group Ltd. | Hong Kong | 3.64% | ||||
Diageo PLC | United Kingdom | 3.04% | ||||
Sony Group Corp. | Japan | 2.70% | ||||
Hong Kong Exchanges & Clearing Ltd. | Hong Kong | 2.69% | ||||
L’Oreal SA | France | 2.66% | ||||
Total | 37.15% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 690.80 | $4.95 | 1.18% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,018.94 | $5.91 | 1.18% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 97.8% |
| |||||||
Australia – 1.7% |
| |||||||
IDP Education Ltd. | 45,500 | $ | 746,955 | |||||
Woodside Energy Group Ltd. | 55,347 | 1,212,046 | ||||||
|
| |||||||
1,959,001 | ||||||||
Cayman Islands – 2.0% |
| |||||||
Sea Ltd., ADR(1) | 14,815 | 990,531 | ||||||
Tencent Holdings Ltd. | 30,600 | 1,389,653 | ||||||
|
| |||||||
2,380,184 | ||||||||
Denmark – 6.8% |
| |||||||
Coloplast A/S, Class B | 13,738 | 1,569,093 | ||||||
Genmab A/S(1) | 4,541 | 1,472,970 | ||||||
Novo Nordisk A/S, Class B | 44,200 | 4,905,819 | ||||||
|
| |||||||
7,947,882 | ||||||||
France – 11.5% |
| |||||||
�� | ||||||||
Capgemini SE | 11,347 | 1,962,226 | ||||||
L’Oreal SA | 9,026 | 3,118,550 | ||||||
LVMH Moet Hennessy Louis Vuitton SE | 7,334 | 4,526,055 | ||||||
Safran SA | 13,902 | 1,390,718 | ||||||
Schneider Electric SE | 21,615 | 2,560,690 | ||||||
|
| |||||||
13,558,239 | ||||||||
Germany – 6.0% |
| |||||||
adidas AG | 10,034 | 1,774,626 | ||||||
Delivery Hero SE(1)(2) | 29,928 | 1,121,861 | ||||||
Deutsche Boerse AG | 8,468 | 1,416,309 | ||||||
Symrise AG | 19,489 | 2,120,980 | ||||||
Zalando SE(1)(2) | 25,145 | 657,662 | ||||||
|
| |||||||
7,091,438 | ||||||||
Hong Kong – 6.3% |
| |||||||
AIA Group Ltd. | 389,200 | 4,275,031 | ||||||
Hong Kong Exchanges & Clearing Ltd. | 63,300 | 3,159,819 | ||||||
|
| |||||||
7,434,850 | ||||||||
India – 1.1% |
| |||||||
HDFC Bank Ltd., ADR | 24,262 | 1,333,440 | ||||||
|
| |||||||
1,333,440 | ||||||||
Ireland – 1.7% |
| |||||||
Linde PLC | 6,972 | 2,001,565 | ||||||
|
| |||||||
2,001,565 | ||||||||
Japan – 17.2% |
| |||||||
Daikin Industries Ltd. | 14,200 | 2,279,039 | ||||||
Hoya Corp. | 25,000 | 2,137,122 | ||||||
Keyence Corp. | 8,000 | 2,737,837 | ||||||
Kyowa Kirin Co. Ltd. | 57,300 | 1,288,925 | ||||||
Makita Corp. | 53,600 | 1,337,501 | ||||||
Shimano, Inc. | 6,300 | 1,065,698 | ||||||
Shin-Etsu Chemical Co. Ltd. | 15,400 | 1,738,498 | ||||||
SMC Corp. | 3,400 | 1,517,204 | ||||||
Sony Group Corp. | 38,800 | 3,170,884 | ||||||
Sysmex Corp. | 20,300 | 1,223,158 | ||||||
Tokyo Electron Ltd. | 5,300 | 1,719,122 | ||||||
|
| |||||||
20,214,988 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Netherlands – 8.7% |
| |||||||
Adyen NV(1)(2) | 1,093 | $ | 1,606,728 | |||||
Argenx SE(1) | 4,855 | 1,832,360 | ||||||
ASML Holding NV | 10,515 | 5,074,832 | ||||||
Wolters Kluwer NV | 17,166 | 1,669,936 | ||||||
|
| |||||||
10,183,856 | ||||||||
Republic of Korea – 1.1% |
| |||||||
Samsung Electronics Co. Ltd. | 29,531 | 1,293,595 | ||||||
|
| |||||||
1,293,595 | ||||||||
Singapore – 1.8% |
| |||||||
DBS Group Holdings Ltd. | 97,700 | 2,091,210 | ||||||
|
| |||||||
2,091,210 | ||||||||
Sweden – 2.8% |
| |||||||
Assa Abloy AB, Class B | 67,504 | 1,444,582 | ||||||
Atlas Copco AB, Class A | 193,012 | 1,806,107 | ||||||
|
| |||||||
3,250,689 | ||||||||
Switzerland – 13.2% |
| |||||||
Lonza Group AG (Reg S) | 4,353 | 2,321,124 | ||||||
Nestle SA (Reg S) | 54,808 | 6,430,139 | ||||||
Roche Holding AG | 16,190 | 5,404,670 | ||||||
Straumann Holding AG (Reg S) | 10,973 | 1,319,973 | ||||||
|
| |||||||
15,475,906 | ||||||||
Taiwan – 1.0% |
| |||||||
Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 13,590 | 1,110,983 | ||||||
|
| |||||||
1,110,983 | ||||||||
United Kingdom – 14.1% |
| |||||||
Allfunds Group PLC | 123,055 | 949,977 | ||||||
Anglo American PLC | 30,410 | 1,085,786 | ||||||
AstraZeneca PLC | 15,857 | 2,078,564 | ||||||
Diageo PLC | 82,767 | 3,570,719 | ||||||
Ferguson PLC | 13,957 | 1,562,783 | ||||||
Intertek Group PLC | 30,345 | 1,554,954 | ||||||
London Stock Exchange Group PLC | 22,478 | 2,089,536 | ||||||
Oxford Nanopore Technologies PLC(1) | 191,043 | 644,947 | ||||||
RELX PLC | 111,228 | 3,019,284 | ||||||
|
| |||||||
16,556,550 | ||||||||
United States – 0.8% |
| |||||||
MercadoLibre, Inc.(1) | 1,556 | 990,970 | ||||||
|
| |||||||
990,970 | ||||||||
Total Common Stocks (Cost $110,218,454) |
| 114,875,346 | ||||||
Preferred Stocks – 1.0% |
| |||||||
Germany – 1.0% |
| |||||||
Sartorius AG, 0.35% | 3,309 | 1,155,855 | ||||||
Total Preferred Stocks (Cost $1,141,761) |
| 1,155,855 |
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 1.3% |
| |||||||
Repurchase Agreements – 1.3% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $1,515,488, due 7/1/2022(3) | $ | 1,515,478 | $ | 1,515,478 | ||||
Total Repurchase Agreements (Cost $1,515,478) |
| 1,515,478 | ||||||
Total Investments – 100.1% (Cost $112,875,693) |
| 117,546,679 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (95,885 | ) | |||||
Total Net Assets – 100.0% |
| $ | 117,450,794 |
(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, 2022, the aggregate market value of these securities amounted to $3,386,251, representing 2.9% 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) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 1,547,500 | $ | 1,545,807 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 1,959,001 | * | $ | — | $ | 1,959,001 | |||||||
Cayman Islands | 990,531 | 1,389,653 | * | — | 2,380,184 | |||||||||||
Denmark | — | 7,947,882 | * | — | 7,947,882 | |||||||||||
France | — | 13,558,239 | * | — | 13,558,239 | |||||||||||
Germany | — | 7,091,438 | * | — | 7,091,438 | |||||||||||
Hong Kong | — | 7,434,850 | * | — | 7,434,850 | |||||||||||
India | 1,333,440 | — | — | 1,333,440 | ||||||||||||
Ireland | — | 2,001,565 | * | — | 2,001,565 | |||||||||||
Japan | — | 20,214,988 | * | — | 20,214,988 | |||||||||||
Netherlands | — | 10,183,856 | * | — | 10,183,856 | |||||||||||
Republic of Korea | — | 1,293,595 | * | — | 1,293,595 | |||||||||||
Singapore | — | 2,091,210 | * | — | 2,091,210 | |||||||||||
Sweden | — | 3,250,689 | * | — | 3,250,689 | |||||||||||
Switzerland | — | 15,475,906 | * | — | 15,475,906 | |||||||||||
Taiwan | 1,110,983 | — | — | 1,110,983 | ||||||||||||
United Kingdom | — | 16,556,550 | * | — | 16,556,550 | |||||||||||
United States | 990,970 | — | �� | — | 990,970 | |||||||||||
Preferred Stocks | ||||||||||||||||
Germany | — | 1,155,855 | * | — | 1,155,855 | |||||||||||
Repurchase Agreements | — | 1,515,478 | — | 1,515,478 | ||||||||||||
Total | $ | 4,425,924 | $ | 113,120,755 | $ | — | $ | 117,546,679 |
* | 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 |
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL GROWTH VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,369,512 | ||
Interest | 207 | |||
Withholding taxes on foreign dividends | (140,426 | ) | ||
|
| |||
Total Investment Income | 1,229,293 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 500,988 | |||
Distribution fees | 158,731 | |||
Custodian and accounting fees | 36,405 | |||
Professional fees | 23,671 | |||
Trustees’ and officers’ fees | 15,633 | |||
Administrative fees | 11,461 | |||
Transfer agent fees | 7,150 | |||
Shareholder reports | 4,925 | |||
Other expenses | 3,699 | |||
|
| |||
Total Expenses | 762,663 | |||
Less: Fees waived | (13,453 | ) | ||
|
| |||
Total Expenses, Net | 749,210 | |||
|
| |||
Net Investment Income/(Loss) | 480,083 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | (1,338,999 | ) | ||
Net realized gain/(loss) from foreign currency transactions | 3,918 | |||
Net change in unrealized appreciation/(depreciation) on investments | (46,955,363 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (20,261 | ) | ||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (48,310,705 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (47,830,622 | ) | |
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL GROWTH VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
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, 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 6/30/22 | $ | 19.21 | $ | 0.06 | $ | (6.00 | ) | $ | (5.94 | ) | $ | 13.27 | (30.92)% | (4) | ||||||||||
Year Ended 12/31/21 | 17.34 | (0.01 | ) | 1.88 | 1.87 | 19.21 | 10.78% | |||||||||||||||||
Year Ended 12/31/20 | 13.53 | (0.00 | )(5) | 3.81 | 3.81 | 17.34 | 28.16% | |||||||||||||||||
Year Ended 12/31/19 | 10.24 | 0.07 | 3.22 | 3.29 | 13.53 | 32.13% | ||||||||||||||||||
Year Ended 12/31/18 | 12.61 | 0.12 | (2.49 | ) | (2.37 | ) | 10.24 | (18.79)% | ||||||||||||||||
Year Ended 12/31/17 | 9.62 | 0.09 | 2.90 | 2.99 | 12.61 | 31.08% |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN INTERNATIONAL GROWTH VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income/(Loss) to Average Net Assets(3) | Gross Ratio of Net Investment Income/(Loss) to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 117,451 | 1.18% | (4) | 1.20% | (4) | 0.76% | (4) | 0.74% | (4) | 19% | (4) | |||||||||||
148,827 | 1.17% | 1.17% | (0.05)% | (0.05)% | 31% | |||||||||||||||||
146,998 | 1.18% | 1.24% | (0.00)% | (6) | (0.06)% | 25% | ||||||||||||||||
146,555 | 1.18% | 1.26% | 0.56% | 0.48% | 25% | |||||||||||||||||
131,137 | 1.18% | 1.32% | 1.07% | 0.93% | 61% | |||||||||||||||||
10,636 | 1.22% | 2.49% | 0.79% | (0.48)% | 32% |
(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. |
(5) | Rounds to $(0.00) per share. |
(6) | Rounds to (0.00)%. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian International Growth VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks total return consisting of long-term capital growth and current income.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
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, 2022, 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, 2022 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, 2022, 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, 2022, 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 |
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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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 and may be terminated only upon approval of the Board of Trustees. Amounts waived or reimbursed by Park Avenue pursuant to any expense
12 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
limitation will not be subject to Park Avenue’s recoupment rights. For the six months ended June 30, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $13,453.
Park Avenue has entered into a Sub-Advisory Agreement with J.P. Morgan Investment Management Inc. (“J.P. Morgan”). J.P. Morgan is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustees. Sub-advisory fees are paid by Park Avenue and do not represent a separate or additional expense to the Fund.
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $158,731 to PAS.
PAS has directed that certain payments under the 12b-1 plan be used to compensate GIAC for shareholder services provided to contract owners.
4. Federal Income Taxes
a. Distributions to Shareholders For federal income tax purposes, the Fund is treated as a disregarded entity (“DRE”). As a DRE, the Fund is not subject to an entity-level income tax; and any income, gains, losses, deductions, taxes, and credits of the Fund would instead be “passed through” directly to the separate accounts of GIAC that invest in the Fund and retain the same character for U.S. federal income tax purposes. In addition, the Fund is not required to distribute taxable income and capital gains for U.S. federal income tax purposes. Therefore, no dividends and capital gains distributions were paid by the Fund.
5. Investments
a. Investment Purchases and Sales The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $41,631,374 and $24,520,448, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, there were no purchases or sales of U.S. government securities.
b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.
c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN INTERNATIONAL GROWTH VIP FUND
6. Temporary Borrowings
The Fund, with other funds managed by Park Avenue, is party to a credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum
exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange
Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by
funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and
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evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s
role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the
Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of
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economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of
the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
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• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
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• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the |
since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Large Cap Disciplined Growth VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Large Cap Disciplined Growth VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Recent Rulemaking | 16 | |||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $458,781,549 |
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Microsoft Corp. | 9.72% | |||
Apple, Inc. | 9.65% | |||
Amazon.com, Inc. | 5.17% | |||
Alphabet, Inc., Class A | 4.89% | |||
UnitedHealth Group, Inc. | 3.08% | |||
Eli Lilly and Co. | 3.07% | |||
Mastercard, Inc., Class A | 2.85% | |||
Tesla, Inc. | 2.41% | |||
NVIDIA Corp. | 2.35% | |||
TJX Cos., Inc. | 1.81% | |||
Total | 45.00% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 703.70 | $3.68 | 0.87% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.48 | $4.36 | 0.87% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 99.1% |
| |||||||
Aerospace & Defense – 1.4% |
| |||||||
Raytheon Technologies Corp. | 66,490 | $ | 6,390,354 | |||||
|
| |||||||
6,390,354 | ||||||||
Automobiles – 2.4% |
| |||||||
Tesla, Inc.(1) | 16,440 | 11,071,025 | ||||||
|
| |||||||
11,071,025 | ||||||||
Beverages – 3.0% |
| |||||||
Constellation Brands, Inc., Class A | 27,918 | 6,506,569 | ||||||
Monster Beverage Corp.(1) | 79,646 | 7,383,184 | ||||||
|
| |||||||
13,889,753 | ||||||||
Biotechnology – 4.1% |
| |||||||
Regeneron Pharmaceuticals, Inc.(1) | 9,923 | 5,865,783 | ||||||
Seagen, Inc.(1) | 27,453 | 4,857,534 | ||||||
Vertex Pharmaceuticals, Inc.(1) | 28,312 | 7,978,038 | ||||||
|
| |||||||
18,701,355 | ||||||||
Building Products – 2.5% |
| |||||||
Builders FirstSource, Inc.(1) | 66,646 | 3,578,890 | ||||||
Fortune Brands Home & Security, Inc. | 59,416 | 3,557,830 | ||||||
Johnson Controls International PLC | 90,230 | 4,320,213 | ||||||
|
| |||||||
11,456,933 | ||||||||
Capital Markets – 1.6% |
| |||||||
Morgan Stanley | 43,356 | 3,297,657 | ||||||
S&P Global, Inc. | 12,544 | 4,228,081 | ||||||
|
| |||||||
7,525,738 | ||||||||
Chemicals – 1.2% |
| |||||||
PPG Industries, Inc. | 46,917 | 5,364,490 | ||||||
|
| |||||||
5,364,490 | ||||||||
Consumer Finance – 1.7% |
| |||||||
American Express Co. | 56,817 | 7,875,973 | ||||||
|
| |||||||
7,875,973 | ||||||||
Entertainment – 1.4% |
| |||||||
Roku, Inc.(1) | 26,377 | 2,166,607 | ||||||
Walt Disney Co.(1) | 43,372 | 4,094,317 | ||||||
|
| |||||||
6,260,924 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 1.5% |
| |||||||
Prologis, Inc. | 37,386 | 4,398,463 | ||||||
Rexford Industrial Realty, Inc. | 45,447 | 2,617,293 | ||||||
|
| |||||||
7,015,756 | ||||||||
Health Care Equipment & Supplies – 2.5% |
| |||||||
Align Technology, Inc.(1) | 11,047 | 2,614,494 | ||||||
Edwards Lifesciences Corp.(1) | 52,289 | 4,972,161 | ||||||
Teleflex, Inc. | 15,933 | 3,917,128 | ||||||
|
| |||||||
11,503,783 | ||||||||
Health Care Providers & Services – 3.1% |
| |||||||
UnitedHealth Group, Inc. | 27,524 | 14,137,152 | ||||||
|
| |||||||
14,137,152 | ||||||||
Hotels, Restaurants & Leisure – 3.7% |
| |||||||
Airbnb, Inc., Class A(1) | 41,805 | 3,723,990 | ||||||
Booking Holdings, Inc.(1) | 3,598 | 6,292,866 | ||||||
Chipotle Mexican Grill, Inc.(1) | 5,209 | 6,809,517 | ||||||
|
| |||||||
16,826,373 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Interactive Media & Services – 6.6% |
| |||||||
Alphabet, Inc., Class A(1) | 10,294 | $ | 22,433,302 | |||||
Meta Platforms, Inc., Class A(1) | 49,792 | 8,028,960 | ||||||
|
| |||||||
30,462,262 | ||||||||
Internet & Direct Marketing Retail – 5.7% |
| |||||||
Amazon.com, Inc.(1) | 223,160 | 23,701,824 | ||||||
Etsy, Inc.(1) | �� | 31,300 | 2,291,473 | |||||
|
| |||||||
25,993,297 | ||||||||
IT Services – 5.5% |
| |||||||
Block, Inc.(1) | 37,830 | 2,325,032 | ||||||
FleetCor Technologies, Inc.(1) | 28,956 | 6,083,945 | ||||||
Global Payments, Inc. | 32,583 | 3,604,983 | ||||||
Mastercard, Inc., Class A | 41,446 | 13,075,384 | ||||||
|
| |||||||
25,089,344 | ||||||||
Life Sciences Tools & Services – 1.7% |
| |||||||
Thermo Fisher Scientific, Inc. | 14,817 | 8,049,780 | ||||||
|
| |||||||
8,049,780 | ||||||||
Machinery – 2.5% |
| |||||||
Deere & Co. | 23,939 | 7,169,012 | ||||||
Nordson Corp. | 20,658 | 4,182,006 | ||||||
|
| |||||||
11,351,018 | ||||||||
Oil, Gas & Consumable Fuels – 1.0% |
| |||||||
Pioneer Natural Resources Co. | 21,302 | 4,752,050 | ||||||
|
| |||||||
4,752,050 | ||||||||
Personal Products – 0.8% |
| |||||||
Estee Lauder Cos., Inc., Class A | 13,753 | 3,502,476 | ||||||
|
| |||||||
3,502,476 | ||||||||
Pharmaceuticals – 3.1% |
| |||||||
Eli Lilly and Co. | 43,464 | 14,092,333 | ||||||
|
| |||||||
14,092,333 | ||||||||
Semiconductors & Semiconductor Equipment – 7.6% |
| |||||||
Advanced Micro Devices, Inc.(1) | 74,314 | 5,682,792 | ||||||
KLA Corp. | 16,873 | 5,383,837 | ||||||
Marvell Technology, Inc. | 73,165 | 3,184,872 | ||||||
NVIDIA Corp. | 71,046 | 10,769,863 | ||||||
Teradyne, Inc. | 33,510 | 3,000,820 | ||||||
Texas Instruments, Inc. | 46,086 | 7,081,114 | ||||||
|
| |||||||
35,103,298 | ||||||||
Software – 19.1% |
| |||||||
Adobe, Inc.(1) | 17,823 | 6,524,287 | ||||||
Avalara, Inc.(1) | 37,489 | 2,646,723 | ||||||
Five9, Inc.(1) | 37,665 | 3,432,788 | ||||||
Microsoft Corp. | 173,677 | 44,605,464 | ||||||
Palo Alto Networks, Inc.(1) | 13,881 | 6,856,381 | ||||||
Paycom Software, Inc.(1) | 15,339 | 4,296,761 | ||||||
Salesforce, Inc.(1) | 44,505 | 7,345,105 | ||||||
ServiceNow, Inc.(1) | 15,680 | 7,456,154 | ||||||
Workday, Inc., Class A(1) | 30,943 | 4,319,024 | ||||||
|
| |||||||
87,482,687 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Specialty Retail – 1.8% |
| |||||||
TJX Cos., Inc. | 148,285 | $ | 8,281,717 | |||||
|
| |||||||
8,281,717 | ||||||||
Technology Hardware, Storage & Peripherals – 10.6% |
| |||||||
Apple, Inc. | 323,901 | 44,283,744 | ||||||
NetApp, Inc. | 70,920 | 4,626,821 | ||||||
|
| |||||||
48,910,565 | ||||||||
Textiles, Apparel & Luxury Goods – 3.0% |
| |||||||
Lululemon Athletica, Inc.(1) | 21,314 | 5,810,409 | ||||||
NIKE, Inc., Class B | 76,824 | 7,851,413 | ||||||
|
| |||||||
13,661,822 | ||||||||
Total Common Stocks (Cost $406,921,831) |
| 454,752,258 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 1.0% |
| |||||||
Repurchase Agreements – 1.0% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $4,430,777, due 7/1/2022(2) | $ | 4,430,747 | $ | 4,430,747 | ||||
Total Repurchase Agreements (Cost $4,430,747) |
| 4,430,747 | ||||||
Total Investments – 100.1% (Cost $411,352,578) |
| 459,183,005 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (401,456 | ) | |||||
Total Net Assets – 100.0% |
| $ | 458,781,549 |
(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 | 3.00% | 6/30/2024 | $ | 4,524,400 | $ | 4,519,450 |
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 454,752,258 | $ | — | $ | — | $ | 454,752,258 | ||||||||
Repurchase Agreements | — | 4,430,747 | — | 4,430,747 | ||||||||||||
Total | $ | 454,752,258 | $ | 4,430,747 | $ | — | $ | 459,183,005 |
4 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,522,284 | ||
Interest | 1,002 | |||
|
| |||
Total Investment Income | 1,523,286 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 1,473,286 | |||
Distribution fees | 662,522 | |||
Trustees’ and officers’ fees | 66,619 | |||
Professional fees | 54,797 | |||
Administrative fees | 44,947 | |||
Custodian and accounting fees | 21,363 | |||
Transfer agent fees | 8,392 | |||
Shareholder reports | 8,348 | |||
Other expenses | 15,427 | |||
|
| |||
Total Expenses | 2,355,701 | |||
Less: Fees waived | (50,122 | ) | ||
|
| |||
Total Expenses, Net | 2,305,579 | |||
|
| |||
Net Investment Income/(Loss) | (782,293 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | (2,264,708 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (184,807,994 | ) | ||
|
| |||
Net Loss on Investments | (187,072,702 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (187,854,995 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
This Page Intentionally Left Blank
7 |
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net 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 6/30/22 | $ | 28.69 | $ | (0.04 | ) | $ | (8.46 | ) | $ | (8.50 | ) | $ | 20.19 | (29.63) | %(4) | |||||||||
Year Ended 12/31/21 | 23.83 | (0.09 | ) | 4.95 | 4.86 | 28.69 | 20.39 | % | ||||||||||||||||
Year Ended 12/31/20 | 17.47 | (0.02 | ) | 6.38 | 6.36 | 23.83 | 36.41 | % | ||||||||||||||||
Year Ended 12/31/19 | 12.52 | (0.00 | )(5) | 4.95 | 4.95 | 17.47 | 39.54 | % | ||||||||||||||||
Year Ended 12/31/18 | 12.67 | (0.01 | ) | (0.14 | ) | (0.15 | ) | 12.52 | (1.18) | % | ||||||||||||||
Year Ended 12/31/17 | 9.85 | 0.03 | 2.79 | 2.82 | 12.67 | 28.63 | % |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
| ||||||||||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income/(Loss) to Average Net Assets(3) | Gross Ratio of Net Investment Loss to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 458,782 | 0.87% | (4) | 0.89% | (4) | (0.30)% | (4) | (0.32)% | (4) | 17% | (4) | |||||||||||
622,763 | 0.87% | 0.87% | (0.34)% | (0.34)% | 28% | |||||||||||||||||
621,402 | 0.87% | 0.89% | (0.12)% | (0.14)% | 24% | |||||||||||||||||
625,755 | 0.87% | 0.96% | (0.01)% | (0.10)% | 116% | |||||||||||||||||
181,144 | 0.87% | 1.04% | (0.05)% | (0.22)% | 47% | |||||||||||||||||
8,521 | 1.00% | 2.08% | 0.27% | (0.81)% | 77% |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income/(Loss) to Average Net Assets include the effect of fee waivers, expense limitations, and recoupments, if any. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
(5) | Rounds to $(0.00) per share. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Large Cap Disciplined Growth VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks to maximize long-term growth.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
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, 2022, 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, 2022 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, 2022, 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, 2022, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN 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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $50,122.
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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $662,522 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 $111,070,373 and $90,199,875, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED GROWTH VIP FUND
current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The
Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board
concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds,
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SUPPLEMENTAL INFORMATION (UNAUDITED)
the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of
the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
20 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Large Cap Disciplined Value VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Large Cap Disciplined 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 | ||||
Liquidity Risk Management Program | 15 | |||
Recent Rulemaking | 16 | |||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $162,465,398 |
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Johnson & Johnson | 4.23% | |||
ConocoPhillips | 3.17% | |||
Berkshire Hathaway, Inc., Class B | 3.05% | |||
AutoZone, Inc. | 2.97% | |||
UnitedHealth Group, Inc. | 2.75% | |||
Alphabet, Inc., Class A | 2.54% | |||
JPMorgan Chase & Co. | 2.40% | |||
Procter & Gamble Co. | 2.33% | |||
Cigna Corp. | 2.32% | |||
Sanofi, ADR | 2.11% | |||
Total | 27.87% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||||
Based on Actual Return | $1,000.00 | $ 892.30 | $4.55 | 0.97% | ||||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.98 | $4.86 | 0.97% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.5% |
| |||||||
Aerospace & Defense – 2.4% |
| |||||||
General Dynamics Corp. | 9,502 | $ | 2,102,317 | |||||
Howmet Aerospace, Inc. | 58,820 | 1,849,889 | ||||||
|
| |||||||
3,952,206 | ||||||||
Banks – 6.8% |
| |||||||
Bank of America Corp. | 73,226 | 2,279,525 | ||||||
JPMorgan Chase & Co. | 34,570 | 3,892,928 | ||||||
Truist Financial Corp. | 32,303 | 1,532,131 | ||||||
Wells Fargo & Co. | 83,233 | 3,260,237 | ||||||
|
| |||||||
10,964,821 | ||||||||
Beverages – 2.9% |
| |||||||
Coca-Cola Europacific Partners PLC | 33,508 | 1,729,348 | ||||||
Keurig Dr Pepper, Inc. | 85,570 | 3,028,322 | ||||||
|
| |||||||
4,757,670 | ||||||||
Biotechnology – 1.9% |
| |||||||
AbbVie, Inc. | 19,930 | 3,052,479 | ||||||
|
| |||||||
3,052,479 | ||||||||
Building Products – 0.5% |
| |||||||
Allegion PLC | 7,610 | 745,019 | ||||||
|
| |||||||
745,019 | ||||||||
Capital Markets – 2.5% |
| |||||||
Charles Schwab Corp. | 34,077 | 2,152,985 | ||||||
Goldman Sachs Group, Inc. | 6,274 | 1,863,503 | ||||||
|
| |||||||
4,016,488 | ||||||||
Chemicals – 2.6% |
| |||||||
Axalta Coating Systems Ltd.(1) | 52,035 | 1,150,494 | ||||||
DuPont de Nemours, Inc. | 41,303 | 2,295,621 | ||||||
Olin Corp. | 17,287 | 800,042 | ||||||
|
| |||||||
4,246,157 | ||||||||
Communications Equipment – 1.9% |
| |||||||
Cisco Systems, Inc. | 72,675 | 3,098,862 | ||||||
|
| |||||||
3,098,862 | ||||||||
Construction Materials – 0.6% |
| |||||||
CRH PLC, ADR | 28,335 | 986,625 | ||||||
|
| |||||||
986,625 | ||||||||
Consumer Finance – 0.6% |
| |||||||
Capital One Financial Corp. | 9,399 | 979,282 | ||||||
|
| |||||||
979,282 | ||||||||
Distributors – 0.8% |
| |||||||
LKQ Corp. | 25,726 | 1,262,889 | ||||||
|
| |||||||
1,262,889 | ||||||||
Diversified Financial Services – 3.0% |
| |||||||
Berkshire Hathaway, Inc., Class B(1) | 18,132 | 4,950,399 | ||||||
|
| |||||||
4,950,399 | ||||||||
Electrical Equipment – 1.1% |
| |||||||
Eaton Corp. PLC | 13,913 | 1,752,899 | ||||||
|
| |||||||
1,752,899 | ||||||||
Energy Equipment & Services – 1.2% |
| |||||||
Schlumberger NV | 55,712 | 1,992,261 | ||||||
|
| |||||||
1,992,261 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Entertainment – 0.9% |
| |||||||
Activision Blizzard, Inc. | 18,592 | $ | 1,447,573 | |||||
|
| |||||||
1,447,573 | ||||||||
Food & Staples Retailing – 0.8% |
| |||||||
US Foods Holding Corp.(1) | 39,757 | 1,219,745 | ||||||
|
| |||||||
1,219,745 | ||||||||
Health Care Providers & Services – 10.7% |
| |||||||
AmerisourceBergen Corp. | 11,814 | 1,671,445 | ||||||
Centene Corp.(1) | 37,440 | 3,167,798 | ||||||
Cigna Corp. | 14,283 | 3,763,856 | ||||||
CVS Health Corp. | 32,887 | 3,047,309 | ||||||
McKesson Corp. | 3,675 | 1,198,822 | ||||||
UnitedHealth Group, Inc. | 8,701 | 4,469,095 | ||||||
|
| |||||||
17,318,325 | ||||||||
Hotels, Restaurants & Leisure – 0.4% |
| |||||||
Restaurant Brands International, Inc. | 11,665 | 585,000 | ||||||
|
| |||||||
585,000 | ||||||||
Household Durables – 1.4% |
| |||||||
Mohawk Industries, Inc.(1) | 10,864 | 1,348,114 | ||||||
Sony Group Corp., ADR | 11,269 | 921,466 | ||||||
|
| |||||||
2,269,580 | ||||||||
Household Products – 2.3% |
| |||||||
Procter & Gamble Co. | 26,374 | 3,792,317 | ||||||
|
| |||||||
3,792,317 | ||||||||
Insurance – 1.9% |
| |||||||
Chubb Ltd. | 9,572 | 1,881,664 | ||||||
Everest Re Group Ltd. | 4,182 | 1,172,131 | ||||||
|
| |||||||
3,053,795 | ||||||||
Interactive Media & Services – 3.8% |
| |||||||
Alphabet, Inc., Class A(1) | 1,897 | 4,134,056 | ||||||
Meta Platforms, Inc., Class A(1) | 12,454 | 2,008,208 | ||||||
|
| |||||||
6,142,264 | ||||||||
IT Services – 4.8% |
| |||||||
Cognizant Technology Solutions Corp., Class A | 19,706 | 1,329,958 | ||||||
Fidelity National Information Services, Inc. | 25,580 | 2,344,919 | ||||||
FleetCor Technologies, Inc.(1) | 6,849 | 1,439,043 | ||||||
Global Payments, Inc. | 13,229 | 1,463,656 | ||||||
SS&C Technologies Holdings, Inc. | 22,369 | 1,298,968 | ||||||
|
| |||||||
7,876,544 | ||||||||
Life Sciences Tools & Services – 2.2% |
| |||||||
Avantor, Inc.(1) | 59,381 | 1,846,749 | ||||||
ICON PLC(1) | 7,834 | 1,697,628 | ||||||
|
| |||||||
3,544,377 | ||||||||
Machinery – 4.7% |
| |||||||
Caterpillar, Inc. | 6,884 | 1,230,584 | ||||||
Deere & Co. | 6,674 | 1,998,663 | ||||||
Dover Corp. | 6,364 | 772,080 | ||||||
Fortive Corp. | 10,849 | 589,969 | ||||||
Middleby Corp.(1) | 4,293 | 538,170 | ||||||
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Machinery (continued) |
| |||||||
Otis Worldwide Corp. | 23,031 | $ | 1,627,601 | |||||
Westinghouse Air Brake Technologies Corp. | 11,517 | 945,315 | ||||||
|
| |||||||
7,702,382 | ||||||||
Multi-Utilities – 2.2% |
| |||||||
CenterPoint Energy, Inc. | 57,813 | 1,710,109 | ||||||
Dominion Energy, Inc. | 23,973 | 1,913,285 | ||||||
|
| |||||||
3,623,394 | ||||||||
Oil, Gas & Consumable Fuels – 10.7% |
| |||||||
Canadian Natural Resources Ltd. | 44,087 | 2,366,590 | ||||||
Cenovus Energy, Inc. | 81,053 | 1,540,818 | ||||||
ConocoPhillips | 57,398 | 5,154,914 | ||||||
Devon Energy Corp. | 27,734 | 1,528,421 | ||||||
EOG Resources, Inc. | 12,285 | 1,356,755 | ||||||
Marathon Petroleum Corp. | 33,212 | 2,730,359 | ||||||
Pioneer Natural Resources Co. | 12,454 | 2,778,238 | ||||||
|
| |||||||
17,456,095 | ||||||||
Pharmaceuticals – 8.8% |
| |||||||
Bristol Myers Squibb Co. | 31,445 | 2,421,265 | ||||||
Johnson & Johnson | 38,717 | 6,872,654 | ||||||
Novartis AG, ADR | 18,860 | 1,594,236 | ||||||
Sanofi, ADR | 68,697 | 3,436,911 | ||||||
|
| |||||||
14,325,066 | ||||||||
Professional Services – 0.9% |
| |||||||
Leidos Holdings, Inc. | 14,463 | 1,456,569 | ||||||
|
| |||||||
1,456,569 | ||||||||
Road & Rail – 0.9% |
| |||||||
Union Pacific Corp. | 6,931 | 1,478,244 | ||||||
|
| |||||||
1,478,244 | ||||||||
Semiconductors & Semiconductor Equipment – 6.3% |
| |||||||
Applied Materials, Inc. | 14,755 | 1,342,410 | ||||||
KLA Corp. | 2,973 | 948,625 | ||||||
Lam Research Corp. | 1,732 | 738,092 | ||||||
Microchip Technology, Inc. | 16,746 | 972,607 | ||||||
Micron Technology, Inc. | 30,178 | 1,668,240 | ||||||
NXP Semiconductors NV | 3,416 | 505,670 | ||||||
Qorvo, Inc.(1) | 11,481 | 1,082,888 | ||||||
QUALCOMM, Inc. | 22,815 | 2,914,388 | ||||||
|
| |||||||
10,172,920 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Specialty Retail – 3.5% |
| |||||||
AutoZone, Inc.(1) | 2,242 | $ | 4,818,327 | |||||
TJX Cos., Inc. | 15,841 | 884,720 | ||||||
|
| |||||||
5,703,047 | ||||||||
Trading Companies & Distributors – 0.9% |
| |||||||
United Rentals, Inc.(1) | 5,881 | 1,428,554 | ||||||
|
| |||||||
1,428,554 | ||||||||
Wireless Telecommunication Services – 1.6% |
| |||||||
T-Mobile US, Inc.(1) | 19,908 | 2,678,422 | ||||||
|
| |||||||
2,678,422 | ||||||||
Total Common Stocks (Cost $132,932,606) |
| 160,032,270 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 1.5% |
| |||||||
Repurchase Agreements – 1.5% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $2,489,180, due 7/1/2022(2) | $ | 2,489,164 | 2,489,164 | |||||
Total Repurchase Agreements (Cost $2,489,164) |
| 2,489,164 | ||||||
Total Investments – 100.0% (Cost $135,421,770) |
| 162,521,434 | ||||||
Liabilities in excess of other assets – (0.0)% |
| (56,036 | ) | |||||
Total Net Assets – 100.0% |
| $ | 162,465,398 |
(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 | 3.00% | 6/30/2024 | $ | 2,541,800 | $ | 2,539,019 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 160,032,270 | $ | — | $ | — | $ | 160,032,270 | ||||||||
Repurchase Agreements | — | 2,489,164 | — | 2,489,164 | ||||||||||||
Total | $ | 160,032,270 | $ | 2,489,164 | $ | — | $ | 162,521,434 |
4 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,938,455 | ||
Interest | 554 | |||
Withholding taxes on foreign dividends | (44,380 | ) | ||
|
| |||
Total Investment Income | 1,894,629 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 602,240 | |||
Distribution fees | 240,602 | |||
Professional fees | 26,701 | |||
Custodian and accounting fees | 24,835 | |||
Trustees’ and officers’ fees | 22,642 | |||
Administrative fees | 16,075 | |||
Transfer agent fees | 6,598 | |||
Shareholder reports | 5,502 | |||
Other expenses | 5,286 | |||
|
| |||
Total Expenses | 950,481 | |||
Less: Fees waived | (16,944 | ) | ||
|
| |||
Total Expenses, Net | 933,537 | |||
|
| |||
Net Investment Income/(Loss) | 961,092 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 13,477,720 | |||
Net realized gain/(loss) from foreign currency transactions | 482 | |||
Net change in unrealized appreciation/(depreciation) on investments | (34,406,898 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | 37 | |||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (20,928,659 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (19,967,567 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
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7 |
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.
Financial Highlights Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income(1) | Net Realized | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/22 | $ | 18.57 | $ | 0.09 | $ | (2.09 | ) | $ | (2.00 | ) | $ | 16.57 | (10.77)% | (4) | ||||||||||
Year Ended 12/31/21 | 14.30 | 0.12 | 4.15 | 4.27 | 18.57 | 29.86% | ||||||||||||||||||
Year Ended 12/31/20 | 14.13 | 0.19 | (5) | (0.02 | ) | 0.17 | 14.30 | 1.20% | ||||||||||||||||
Year Ended 12/31/19 | 11.45 | 0.16 | 2.52 | 2.68 | 14.13 | 23.41% | ||||||||||||||||||
Year Ended 12/31/18 | 12.85 | 0.15 | (1.55 | ) | (1.40 | ) | 11.45 | (10.89)% | ||||||||||||||||
Year Ended 12/31/17 | 10.78 | 0.10 | 1.97 | 2.07 | 12.85 | 19.20% |
8 | The accompanying notes are an integral part of these financial statements. |
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 | |||||||||||||||||
$ | 162,465 | 0.97% | (4) | 0.99% | (4) | 1.00% | (4) | 0.98% | (4) | 13% | (4) | |||||||||||
219,108 | 0.97% | 0.97% | 0.71% | 0.71% | 45% | |||||||||||||||||
223,410 | 0.97% | 1.02% | 1.53% | (5) | 1.48% | (5) | 73% | |||||||||||||||
213,249 | 0.97% | 1.03% | 1.22% | 1.16% | 66% | |||||||||||||||||
185,363 | 0.97% | 1.08% | 1.16% | 1.05% | 56% | |||||||||||||||||
15,905 | 0.98% | 1.91% | 0.89% | (0.04)% | 71% |
(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. |
(5) | Reflects a special dividend paid out during the year by one of the Fund’s holdings. Had the Fund not received the special dividend, the Net Investment Income per share would have been $0.14, the Net Ratio of Net Investment Income to Average Net Assets would have been 1.15%, and the Gross Ratio of Net Investment Income/(Loss) to Average Net Assets would have been 1.10%. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Large Cap Disciplined Value VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks to provide long-term growth of capital primarily through investment in equity securities. Current income is a secondary objective.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
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, 2022, 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, 2022 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, 2022, 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, 2022, 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 |
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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $16,944.
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.
12 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $240,602 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 purchased and the proceeds from investments sold (excluding short-term investments) amounted to $24,193,568 and $61,092,152, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the
13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP DISCIPLINED VALUE VIP FUND
current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
14 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
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.
15 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
16 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The
Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager���s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the
Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of
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SUPPLEMENTAL INFORMATION (UNAUDITED)
economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of
the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8174
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Large Cap Fundamental Growth VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Large Cap Fundamental Growth VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
16 | ||||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $262,563,287 |
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Amazon.com, Inc. | 8.17% | |||
Microsoft Corp. | 6.47% | |||
Visa, Inc., Class A | 5.49% | |||
UnitedHealth Group, Inc. | 5.31% | |||
Apple, Inc. | 4.63% | |||
Meta Platforms, Inc., Class A | 3.81% | |||
Thermo Fisher Scientific, Inc. | 3.77% | |||
Palo Alto Networks, Inc. | 3.33% | |||
NVIDIA Corp. | 3.30% | |||
Zoetis, Inc. | 3.18% | |||
Total | 47.46% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 681.70 | $3.88 | 0.93% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.18 | $4.66 | 0.93% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 97.7% |
| |||||||
Aerospace & Defense – 2.6% |
| |||||||
Raytheon Technologies Corp. | 70,020 | $ | 6,729,622 | |||||
|
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6,729,622 | ||||||||
Air Freight & Logistics – 3.0% |
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United Parcel Service, Inc., Class B | 42,356 | 7,731,664 | ||||||
|
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7,731,664 | ||||||||
Auto Components – 1.3% |
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Aptiv PLC(1) | 37,074 | 3,302,181 | ||||||
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3,302,181 | ||||||||
Beverages – 2.5% |
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Monster Beverage Corp.(1) | 71,490 | 6,627,123 | ||||||
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6,627,123 | ||||||||
Capital Markets – 2.7% |
| |||||||
S&P Global, Inc. | 21,223 | 7,153,424 | ||||||
|
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7,153,424 | ||||||||
Chemicals – 1.3% |
| |||||||
Sherwin-Williams Co. | 15,600 | 3,492,996 | ||||||
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| |||||||
3,492,996 | ||||||||
Electrical Equipment – 1.9% |
| |||||||
Eaton Corp. PLC | 40,240 | 5,069,838 | ||||||
|
| |||||||
5,069,838 | ||||||||
Entertainment – 3.6% |
| |||||||
Netflix, Inc.(1) | 22,100 | 3,864,627 | ||||||
Sea Ltd., ADR(1) | 31,760 | 2,123,474 | ||||||
Walt Disney Co.(1) | 36,319 | 3,428,513 | ||||||
|
| |||||||
9,416,614 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 1.8% |
| |||||||
Equinix, Inc. | 7,027 | 4,616,879 | ||||||
|
| |||||||
4,616,879 | ||||||||
Health Care Equipment & Supplies – 6.3% |
| |||||||
Alcon, Inc. | 74,660 | 5,217,987 | ||||||
Dexcom, Inc.(1) | 49,200 | 3,666,876 | ||||||
Intuitive Surgical, Inc.(1) | 21,770 | 4,369,457 | ||||||
Stryker Corp. | 16,800 | 3,342,024 | ||||||
|
| |||||||
16,596,344 | ||||||||
Health Care Providers & Services – 5.3% |
| |||||||
UnitedHealth Group, Inc. | 27,147 | 13,943,514 | ||||||
|
| |||||||
13,943,514 | ||||||||
Interactive Media & Services – 3.8% |
| |||||||
Meta Platforms, Inc., Class A(1) | 62,013 | 9,999,596 | ||||||
|
| |||||||
9,999,596 | ||||||||
Internet & Direct Marketing Retail – 8.2% |
| |||||||
Amazon.com, Inc.(1) | 202,100 | 21,465,041 | ||||||
|
| |||||||
21,465,041 | ||||||||
IT Services – 8.0% |
| |||||||
Fidelity National Information Services, Inc. | 30,487 | 2,794,743 | ||||||
PayPal Holdings, Inc.(1) | 55,100 | 3,848,184 | ||||||
June 30, 2022 (unaudited) | Shares | Value | ||||||
IT Services (continued) |
| |||||||
Visa, Inc., Class A | 73,287 | $ | 14,429,478 | |||||
|
| |||||||
21,072,405 | ||||||||
Life Sciences Tools & Services – 3.8% |
| |||||||
Thermo Fisher Scientific, Inc. | 18,232 | 9,905,081 | ||||||
|
| |||||||
9,905,081 | ||||||||
Pharmaceuticals – 3.2% |
| |||||||
Zoetis, Inc. | 48,521 | 8,340,275 | ||||||
|
| |||||||
8,340,275 | ||||||||
Road & Rail – 1.1% |
| |||||||
Uber Technologies, Inc.(1) | 137,282 | 2,808,790 | ||||||
|
| |||||||
2,808,790 | ||||||||
Semiconductors & Semiconductor Equipment – 5.6% |
| |||||||
ASML Holding NV | 6,600 | 3,140,808 | ||||||
Intel Corp. | 79,100 | 2,959,131 | ||||||
NVIDIA Corp. | 57,132 | 8,660,640 | ||||||
|
| |||||||
14,760,579 | ||||||||
Software – 19.8% |
| |||||||
Adobe, Inc.(1) | 16,660 | 6,098,560 | ||||||
Atlassian Corp. PLC, Class A(1) | 20,790 | 3,896,046 | ||||||
Microsoft Corp. | 66,104 | 16,977,490 | ||||||
Palo Alto Networks, Inc.(1) | 17,694 | 8,739,774 | ||||||
Salesforce, Inc.(1) | 44,550 | 7,352,532 | ||||||
Splunk, Inc.(1) | 40,381 | 3,572,103 | ||||||
UiPath, Inc., Class A(1) | 54,059 | 983,333 | ||||||
Unity Software, Inc.(1) | 28,900 | 1,064,098 | ||||||
Workday, Inc., Class A(1) | 24,130 | 3,368,066 | ||||||
|
| |||||||
52,052,002 | ||||||||
Specialty Retail – 3.1% |
| |||||||
Advance Auto Parts, Inc. | 23,360 | 4,043,382 | ||||||
Tractor Supply Co. | 20,620 | 3,997,187 | ||||||
|
| |||||||
8,040,569 | ||||||||
Technology Hardware, Storage & Peripherals – 4.6% |
| |||||||
Apple, Inc. | 88,944 | 12,160,424 | ||||||
|
| |||||||
12,160,424 | ||||||||
Textiles, Apparel & Luxury Goods – 1.8% |
| |||||||
NIKE, Inc., Class B | 47,000 | 4,803,400 | ||||||
|
| |||||||
4,803,400 | ||||||||
Trading Companies & Distributors – 2.4% |
| |||||||
WW Grainger, Inc. | 14,079 | 6,397,920 | ||||||
|
| |||||||
6,397,920 | ||||||||
Total Common Stocks (Cost $232,361,070) |
| 256,486,281 | ||||||
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 2.5% |
| |||||||
Repurchase Agreements – 2.5% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $6,604,708, due 7/1/2022(2) | $ | 6,604,664 | $ | 6,604,664 | ||||
Total Repurchase Agreements (Cost $6,604,664) |
| 6,604,664 | ||||||
Total Investments – 100.2% (Cost $238,965,734) |
| 263,090,945 | ||||||
Liabilities in excess of other assets – (0.2)% |
| (527,658 | ) | |||||
Total Net Assets – 100.0% | $ | 262,563,287 |
(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 | 3.00% | 6/30/2024 | $ | 6,744,200 | $ | 6,736,822 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 256,486,281 | $ | — | $ | — | $ | 256,486,281 | ||||||||
Repurchase Agreements | — | 6,604,664 | — | 6,604,664 | ||||||||||||
Total | $ | 256,486,281 | $ | 6,604,664 | $ | — | $ | 263,090,945 |
4 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 914,351 | ||
Interest | 1,448 | |||
Withholding taxes on foreign dividends | (6,298 | ) | ||
|
| |||
Total Investment Income | 909,501 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 866,959 | |||
Distribution fees | 370,320 | |||
Trustees’ and officers’ fees | 37,471 | |||
Professional fees | 36,722 | |||
Administrative fees | 25,811 | |||
Custodian and accounting fees | 18,971 | |||
Transfer agent fees | 7,912 | |||
Shareholder reports | 6,532 | |||
Other expenses | 8,750 | |||
|
| |||
Total Expenses | 1,379,448 | |||
|
| |||
Net Investment Income/(Loss) | (469,947 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 8,550,516 | |||
Net change in unrealized appreciation/(depreciation) on investments | (122,846,379 | ) | ||
|
| |||
Net Loss on Investments | (114,295,863 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (114,765,810 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
This Page Intentionally Left Blank
7 |
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, 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 6/30/22 | $ | 26.23 | $ | (0.03 | ) | $ | (8.32 | ) | $ | (8.35 | ) | $ | 17.88 | (31.83)% | (4) | |||||||||
Year Ended 12/31/21 | 21.57 | (0.08 | ) | 4.74 | 4.66 | 26.23 | 21.60% | |||||||||||||||||
Year Ended 12/31/20 | 16.50 | (0.03 | ) | 5.10 | 5.07 | 21.57 | 30.73% | |||||||||||||||||
Year Ended 12/31/19 | 12.51 | 0.00 | (5) | 3.99 | 3.99 | 16.50 | 31.89% | |||||||||||||||||
Year Ended 12/31/18 | 12.74 | 0.03 | (0.26 | ) | (0.23 | ) | 12.51 | (1.81)% | ||||||||||||||||
Year Ended 12/31/17 | 10.19 | 0.01 | 2.54 | 2.55 | 12.74 | 25.02% |
8 | The accompanying notes are an integral part of these financial statements. |
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 | |||||||||||||||||
$ | 262,563 | 0.93% | (4) | 0.93% | (4) | (0.32)% | (4) | (0.32)% | (4) | 15% | (4) | |||||||||||
348,302 | 0.91% | 0.91% | (0.34)% | (0.34)% | 21% | |||||||||||||||||
339,890 | 1.00% | 1.00% | (0.18)% | (0.18)% | 20% | |||||||||||||||||
349,921 | 1.00% | 1.00% | 0.01% | 0.01% | 44% | |||||||||||||||||
223,264 | 1.00% | 1.02% | 0.26% | 0.24% | 33% | |||||||||||||||||
11,946 | 1.00% | 1.95% | 0.09% | (0.86)% | 51% |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income/(Loss) to Average Net Assets include the effect of fee waivers, expense limitations, and recoupments, if any. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
(5) | Rounds to $0.00 per share. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Large Cap Fundamental Growth VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks long-term growth of capital.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
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, 2022, 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, 2022 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, 2022, 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, 2022, 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 |
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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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, and 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, 2022, Park Avenue did not waive any fees or pay any Fund expenses.
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.
12 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $370,320 to PAS.
PAS has directed that certain payments under the 12b-1 plan be used to compensate GIAC for shareholder services provided to contract owners.
4. Federal Income Taxes
a. Distributions to Shareholders For federal income tax purposes, the Fund is treated as a disregarded entity (“DRE”). As a DRE, the Fund is not subject to an entity-level income tax; and any income, gains, losses, deductions, taxes, and credits of the Fund would instead be “passed through” directly to the separate accounts of GIAC that invest in the Fund and retain the same character for U.S. federal income tax purposes. In addition, the Fund is not required to distribute taxable income and capital gains for U.S. federal income tax purposes. Therefore, no dividends and capital gains distributions were paid by the Fund.
5. Investments
a. Investment Purchases and Sales The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $70,067,224 and $45,495,240, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the
13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN LARGE CAP FUNDAMENTAL GROWTH VIP FUND
current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and
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evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s
role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the
Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of
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economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of
the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
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• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
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• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/
GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8175
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Mid Cap Relative Value VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Mid Cap Relative Value VIP Fund
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Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 5 | |||
Statement of Operations | 5 | |||
Statements of Changes in Net Assets | 6 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 15 | |||
Recent Rulemaking | 16 | |||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN MID CAP RELATIVE VALUE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $178,728,731
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Carlisle Cos., Inc. | 4.19% | |||
Republic Services, Inc. | 3.49% | |||
Arch Capital Group Ltd. | 3.45% | |||
LKQ Corp. | 3.29% | |||
Amdocs Ltd. | 3.17% | |||
Brown & Brown, Inc. | 2.92% | |||
American Electric Power Co., Inc. | 2.85% | |||
Humana, Inc. | 2.79% | |||
Reynolds Consumer Products, Inc. | 2.74% | |||
Keurig Dr Pepper, Inc. | 2.68% | |||
Total | 31.57% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 875.30 | $4.88 | 1.05% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.59 | $5.26 | 1.05% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.0% |
| |||||||
Auto Components – 2.9% |
| |||||||
Aptiv PLC(1) | 19,558 | $ | 1,742,031 | |||||
Lear Corp. | 27,371 | 3,445,735 | ||||||
|
| |||||||
5,187,766 | ||||||||
Banks – 3.6% |
| |||||||
Fifth Third Bancorp | 85,316 | 2,866,617 | ||||||
PacWest Bancorp | 27,092 | 722,273 | ||||||
Regions Financial Corp. | 114,837 | 2,153,194 | ||||||
Zions Bancorporation NA | 14,186 | 722,067 | ||||||
|
| |||||||
6,464,151 | ||||||||
Beverages – 2.7% |
| |||||||
Keurig Dr Pepper, Inc. | 135,353 | 4,790,143 | ||||||
|
| |||||||
4,790,143 | ||||||||
Building Products – 5.4% |
| |||||||
Builders FirstSource, Inc.(1) | 39,695 | 2,131,621 | ||||||
Carlisle Cos., Inc. | 31,357 | 7,482,094 | ||||||
|
| |||||||
9,613,715 | ||||||||
Capital Markets – 0.5% |
| |||||||
LPL Financial Holdings, Inc. | 4,543 | 838,093 | ||||||
|
| |||||||
838,093 | ||||||||
Chemicals – 0.3% |
| |||||||
FMC Corp. | 5,101 | 545,858 | ||||||
|
| |||||||
545,858 | ||||||||
Commercial Services & Supplies – 3.5% |
| |||||||
Republic Services, Inc. | 47,613 | 6,231,113 | ||||||
|
| |||||||
6,231,113 | ||||||||
Communications Equipment – 0.9% |
| |||||||
Juniper Networks, Inc. | 55,650 | 1,586,025 | ||||||
|
| |||||||
1,586,025 | ||||||||
Construction & Engineering – 2.2% |
| |||||||
API Group Corp.(1) | 54,430 | 814,817 | ||||||
MasTec, Inc.(1) | 44,477 | 3,187,222 | ||||||
|
| |||||||
4,002,039 | ||||||||
Construction Materials – 2.0% |
| |||||||
Vulcan Materials Co. | 25,627 | 3,641,597 | ||||||
|
| |||||||
3,641,597 | ||||||||
Consumer Finance – 1.4% |
| |||||||
Discover Financial Services | 27,045 | 2,557,916 | ||||||
|
| |||||||
2,557,916 | ||||||||
Containers & Packaging – 0.8% |
| |||||||
AptarGroup, Inc. | 13,253 | 1,367,842 | ||||||
|
| |||||||
1,367,842 | ||||||||
Distributors – 3.3% |
| |||||||
LKQ Corp. | 119,613 | 5,871,802 | ||||||
|
| |||||||
5,871,802 | ||||||||
Diversified Financial Services – 1.4% |
| |||||||
Pershing Square Tontine Holdings Ltd., Class A(1) | 125,172 | 2,499,685 | ||||||
|
| |||||||
2,499,685 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Electric Utilities – 5.3% |
| |||||||
American Electric Power Co., Inc. | 53,165 | $ | 5,100,650 | |||||
FirstEnergy Corp. | 112,821 | 4,331,198 | ||||||
|
| |||||||
9,431,848 | ||||||||
Energy Equipment & Services – 1.2% |
| |||||||
Baker Hughes Co. | 31,098 | 897,799 | ||||||
NOV, Inc. | 74,016 | 1,251,611 | ||||||
|
| |||||||
2,149,410 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 3.7% |
| |||||||
American Campus Communities, Inc. | 53,359 | 3,440,055 | ||||||
Gaming and Leisure Properties, Inc. | 67,987 | 3,117,884 | ||||||
|
| |||||||
6,557,939 | ||||||||
Health Care Equipment & Supplies – 3.7% |
| |||||||
Alcon, Inc. | 57,073 | 3,988,832 | ||||||
Zimmer Biomet Holdings, Inc. | 24,561 | 2,580,379 | ||||||
|
| |||||||
6,569,211 | ||||||||
Health Care Providers & Services – 4.1% |
| |||||||
Humana, Inc. | 10,642 | 4,981,201 | ||||||
Universal Health Services, Inc., Class B | 22,881 | 2,304,345 | ||||||
|
| |||||||
7,285,546 | ||||||||
Hotels, Restaurants & Leisure – 1.7% |
| |||||||
Wendy’s Co. | 29,920 | 564,890 | ||||||
Yum China Holdings, Inc. | 51,665 | 2,505,752 | ||||||
|
| |||||||
3,070,642 | ||||||||
Household Durables – 2.7% |
| |||||||
D.R. Horton, Inc. | 61,838 | 4,093,057 | ||||||
Helen of Troy Ltd.(1) | 4,354 | 707,133 | ||||||
|
| |||||||
4,800,190 | ||||||||
Household Products – 4.8% |
| |||||||
Church & Dwight Co., Inc. | 39,434 | 3,653,954 | ||||||
Reynolds Consumer Products, Inc. | 179,888 | 4,905,546 | ||||||
|
| |||||||
8,559,500 | ||||||||
Insurance – 10.1% |
| |||||||
Allstate Corp. | 25,174 | 3,190,301 | ||||||
Arch Capital Group Ltd.(1) | 135,667 | 6,171,492 | ||||||
Axis Capital Holdings Ltd. | 14,214 | 811,477 | ||||||
Brown & Brown, Inc. | 89,426 | 5,217,113 | ||||||
Loews Corp. | 45,507 | 2,696,745 | ||||||
|
| |||||||
18,087,128 | ||||||||
IT Services – 4.9% |
| |||||||
Amdocs Ltd. | 68,101 | 5,673,494 | ||||||
Euronet Worldwide, Inc.(1) | 31,203 | 3,138,710 | ||||||
|
| |||||||
8,812,204 | ||||||||
Life Sciences Tools & Services – 1.0% |
| |||||||
Charles River Laboratories International, Inc.(1) | 8,039 | 1,720,105 | ||||||
|
| |||||||
1,720,105 | ||||||||
Machinery – 4.3% |
| |||||||
Donaldson Co., Inc. | 56,823 | 2,735,459 | ||||||
Gates Industrial Corp. PLC(1) | 141,634 | 1,531,063 | ||||||
Stanley Black & Decker, Inc. | 32,623 | 3,420,848 | ||||||
|
| |||||||
7,687,370 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Metals & Mining – 1.0% |
| |||||||
Freeport-McMoRan, Inc. | 62,329 | $ | 1,823,747 | |||||
|
| |||||||
1,823,747 | ||||||||
Mortgage Real Estate Investment Trusts (REITs) – 2.0% |
| |||||||
Annaly Capital Management, Inc. | 619,282 | 3,659,957 | ||||||
|
| |||||||
3,659,957 | ||||||||
Oil, Gas & Consumable Fuels – 4.3% |
| |||||||
Devon Energy Corp. | 34,273 | 1,888,785 | ||||||
EOG Resources, Inc. | 27,884 | 3,079,509 | ||||||
Valero Energy Corp. | 26,155 | 2,779,753 | ||||||
|
| |||||||
7,748,047 | ||||||||
Professional Services – 2.9% |
| |||||||
Dun & Bradstreet Holdings, Inc.(1) | 71,633 | 1,076,644 | ||||||
Jacobs Engineering Group, Inc. | 32,451 | 4,125,496 | ||||||
|
| |||||||
5,202,140 | ||||||||
Real Estate Management & Development – 2.6% |
| |||||||
CBRE Group, Inc., Class A(1) | 62,548 | 4,604,158 | ||||||
|
| |||||||
4,604,158 | ||||||||
Software – 1.4% |
| |||||||
NCR Corp.(1) | 83,779 | 2,606,365 | ||||||
|
| |||||||
2,606,365 | ||||||||
Specialty Retail – 0.7% |
| |||||||
Best Buy Co., Inc. | 18,052 | 1,176,810 | ||||||
|
| |||||||
1,176,810 | ||||||||
Trading Companies & Distributors – 2.6% |
| |||||||
AerCap Holdings NV(1) | 114,223 | 4,676,290 | ||||||
|
| |||||||
4,676,290 | ||||||||
Water Utilities – 2.1% |
| |||||||
American Water Works Co., Inc. | 24,764 | 3,684,140 | ||||||
|
| |||||||
3,684,140 | ||||||||
Total Common Stocks (Cost $145,777,956) |
| 175,110,492 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Exchange–Traded Funds – 0.2% |
| |||||||
SPDR S&P Oil & Gas Exploration & Production ETF | 3,722 | $ | 444,705 | |||||
Total Exchange–Traded Funds (Cost $407,482) |
| 444,705 | ||||||
Warrants — 0.0% |
| |||||||
Liberty Media Acquisition Corp., Class A(1) | 7,895 | 3,789 | ||||||
Pershing Square Tontine Holdings Ltd., Class A(1) | 17,930 | 7,712 | ||||||
Total Warrants (Cost $118,884) |
| 11,501 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 1.8% |
| |||||||
Repurchase Agreements – 1.8% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $3,170,948, due 7/1/2022(2) | $ | 3,170,926 | 3,170,926 | |||||
Total Repurchase Agreements (Cost $3,170,926) | 3,170,926 | |||||||
Total Investments – 100.0% (Cost $149,475,248) | 178,737,624 | |||||||
Liabilities in excess of other assets – (0.0)% |
| (8,893 | ) | |||||
Total Net Assets – 100.0% | $ | 178,728,731 |
(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 | 3.00% | 6/30/2024 | $ | 3,237,900 | $ | 3,234,358 |
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 175,110,492 | $ | — | $ | — | $ | 175,110,492 | ||||||||
Exchange–Traded Funds | 444,705 | — | — | 444,705 | ||||||||||||
Warrants | — | 11,501 | — | 11,501 | ||||||||||||
Repurchase Agreements | — | 3,170,926 | — | 3,170,926 | ||||||||||||
Total | $ | 175,555,197 | $ | 3,182,427 | $ | — | $ | 178,737,624 |
4 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,882,086 | ||
Interest | 420 | |||
Withholding taxes on foreign dividends | (206 | ) | ||
|
| |||
Total Investment Income | 1,882,300 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 724,251 | |||
Distribution fees | 260,991 | |||
Professional fees | 27,691 | |||
Trustees’ and officers’ fees | 24,355 | |||
Custodian and accounting fees | 20,313 | |||
Administrative fees | 17,188 | |||
Transfer agent fees | 7,361 | |||
Shareholder reports | 5,610 | |||
Other expenses | 5,825 | |||
|
| |||
Total Expenses | 1,093,585 | |||
|
| |||
Net Investment Income/(Loss) | 788,715 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 15,064,935 | |||
Net change in unrealized appreciation/(depreciation) on investments | (42,877,329 | ) | ||
|
| |||
Net Loss on Investments | (27,812,394 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (27,023,679 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
This Page Intentionally Left Blank
7 |
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.
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 6/30/22 | $ | 18.45 | $ | 0.07 | $ | (2.37 | ) | $ | (2.30 | ) | $ | 16.15 | (12.47)% | (4) | ||||||||||
Year Ended 12/31/21 | 14.32 | 0.05 | 4.08 | 4.13 | 18.45 | 28.84% | ||||||||||||||||||
Year Ended 12/31/20 | 13.93 | 0.09 | 0.30 | 0.39 | 14.32 | 2.80% | ||||||||||||||||||
Year Ended 12/31/19 | 10.28 | 0.10 | 3.55 | 3.65 | 13.93 | 35.51% | ||||||||||||||||||
Year Ended 12/31/18 | 12.02 | 0.08 | (1.82 | ) | (1.74 | ) | 10.28 | (14.48)% | ||||||||||||||||
Year Ended 12/31/17 | 10.81 | 0.10 | 1.11 | 1.21 | 12.02 | 11.19% |
8 | The accompanying notes are an integral part of these financial statements. |
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 | |||||||||||||||||
$ | 178,729 | 1.05% | (4) | 1.05% | (4) | 0.75% | (4) | 0.75% | (4) | 12% | (4) | |||||||||||
237,063 | 1.05% | 1.05% | 0.32% | 0.32% | 31% | |||||||||||||||||
244,930 | 1.06% | 1.11% | 0.70% | 0.65% | 56% | |||||||||||||||||
235,342 | 1.00% | 1.10% | 0.83% | 0.73% | 37% | |||||||||||||||||
204,185 | 1.00% | 1.14% | 0.66% | 0.52% | 31% | |||||||||||||||||
12,797 | 1.09% | 2.09% | 0.87% | (0.13)% | 76% |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.‘s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations, and recoupments, if any. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Mid Cap Relative Value VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks long-term capital appreciation.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
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, 2022, 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, 2022 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, 2022, 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, 2022, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates in effect on the dates of the respective transactions. The Fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included in the Net change in net realized and unrealized gain/(loss) from investments on the Statement of Operations.
Reported realized foreign currency gains and losses arise from the disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. These reported realized foreign currency gains and losses, if any, are included in Net realized gain/(loss) from foreign currency transactions on the Statement of Operations. Unrealized foreign currency gains and losses arise from changes (due to changes in exchange rates) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end, if any, and are included in Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies on the Statement of Operations.
d. Foreign Capital Gains Tax The Fund may be subject to foreign taxes on income, gains on investments or currency purchases/repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest.
e. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 to waive certain fees and/or reimburse certain expenses incurred by the Fund to the extent necessary to limit the Fund’s total annual operating expenses after fee waiver and/or expense reimbursement to 1.08% of the Fund’s average daily net assets (excluding, if applicable, any acquired fund fees and expenses, taxes, interest, transaction costs and brokerage commissions, litigation and extraordinary expenses). The limitation may not be increased or terminated prior to this time without action by the Board of Trustees, and 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, 2022, Park Avenue did not waive any fees or pay any Fund expenses.
Park Avenue has entered into a Sub-Advisory Agreement with Allspring Global Investments, LLC (“Allspring”). Allspring is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision of Park Avenue and the oversight of the Board of Trustees. Sub-advisory fees are paid by Park Avenue and do not represent a separate or additional expense to the Fund.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $260,991 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 $25,643,712 and $56,682,039, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP RELATIVE VALUE VIP FUND
(a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including
the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio
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SUPPLEMENTAL INFORMATION (UNAUDITED)
managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers 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.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile
having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted |
20 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from |
1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher |
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the |
1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Mid Cap Traditional Growth VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
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 | ||||
Liquidity Risk Management Program | 15 | |||
Recent Rulemaking | 16 | |||
Approval of Investment Management and Sub-advisory Agreements | 17 | |||
Portfolio Holdings and Proxy Voting Procedures | 23 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $94,676,982 |
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
LPL Financial Holdings, Inc. | 4.57% | |||
Constellation Software, Inc. | 2.92% | |||
ON Semiconductor Corp. | 2.90% | |||
SS&C Technologies Holdings, Inc. | 2.87% | |||
WR Berkley Corp. | 2.84% | |||
Intact Financial Corp. | 2.80% | |||
TE Connectivity Ltd. | 2.79% | |||
Boston Scientific Corp. | 2.66% | |||
WEX, Inc. | 2.50% | |||
Amdocs Ltd. | 2.46% | |||
Total | 29.31% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 791.60 | $4.89 | 1.10% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.34 | $5.51 | 1.10% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 96.9% |
| |||||||
Aerospace & Defense – 1.9% |
| |||||||
L3Harris Technologies, Inc. | 7,262 | $ | 1,755,225 | |||||
|
| |||||||
1,755,225 | ||||||||
Airlines – 0.9% |
| |||||||
Ryanair Holdings PLC, ADR(1) | 12,356 | 830,941 | ||||||
|
| |||||||
830,941 | ||||||||
Auto Components – 0.5% |
| |||||||
Visteon Corp.(1) | 4,763 | 493,352 | ||||||
|
| |||||||
493,352 | ||||||||
Banks – 0.5% |
| |||||||
SVB Financial Group(1) | 1,171 | 462,533 | ||||||
|
| |||||||
462,533 | ||||||||
Biotechnology – 2.6% |
| |||||||
Abcam PLC, ADR(1) | 16,107 | 232,907 | ||||||
Ascendis Pharma A/S, ADR(1) | 5,538 | 514,813 | ||||||
BioMarin Pharmaceutical, Inc.(1) | 8,785 | 728,013 | ||||||
Neurocrine Biosciences, Inc.(1) | 5,636 | 549,397 | ||||||
Sarepta Therapeutics, Inc.(1) | 6,146 | 460,704 | ||||||
|
| |||||||
2,485,834 | ||||||||
Capital Markets – 6.4% |
| |||||||
Cboe Global Markets, Inc. | 8,223 | 930,761 | ||||||
Charles Schwab Corp. | 5,589 | 353,113 | ||||||
LPL Financial Holdings, Inc. | 23,461 | 4,328,085 | ||||||
MSCI, Inc. | 1,103 | 454,602 | ||||||
|
| |||||||
6,066,561 | ||||||||
Chemicals – 0.4% |
| |||||||
Corteva, Inc. | 7,325 | 396,576 | ||||||
|
| |||||||
396,576 | ||||||||
Commercial Services & Supplies – 2.1% |
| |||||||
Cimpress PLC(1) | 12,024 | 467,734 | ||||||
Rentokil Initial PLC (United Kingdom) | 25,283 | 146,131 | ||||||
Ritchie Bros Auctioneers, Inc. | 21,090 | 1,372,115 | ||||||
|
| |||||||
1,985,980 | ||||||||
Containers & Packaging – 1.3% |
| |||||||
Sealed Air Corp. | 22,000 | 1,269,840 | ||||||
|
| |||||||
1,269,840 | ||||||||
Diversified Consumer Services – 1.5% |
| |||||||
Frontdoor, Inc.(1) | 18,912 | 455,401 | ||||||
Terminix Global Holdings, Inc.(1) | 22,520 | 915,438 | ||||||
|
| |||||||
1,370,839 | ||||||||
Electric Utilities – 1.1% |
| |||||||
Alliant Energy Corp. | 18,301 | 1,072,622 | ||||||
|
| |||||||
1,072,622 | ||||||||
Electrical Equipment – 2.9% |
| |||||||
Regal Rexnord Corp. | 4,430 | 502,894 | ||||||
Sensata Technologies Holding PLC | 54,582 | 2,254,782 | ||||||
|
| |||||||
2,757,676 | ||||||||
Electronic Equipment, Instruments & Components – 7.1% |
| |||||||
Flex Ltd.(1) | 104,026 | 1,505,256 | ||||||
June 30, 2022 (unaudited) | Shares | Value | ||||||
Electronic Equipment, Instruments & Components (continued) |
| |||||||
National Instruments Corp. | 34,209 | $ | 1,068,347 | |||||
TE Connectivity Ltd. | 23,356 | 2,642,731 | ||||||
Teledyne Technologies, Inc.(1) | 3,986 | 1,495,189 | ||||||
|
| |||||||
6,711,523 | ||||||||
Entertainment – 1.8% |
| |||||||
Liberty Media Corp-Liberty Formula One, Class C(1) | 27,350 | 1,735,904 | ||||||
|
| |||||||
1,735,904 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 1.5% |
| |||||||
Lamar Advertising Co., Class A | 16,090 | 1,415,437 | ||||||
|
| |||||||
1,415,437 | ||||||||
Health Care Equipment & Supplies – 7.4% |
| |||||||
Boston Scientific Corp.(1) | 67,589 | 2,519,042 | ||||||
Cooper Cos., Inc. | 3,364 | 1,053,336 | ||||||
Dentsply Sirona, Inc. | 21,345 | 762,657 | ||||||
ICU Medical, Inc.(1) | 6,943 | 1,141,360 | ||||||
Teleflex, Inc. | 6,224 | 1,530,170 | ||||||
|
| |||||||
7,006,565 | ||||||||
Hotels, Restaurants & Leisure – 1.7% |
| |||||||
Aramark | 30,690 | 940,035 | ||||||
Entain PLC (United Kingdom)(1) | 45,986 | 697,799 | ||||||
|
| |||||||
1,637,834 | ||||||||
Insurance – 7.2% |
| |||||||
Aon PLC, Class A | 2,829 | 762,925 | ||||||
Intact Financial Corp. (Canada) | 18,771 | 2,647,656 | ||||||
Ryan Specialty Holdings, Inc.(1) | 17,108 | 670,462 | ||||||
WR Berkley Corp. | 39,383 | 2,688,284 | ||||||
|
| |||||||
6,769,327 | ||||||||
Interactive Media & Services – 0.5% |
| |||||||
Ziff Davis, Inc.(1) | 6,873 | 512,245 | ||||||
|
| |||||||
512,245 | ||||||||
Internet & Direct Marketing Retail – 0.3% |
| |||||||
Wayfair, Inc., Class A(1) | 5,878 | 256,046 | ||||||
|
| |||||||
256,046 | ||||||||
IT Services – 14.2% |
| |||||||
Amdocs Ltd. | 27,934 | 2,327,182 | ||||||
Broadridge Financial Solutions, Inc. | 10,159 | 1,448,165 | ||||||
Fidelity National Information Services, Inc. | 14,004 | 1,283,747 | ||||||
Global Payments, Inc. | 10,336 | 1,143,575 | ||||||
GoDaddy, Inc., Class A(1) | 31,379 | 2,182,723 | ||||||
SS&C Technologies Holdings, Inc. | 46,806 | 2,718,024 | ||||||
WEX, Inc.(1) | 15,208 | 2,365,757 | ||||||
|
| |||||||
13,469,173 | ||||||||
Life Sciences Tools & Services – 4.2% |
| |||||||
Avantor, Inc.(1) | 45,159 | 1,404,445 | ||||||
Illumina, Inc.(1) | 3,322 | 612,444 | ||||||
PerkinElmer, Inc. | 8,976 | 1,276,567 | ||||||
Waters Corp.(1) | 1,987 | 657,657 | ||||||
|
| |||||||
3,951,113 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Machinery – 2.6% |
| |||||||
Ingersoll Rand, Inc. | 29,788 | $ | 1,253,479 | |||||
Westinghouse Air Brake Technologies Corp. | 15,103 | 1,239,654 | ||||||
|
| |||||||
2,493,133 | ||||||||
Multiline Retail – 0.5% |
| |||||||
Dollar Tree, Inc.(1) | 2,878 | 448,536 | ||||||
|
| |||||||
448,536 | ||||||||
Pharmaceuticals – 2.3% |
| |||||||
Catalent, Inc.(1) | 14,298 | 1,534,032 | ||||||
Elanco Animal Health, Inc.(1) | 34,750 | 682,143 | ||||||
|
| |||||||
2,216,175 | ||||||||
Professional Services – 0.2% |
| |||||||
Upwork, Inc.(1) | 10,301 | 213,025 | ||||||
|
| |||||||
213,025 | ||||||||
Real Estate Management & Development – 0.2% |
| |||||||
Redfin Corp.(1) | 16,513 | 136,067 | ||||||
|
| |||||||
136,067 | ||||||||
Road & Rail – 2.5% |
| |||||||
JB Hunt Transport Services, Inc. | 14,737 | 2,320,635 | ||||||
|
| |||||||
2,320,635 | ||||||||
Semiconductors & Semiconductor Equipment – 8.1% |
| |||||||
KLA Corp. | 6,484 | 2,068,915 | ||||||
Lam Research Corp. | 1,552 | 661,385 | ||||||
Microchip Technology, Inc. | 21,522 | 1,249,998 | ||||||
NXP Semiconductors NV | 6,415 | 949,612 | ||||||
ON Semiconductor Corp.(1) | 54,628 | 2,748,334 | ||||||
|
| |||||||
7,678,244 | ||||||||
Software – 7.4% |
| |||||||
Atlassian Corp. PLC, Class A(1) | 2,903 | 544,022 | ||||||
Ceridian HCM Holding, Inc.(1) | 21,712 | 1,022,201 | ||||||
Constellation Software, Inc. (Canada) | 1,865 | 2,768,624 | ||||||
Dolby Laboratories, Inc., Class A | 6,935 | 496,269 | ||||||
Dynatrace, Inc.(1) | 14,782 | 583,002 | ||||||
Nice Ltd., ADR(1) | 6,802 | 1,309,045 | ||||||
Topicus.com, Inc. (Canada)(1) | 4,812 | 271,516 | ||||||
|
| |||||||
6,994,679 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Specialty Retail – 2.4% |
| |||||||
Burlington Stores, Inc.(1) | 3,860 | $ | 525,848 | |||||
CarMax, Inc.(1) | 19,338 | 1,749,702 | ||||||
|
| |||||||
2,275,550 | ||||||||
Textiles, Apparel & Luxury Goods – 1.3% |
| |||||||
Gildan Activewear, Inc. | 43,929 | 1,264,277 | ||||||
|
| |||||||
1,264,277 | ||||||||
Trading Companies & Distributors – 1.4% |
| |||||||
Ferguson PLC | 11,524 | 1,275,822 | ||||||
|
| |||||||
1,275,822 | ||||||||
Total Common Stocks (Cost $79,232,840) |
| 91,729,289 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 3.2% |
| |||||||
Repurchase Agreements – 3.2% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $3,019,094, due 7/1/2022(2) | $ | 3,019,073 | 3,019,073 | |||||
Total Repurchase Agreements (Cost $3,019,073) |
| 3,019,073 | ||||||
Total Investments – 100.1% (Cost $82,251,913) |
| 94,748,362 | ||||||
Liabilities in excess of other assets – (0.1)% |
| (71,380 | ) | |||||
Total Net Assets – 100.0% |
| $ | 94,676,982 |
(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 | 3.00% | 6/30/2024 | $ | 3,082,900 | $ | 3,079,527 |
Legend:
ADR—American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 90,885,359 | $ | 843,930 | * | $ | — | $ | 91,729,289 | |||||||
Repurchase Agreements | — | 3,019,073 | — | 3,019,073 | ||||||||||||
Total | $ | 90,885,359 | $ | 3,863,003 | $ | — | $ | 94,748,362 |
* | 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. |
FINANCIAL INFORMATION — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 420,832 | ||
Interest | 673 | |||
Withholding taxes on foreign dividends | (10,639 | ) | ||
|
| |||
Total Investment Income | 410,866 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 428,436 | |||
Distribution fees | 134,590 | |||
Custodian and accounting fees | 22,708 | |||
Professional fees | 20,996 | |||
Trustees’ and officers’ fees | 12,933 | |||
Administrative fees | 9,692 | |||
Transfer agent fees | 6,284 | |||
Shareholder reports | 4,572 | |||
Other expenses | 3,084 | |||
|
| |||
Total Expenses | 643,295 | |||
Less: Fees waived | (51,099 | ) | ||
|
| |||
Total Expenses, Net | 592,196 | |||
|
| |||
Net Investment Income/(Loss) | (181,330 | ) | ||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | ||||
Net realized gain/(loss) from investments | 3,582,285 | |||
Net realized gain/(loss) from foreign currency transactions | (448 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (28,696,054 | ) | ||
Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies | (216 | ) | ||
|
| |||
Net Loss on Investments and Foreign Currency Transactions | (25,114,433 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (25,295,763 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
6 | The accompanying notes are an integral part of these financial statements. |
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7 |
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.
Financial Highlights Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Loss(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/22 | $ | 23.32 | $ | (0.03) | $ | (4.83) | $ | (4.86) | $ | 18.46 | (20.84)% | (4) | ||||||||||||
Year Ended 12/31/21 | 19.91 | (0.05) | 3.46 | 3.41 | 23.32 | 17.13% | ||||||||||||||||||
Year Ended 12/31/20 | 16.71 | (0.04) | 3.24 | 3.20 | 19.91 | 19.15% | ||||||||||||||||||
Year Ended 12/31/19 | 12.27 | (0.01) | 4.45 | 4.44 | 16.71 | 36.19% | ||||||||||||||||||
Year Ended 12/31/18 | 12.72 | (0.01) | (0.44) | (0.45) | 12.27 | (3.54)% | ||||||||||||||||||
Year Ended 12/31/17 | 9.99 | (0.02) | 2.75 | 2.73 | 12.72 | 27.33% |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Loss to Average Net Assets(3) | Gross Ratio of Net Investment Loss to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 94,677 | 1.10% | (4) | 1.19% | (4) | (0.34)% | (4) | (0.43)% | (4) | 11% | (4) | |||||||||||
123,102 | 1.10% | 1.17% | (0.24)% | (0.31)% | 10% | |||||||||||||||||
130,558 | 1.10% | 1.23% | (0.25)% | (0.38)% | 19% | |||||||||||||||||
125,058 | 1.10% | 1.26% | (0.07)% | (0.23)% | 10% | |||||||||||||||||
110,065 | 1.10% | 1.31% | (0.07)% | (0.28)% | 30% | |||||||||||||||||
12,681 | 1.09% | 2.15% | (0.20)% | (1.26)% | 35% |
(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 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. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Mid Cap Traditional Growth VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on September 1, 2016. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks long-term growth of capital.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services — Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
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, 2022, 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, 2022 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, 2022, 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, 2022, 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 |
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. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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 1.09% 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $51,099.
Park Avenue has entered into a Sub-Advisory Agreement with Janus Henderson Investors US LLC (“Janus”). Janus 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.
12 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
b. Compensation of Trustees and Officers Trustees and officers who are interested persons of the Trust, as defined in the 1940 Act, receive no compensation from the Fund, except for the Chief Compliance Officer of the Trust. Trustees of the Trust who are not interested persons of the Trust, and the Chief Compliance Officer, receive compensation and reimbursement of expenses from the Trust.
c. Distribution Fees Park Avenue Securities LLC (“PAS”), a wholly-owned subsidiary of Guardian Life, is the principal underwriter of Fund shares. The Trust has entered into a distribution and service agreement with PAS, which governs the sale and distribution of shares of the Fund. Under a distribution and service plan adopted by the Trust (“12b-1 plan”), PAS is compensated for services in such capacity, including its expenses in connection with the promotion and distribution of shares of the Fund, at an annual rate of 0.25% of the Fund’s average daily net assets. For the six months ended June 30, 2022, the Fund paid distribution fees in the amount of $134,590 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 $11,061,259 and $12,723,585, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the
13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MID CAP TRADITIONAL GROWTH VIP FUND
current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
14 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
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.
15 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange
Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
16 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
17 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The
Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board
concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds,
19 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period |
and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the |
Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB8177
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Multi-Sector Bond VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Multi-Sector Bond VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 10 | |||
Statement of Operations | 10 | |||
Statements of Changes in Net Assets | 11 | |||
Financial Highlights | 12 | |||
Notes to Financial Statements | 14 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 22 | |||
23 | ||||
Approval of Investment Management Agreement | 24 | |||
Portfolio Holdings and Proxy Voting Procedures | 30 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN MULTI-SECTOR BOND VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $256,759,673
Bond Sector Allocation1 As of June 30, 2022 | ||||||
Bond Quality Allocation2 As of June 30, 2022 | ||||||
1 |
GUARDIAN MULTI-SECTOR BOND VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||
U.S. Treasury Note | 2.500% | 4/30/2024 | 11.70% | |||
U.S. Treasury Note | 1.875% | 2/15/2032 | 5.13% | |||
Vanguard Short-Term Inflation-Protected Securities ETF | — | — | 4.59% | |||
U.S. Treasury Note | 2.750% | 4/30/2027 | 3.08% | |||
Federal National Mortgage Association | 3.000% | 5/1/2052 | 2.46% | |||
Federal National Mortgage Association | 3.500% | 6/1/2052 | 1.94% | |||
Federal National Mortgage Association | 4.000% | 6/1/2052 | 1.79% | |||
Federal Home Loan Mortgage Corp. | 4.000% | 6/1/2052 | 1.72% | |||
Federal National Mortgage Association | 3.500% | 5/1/2052 | 1.64% | |||
Parker-Hannifin Corp. | 4.250% | 9/15/2027 | 1.59% | |||
Total | 35.64% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 878.00 | $4.05 | 0.87% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.48 | $4.36 | 0.87% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 14.7% |
| |||||||
Federal Home Loan Mortgage Corp. | $ | 3,184,348 | $ | 3,064,615 | ||||
4.00% due 6/1/2052 | 4,480,087 | 4,420,737 | ||||||
Federal National Mortgage Association | 6,788,399 | 6,325,968 | ||||||
3.50% due 5/1/2052 | 4,384,397 | 4,220,209 | ||||||
3.50% due 6/1/2052 | 5,179,748 | 4,984,848 | ||||||
4.00% due 6/1/2052 | 4,658,617 | 4,596,896 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | ||||||||
K065 A2 | 2,600,000 | 2,584,946 | ||||||
K069 A2 | 2,350,000 | 2,328,182 | ||||||
K073 A2 | 1,175,000 | 1,175,813 | ||||||
K075 A2 | 2,585,000 | 2,617,635 | ||||||
K103 A2 | 1,390,000 | 1,320,663 | ||||||
Total Agency Mortgage–Backed Securities (Cost $38,093,637) |
| 37,640,512 | ||||||
Asset–Backed Securities – 13.7% |
| |||||||
AIMCO CLO | 1,800,000 | 1,677,942 | ||||||
American Express Credit Account Master Trust | 2,080,000 | 2,078,075 | ||||||
American Tower Trust I | 1,300,000 | 1,294,404 | ||||||
AmeriCredit Automobile Receivables Trust | 1,184,307 | 1,182,418 | ||||||
Ares XXXIV CLO Ltd. | 300,000 | 285,649 | ||||||
BlueMountain CLO Ltd. | 600,000 | 571,424 | ||||||
CarMax Auto Owner Trust | 1,250,000 | 1,168,054 | ||||||
CIFC Funding Ltd. | 1,200,000 | 1,147,320 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
DB Master Finance LLC | $ | 945,250 | $ | 804,423 | ||||
Dell Equipment Finance Trust | 1,209,904 | 1,195,252 | ||||||
Elmwood CLO IX Ltd. | 1,000,000 | 935,614 | ||||||
Ford Credit Auto Owner Trust | 600,000 | 573,838 | ||||||
Ford Credit Floorplan Master Owner Trust | 1,320,000 | 1,211,902 | ||||||
Ford Credit Floorplan Master Owner Trust | 600,000 | 599,706 | ||||||
GLS Auto Receivables Issuer Trust | 1,007,641 | 1,007,358 | ||||||
GM Financial Consumer Automobile Receivables Trust | 1,278,290 | 1,248,890 | ||||||
Golden Credit Card Trust | 1,410,000 | 1,411,822 | ||||||
Greywolf CLO II Ltd. | 2,400,000 | 2,246,554 | ||||||
Hyundai Auto Lease Securitization Trust | 1,950,000 | 1,921,283 | ||||||
ICG U.S. CLO Ltd. | 1,000,000 | 962,403 | ||||||
Master Credit Card Trust | 1,410,000 | 1,337,824 | ||||||
Neuberger Berman CLO XVII Ltd. | 1,400,000 | 1,340,920 | ||||||
Octagon Investment Partners 50 Ltd. | 400,000 | 370,678 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
OHA Credit Funding 2 Ltd. | $ | 1,800,000 | $ | 1,687,140 | ||||
Oscar U.S. Funding XIV LLC | 1,250,000 | 1,227,924 | ||||||
Santander Drive Auto Receivables Trust | 1,259,489 | 1,254,464 | ||||||
Synchrony Card Funding LLC | 1,060,000 | 1,052,750 | ||||||
Verizon Owner Trust | 1,000,000 | 998,672 | ||||||
Voya CLO Ltd. | 835,000 | 797,509 | ||||||
Westlake Automobile Receivables Trust | 1,568,021 | 1,563,733 | ||||||
Total Asset–Backed Securities (Cost $36,089,662) |
| 35,155,945 | ||||||
Corporate Bonds & Notes – 32.9% |
| |||||||
Aerospace & Defense – 0.5% |
| |||||||
Boeing Co. | 1,300,000 | 1,247,207 | ||||||
|
| |||||||
1,247,207 | ||||||||
Agriculture – 0.4% |
| |||||||
Cargill, Inc. | 1,300,000 | 1,083,693 | ||||||
|
| |||||||
1,083,693 | ||||||||
Apparel – 0.2% |
| |||||||
NIKE, Inc. | 500,000 | 459,090 | ||||||
|
| |||||||
459,090 | ||||||||
Beverages – 0.8% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. | 900,000 | 843,372 | ||||||
PepsiCo, Inc. | 1,300,000 | 1,108,575 | ||||||
|
| |||||||
1,951,947 | ||||||||
Building Materials – 0.4% |
| |||||||
Cornerstone Building Brands, Inc. | 1,500,000 | 966,120 | ||||||
|
| |||||||
966,120 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks – 5.4% |
| |||||||
Bank of America Corp. | $ | 3,400,000 | $ | 3,269,712 | ||||
Credit Suisse Group AG | 500,000 | 494,545 | ||||||
Goldman Sachs Group, Inc. | 1,000,000 | 959,870 | ||||||
4.387% (4.387% fixed rate until 6/15/2026; SOFR + 1.51% thereafter) | 600,000 | 592,014 | ||||||
Huntington National Bank | 1,300,000 | 1,294,293 | ||||||
JPMorgan Chase & Co. | 1,400,000 | 1,350,076 | ||||||
Morgan Stanley | 2,600,000 | 2,471,508 | ||||||
State Street Corp. | 1,200,000 | 1,076,748 | ||||||
Toronto-Dominion Bank | 1,300,000 | 1,286,363 | ||||||
UBS Group AG | 1,100,000 | 1,088,318 | ||||||
|
| |||||||
13,883,447 | ||||||||
Commercial Services – 0.1% |
| |||||||
Team Health Holdings, Inc. | 500,000 | 352,290 | ||||||
|
| |||||||
352,290 | ||||||||
Cosmetics & Personal Care – 0.7% |
| |||||||
Estee Lauder Cos., Inc. | 500,000 | 448,615 | ||||||
Procter & Gamble Co. | 1,400,000 | 1,321,264 | ||||||
|
| |||||||
1,769,879 |
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Diversified Financial Services – 0.3% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | $ | 1,000,000 | $ | 870,550 | ||||
|
| |||||||
870,550 | ||||||||
Electric – 0.7% | ||||||||
Ameren Illinois Co. | 600,000 | 579,936 | ||||||
Duke Energy Corp. | 950,000 | 716,538 | ||||||
Public Service Electric and Gas Co. | 300,000 | 228,141 | ||||||
Wisconsin Public Service Corp. | 500,000 | 363,020 | ||||||
|
| |||||||
1,887,635 | ||||||||
Electronics – 0.8% |
| |||||||
Honeywell International, Inc. | 2,300,000 | 2,113,493 | ||||||
|
| |||||||
2,113,493 | ||||||||
Entertainment – 1.1% |
| |||||||
Affinity Gaming | 2,000,000 | 1,681,620 | ||||||
Magallanes, Inc. | 750,000 | 670,043 | ||||||
Premier Entertainment Sub LLC / Premier Entertainment Finance Corp. | 200,000 | 142,724 | ||||||
5.875% due 9/1/2031(3) | 400,000 | 277,468 | ||||||
|
| |||||||
2,771,855 | ||||||||
Environmental Control – 0.6% |
| |||||||
Waste Management, Inc. | 1,600,000 | 1,569,840 | ||||||
|
| |||||||
1,569,840 | ||||||||
Food – 0.3% |
| |||||||
Kraft Heinz Foods Co. | 800,000 | 739,288 | ||||||
|
| |||||||
739,288 | ||||||||
Healthcare-Products – 0.5% |
| |||||||
Abbott Laboratories | 1,200,000 | 1,272,648 | ||||||
|
| |||||||
1,272,648 | ||||||||
Healthcare-Services – 0.6% |
| |||||||
Tenet Healthcare Corp. | 1,000,000 | 1,034,880 | ||||||
UnitedHealth Group, Inc. | 600,000 | 600,144 | ||||||
|
| |||||||
1,635,024 | ||||||||
Housewares – 0.5% |
| |||||||
SWF Escrow Issuer Corp. | 1,750,000 | 1,222,305 | ||||||
|
| |||||||
1,222,305 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Insurance – 2.1% | ||||||||
Athene Holding Ltd. | $ | 1,000,000 | $ | 846,290 | ||||
Chubb INA Holdings, Inc. | 1,900,000 | 1,518,746 | ||||||
CNA Financial Corp. | 1,410,000 | 1,134,796 | ||||||
MetLife, Inc. | 1,900,000 | 1,915,656 | ||||||
|
| |||||||
5,415,488 | ||||||||
Leisure Time – 0.8% |
| |||||||
Viking Cruises Ltd. | 1,965,000 | 2,015,972 | ||||||
|
| |||||||
2,015,972 | ||||||||
Machinery-Diversified – 1.1% |
| |||||||
John Deere Capital Corp. | 3,000,000 | 2,964,630 | ||||||
|
| |||||||
2,964,630 | ||||||||
Media – 1.2% |
| |||||||
Audacy Capital Corp. | 1,500,000 | 801,930 | ||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 400,000 | 329,184 | ||||||
3.90% due 6/1/2052 | 400,000 | 279,228 | ||||||
Sinclair Television Group, Inc. | 1,750,000 | 1,295,122 | ||||||
TEGNA, Inc. | 500,000 | 472,855 | ||||||
|
| |||||||
3,178,319 | ||||||||
Miscellaneous Manufacturing – 1.8% |
| |||||||
Parker-Hannifin Corp. | 4,100,000 | 4,078,557 | ||||||
4.50% due 9/15/2029 | 600,000 | 596,994 | ||||||
|
| |||||||
4,675,551 | ||||||||
Oil & Gas – 3.2% |
| |||||||
Antero Resources Corp. | 1,043,000 | 1,064,715 | ||||||
BP Capital Markets America, Inc. 3.633% due 4/6/2030 | 1,300,000 | 1,230,710 | ||||||
Cenovus Energy, Inc. | 500,000 | 414,120 | ||||||
4.25% due 4/15/2027 | 200,000 | 196,240 | ||||||
CITGO Petroleum Corp. | 250,000 | 241,887 | ||||||
Hess Corp. | 3,400,000 | 3,315,884 | ||||||
Marathon Oil Corp. | 1,200,000 | 1,172,388 | ||||||
PBF Holding Co. LLC / PBF Finance Corp. | 250,000 | 211,878 | ||||||
9.25% due 5/15/2025(3) | 260,000 | 272,311 | ||||||
|
| |||||||
8,120,133 |
6 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Oil & Gas Services – 0.3% | ||||||||
TechnipFMC PLC | $ | 700,000 | $ | 696,507 | ||||
|
| |||||||
696,507 | ||||||||
Pharmaceuticals – 1.3% |
| |||||||
AbbVie, Inc. | 550,000 | 487,503 | ||||||
Bausch Health Cos., Inc. | 2,000,000 | 1,041,280 | ||||||
Bristol Myers Squibb Co. | 2,100,000 | 1,927,653 | ||||||
|
| |||||||
3,456,436 | ||||||||
Pipelines – 1.0% |
| |||||||
ONEOK, Inc. | 850,000 | 888,395 | ||||||
Targa Resources Partners LP / Targa Resources Partners Finance Corp. | 2,000,000 | 1,715,140 | ||||||
|
| |||||||
2,603,535 | ||||||||
Real Estate Investment Trusts (REITs) – 1.5% |
| |||||||
American Tower Corp. | 500,000 | 475,740 | ||||||
Essex Portfolio LP | 1,000,000 | 858,110 | ||||||
Mid-America Apartments LP | 1,100,000 | 1,049,906 | ||||||
Prologis LP | 800,000 | 692,472 | ||||||
Simon Property Group LP | 1,000,000 | 812,020 | ||||||
|
| |||||||
3,888,248 | ||||||||
Retail – 0.3% |
| |||||||
O’Reilly Automotive, Inc. | 700,000 | 697,837 | ||||||
|
| |||||||
697,837 | ||||||||
Semiconductors – 1.4% |
| |||||||
Lam Research Corp. | 1,800,000 | 1,519,380 | ||||||
NVIDIA Corp. | 1,850,000 | 1,569,947 | ||||||
NXP BV / NXP Funding LLC / NXP USA, Inc. | 500,000 | 410,930 | ||||||
|
| |||||||
3,500,257 | ||||||||
Software – 0.7% |
| |||||||
Electronic Arts, Inc. | 1,270,000 | 1,032,713 | ||||||
Microsoft Corp. | 700,000 | 672,441 | ||||||
|
| |||||||
1,705,154 | ||||||||
Telecommunications – 1.4% |
| |||||||
T-Mobile USA, Inc. | 650,000 | 545,341 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Telecommunications (continued) |
| |||||||
Verizon Communications, Inc. | $ | 2,500,000 | $ | 2,073,875 | ||||
Vodafone Group PLC | 500,000 | 497,160 | ||||||
4.875% due 6/19/2049 | 600,000 | 551,742 | ||||||
|
| |||||||
3,668,118 | ||||||||
Transportation – 0.9% |
| |||||||
Union Pacific Corp. | 1,900,000 | 1,689,632 | ||||||
United Parcel Service, Inc. | 500,000 | 511,370 | ||||||
|
| |||||||
2,201,002 | ||||||||
Total Corporate Bonds & Notes (Cost $93,191,318) |
| 84,583,498 | ||||||
Non–Agency Mortgage–Backed Securities – 5.4% |
| |||||||
BANK | 1,412,000 | 1,257,706 | ||||||
BB-UBS Trust | 1,200,000 | 1,163,712 | ||||||
Benchmark Mortgage Trust | 4,500,000 | 4,060,290 | ||||||
Citigroup Commercial Mortgage Trust | 1,000,000 | 935,657 | ||||||
Freddie Mac STACR REMIC Trust | 780,000 | 750,017 | ||||||
Jackson Park Trust | 640,000 | 557,130 | ||||||
Morgan Stanley Capital I Trust | 1,000,000 | 873,440 | ||||||
NYC Commercial Mortgage Trust | 385,000 | 316,443 | ||||||
ONE Park Mortgage Trust | 500,000 | 471,486 | ||||||
SLG Office Trust | 1,600,000 | 1,361,795 | ||||||
Stack Infrastructure Issuer LLC | 750,000 | 670,754 | ||||||
WFRBS Commercial Mortgage Trust | 1,500,000 | 1,487,524 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $15,808,069) |
| 13,905,954 |
The accompanying notes are an integral part of these financial statements. | 7 |
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
U.S. Government Securities – 22.6% |
| |||||||
U.S. Treasury Note | $ | 1,900,000 | $ | 1,711,336 | ||||
1.50% due 9/30/2024 | 3,000,000 | 2,901,562 | ||||||
1.625% due 8/15/2029 | 100,000 | 91,047 | ||||||
1.625% due 5/15/2031 | 2,400,000 | 2,144,250 | ||||||
1.875% due 2/15/2032 | 14,530,000 | 13,163,272 | ||||||
2.50% due 4/30/2024 | 30,300,000 | 30,038,426 | ||||||
2.75% due 4/30/2027 | 8,000,000 | 7,892,500 | ||||||
Total U.S. Government Securities (Cost $59,271,216) |
| 57,942,393 | ||||||
Shares | Value | |||||||
Common Stocks – 0.0% |
| |||||||
Media – 0.0% |
| |||||||
Altice USA, Inc., Class A(4) | 10,940 | 101,195 | ||||||
Total Common Stocks (Cost $125,181) |
| 101,195 | ||||||
Exchange–Traded Funds – 4.6% |
| |||||||
Vanguard Short–Term Inflation–Protected Securities ETF | 235,000 | 11,778,200 | ||||||
Total Exchange–Traded Funds (Cost $11,907,450) |
| 11,778,200 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 6.5% |
| |||||||
Repurchase Agreements – 6.5% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $16,648,913, due 7/1/2022(5) | $ | 16,648,802 | $ | 16,648,802 | ||||
Total Repurchase Agreements (Cost $16,648,802) |
| 16,648,802 | ||||||
Total Investments(6) – 100.4% (Cost $271,135,335) |
| 257,756,499 | ||||||
Liabilities in excess of other assets(7) – (0.4)% |
| (996,826 | ) | |||||
Total Net Assets – 100.0% |
| $ | 256,759,673 |
(1) | Variable rate securities, which may include step-up bonds or adjustable rate mortgages. The rate shown is the rate in effect at June 30, 2022. |
(2) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(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, 2022, the aggregate market value of these securities amounted to $45,061,201, representing 17.5% 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. |
(4) | Non–income–producing security. |
(5) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 17,000,400 | $ | 16,981,802 |
(6) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
(7) | Liabilities in excess of other assets include net unrealized appreciation on futures contracts and centrally cleared swap contracts as follows: |
Open futures contracts at June 30, 2022:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2022 | 72 | Long | $ | 15,168,243 | $ | 15,121,125 | $ | (47,118 | ) | ||||||||||||||
U.S. Long Bond | September 2022 | 187 | Long | 26,245,852 | 25,922,875 | (322,977 | ) | |||||||||||||||||
U.S. Ultra Bond | September 2022 | 174 | Long | 27,134,008 | 26,855,813 | (278,195 | ) | |||||||||||||||||
Total |
| $ | 68,548,103 | $ | 67,899,813 | $ | (648,290 | ) | ||||||||||||||||
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||||||
U.S. 10-Year Treasury Note | September 2022 | 59 | Short | $ | (7,032,763 | ) | $ | (6,993,344 | ) | $ | 39,419 | |||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2022 | 215 | Short | (27,580,886 | ) | (27,385,625 | ) | 195,261 | ||||||||||||||||
Total |
| $ | (34,613,649 | ) | $ | (34,378,969 | ) | $ | 234,680 |
8 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
Centrally cleared credit default swap agreements — buy protection(8):
Reference Entity | Implied Credit Spread at 6/30/22(9) | Notional(10) | Maturity | (Pay)/Receive Fixed Rate | Periodic Payment Frequency | Upfront Payments Made | Value | Unrealized Appreciation | ||||||||||||||||||||||||||||
CDX.NA.HY.S38 | 5.79% | USD | 28,264,500 | 6/20/2027 | (5.00)% | Quarterly | $ | (55,980 | ) | $ | 825,172 | $ | 881,152 |
(8) | When a credit event occurs as defined under the terms of the swap agreement, the Fund as a buyer of credit protection will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced obligation or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced obligation. |
(9) | 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. |
(10) | 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
H15T1Y — 1-year Constant Maturity Treasury Rate
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
USD — United States Dollar
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 37,640,512 | $ | — | $ | 37,640,512 | ||||||||
Asset–Backed Securities | — | 35,155,945 | — | 35,155,945 | ||||||||||||
Corporate Bonds & Notes | — | 84,583,498 | — | 84,583,498 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 13,905,954 | — | 13,905,954 | ||||||||||||
U.S. Government Securities | — | 57,942,393 | — | 57,942,393 | ||||||||||||
Common Stocks | 101,195 | — | — | 101,195 | ||||||||||||
Exchange–Traded Funds | 11,778,200 | — | — | 11,778,200 | ||||||||||||
Repurchase Agreements | — | 16,648,802 | — | 16,648,802 | ||||||||||||
Total | $ | 11,879,395 | $ | 245,877,104 | $ | — | $ | 257,756,499 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts |
| |||||||||||||||
Assets | $ | 234,680 | $ | — | $ | — | $ | 234,680 | ||||||||
Liabilities | (648,290 | ) | — | — | (648,290 | ) | ||||||||||
Swap Contracts |
| |||||||||||||||
Assets | — | 881,152 | — | 881,152 | ||||||||||||
Total | $ | (413,610 | ) | $ | 881,152 | $ | — | $ | 467,542 |
The accompanying notes are an integral part of these financial statements. | 9 |
FINANCIAL INFORMATION — GUARDIAN MULTI-SECTOR BOND VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 315,852 | ||
Interest | 4,200,319 | |||
|
| |||
Total Investment Income | 4,516,171 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 723,607 | |||
Distribution fees | 347,888 | |||
Professional fees | 37,782 | |||
Trustees’ and officers’ fees | 33,631 | |||
Custodian and accounting fees | 28,246 | |||
Administrative fees | 23,393 | |||
Transfer agent fees | 7,228 | |||
Shareholder reports | 6,429 | |||
Other expenses | 7,702 | |||
|
| |||
Total Expenses | 1,215,906 | |||
|
| |||
Net Investment Income/(Loss) | 3,300,265 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | (24,379,186 | ) | ||
Net realized gain/(loss) from futures contracts | (4,860,762 | ) | ||
Net realized gain/(loss) from swap contracts | 1,295,696 | |||
Net change in unrealized appreciation/(depreciation) on investments | (13,682,267 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 107,336 | |||
Net change in unrealized appreciation/(depreciation) on swap contracts | 1,113,193 | |||
|
| |||
Net Loss on Investments and Derivative Contracts | (40,405,990 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (37,105,725 | ) | |
|
| |||
10 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN MULTI-SECTOR BOND VIP FUND
The accompanying notes are an integral part of these financial statements. | 11 |
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.
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 6/30/22 | $ | 10.74 | $ | 0.12 | $ | (1.43 | ) | $ | (1.31 | ) | $ | 9.43 | (12.20)% | (4) | ||||||||||
Year Ended 12/31/21 | 10.74 | 0.21 | (0.21 | ) | 0.00 | 10.74 | 0.00% | |||||||||||||||||
Year Ended 12/31/20 | 10.03 | 0.14 | 0.57 | 0.71 | 10.74 | 7.08% | ||||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.00 | (6) | 0.03 | 10.03 | 0.30% | (4) |
12 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN MULTI-SECTOR BOND VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income to Average Net Assets(3) | Gross Ratio of Net Investment Income to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 256,760 | 0.87% | (4) | 0.87% | (4) | 2.38% | (4) | 2.38% | (4) | 126% | (4) | |||||||||||
315,505 | 0.87% | 0.87% | 1.99% | 1.99% | 172% | |||||||||||||||||
306,696 | 0.89% | 0.89% | 1.38% | 1.38% | 163% | |||||||||||||||||
309,877 | 0.93% | (4) | 0.93% | (4) | 1.33% | (4) | 1.33% | (4) | 27% | (4) |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers and expense limitations. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
(6) | Rounds to $0.00 per share. |
The accompanying notes are an integral part of these financial statements. | 13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Multi-Sector Bond VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks to provide a high current income with a secondary objective of capital appreciation.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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.
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.
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”).
Exchange-traded financial futures and swap contracts are valued at the last settlement price on the market where they are primarily traded.
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 |
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, 2022, 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, 2022 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, 2022, 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 |
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, 2022, 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, 2022.
f. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.
16 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
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 0.52% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly. The Fund has no sub-adviser.
Park Avenue has contractually agreed through April 30, 2023 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 and 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, 2022, 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, 2022, the Fund paid distribution fees in the amount of $347,888 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, 2022, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 226,245,624 | $ | 118,765,659 | ||||
Sales | 335,191,472 | 36,578,214 |
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.
17 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
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, 2022, 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
18 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
occurs will TIPS offer a higher real yield than a conventional Treasury bond of the same maturity.
i. LIBOR Replacement Risk The terms of many investments, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments, or the value or return on certain other fund investments. As a result, LIBOR may be relevant to, and directly affect, a Fund’s performance. In July 2017, the Chief Executive of the UK Financial Conduct Authority (the “FCA”) announced that the FCA would no longer persuade nor compel banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative, immediately after December 31, 2021, for all four non-U.S. dollar LIBORs (British Pound (“GBP”), Euro, Swiss Franc and Japanese Yen) and for one-week and two-month U.S. dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings, including three-month U.S. dollar LIBOR. In addition, in connection with supervisory guidance from regulators, some regulated entities will cease to enter into most new LIBOR contracts after January 1, 2022. Although a Fund may continue to invest in instruments that reference LIBOR or otherwise use LIBOR reference rates due to favorable liquidity or pricing, new LIBOR assets may no longer be available. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. Replacement rates that have been identified include the Secured Overnight Financing Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities, and the Sterling Overnight Index Average Rate (“SONIA”), which is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market, although other replacement rates could be adopted by market participants. At this time, it is not possible to predict the effect of the establishment of SOFR, SONIA or any other replacement rates or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as
LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the six months ended June 30, 2022 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.
19 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
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, 2022, 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 | $ | 234,680 | $ | — | ||||
Swap Contracts2 | — | 881,152 | ||||||
Liability Derivatives | ||||||||
Futures Contracts1 | $ | (648,290 | ) | $ | — |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
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 Statement of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2022 were as follows:
Interest Contracts | Credit Contracts | |||||||
Net Realized Gain/(Loss) | ||||||||
Futures Contracts1 | $ | (4,860,762 | ) | $ | — | |||
Swap Contracts2 | — | 1,295,696 | ||||||
Net Change in Unrealized Appreciation/(Depreciation) | ||||||||
Futures Contracts3 | $ | 107,336 | $ | — | ||||
Swap Contracts4 | — | 1,113,193 |
Interest Contracts | Credit Contracts | |||||||
Average Number of Notional Amounts | ||||||||
Futures Contracts5 | 950 | — | ||||||
Swap Contracts — Buy/Sell Protection | $ | — | $ | 37,480,643 |
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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
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.
20 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN MULTI-SECTOR BOND VIP FUND
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new
monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management Agreement
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and
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SUPPLEMENTAL INFORMATION (UNAUDITED)
evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s
role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board
concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this
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SUPPLEMENTAL INFORMATION (UNAUDITED)
regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of
the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the |
since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB10525
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Short Duration Bond VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
TABLE OF CONTENTS
Guardian Short Duration Bond VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 10 | |||
Statement of Operations | 10 | |||
Statement of Changes in Net Assets | 11 | |||
Financial Highlights | 12 | |||
Notes to Financial Statements | 14 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 22 | |||
Recent Rulemaking | 23 | |||
Approval of Investment Management Agreement | 24 | |||
Portfolio Holdings and Proxy Voting Procedures | 28 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN SHORT DURATION BOND VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $211,032,739
Bond Sector Allocation1 As of June 30, 2022 | ||
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Bond Quality Allocation2 As of June 30, 2022 | ||
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GUARDIAN SHORT DURATION BOND VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 0.125% | 2/15/2024 | 36.21% | |||||||||
Vanguard Short-Term Inflation-Protected Securities ETF | — | — | 4.84% | |||||||||
Federal Farm Credit Banks Funding Corp. | 2.640% | 4/8/2026 | 1.85% | |||||||||
Federal Home Loan Bank | 1.125% | 1/27/2025 | 1.79% | |||||||||
Federal National Mortgage Association | 4.000% | 5/1/2052 | 1.44% | |||||||||
Federal National Mortgage Association | 3.500% | 4/1/2052 | 1.41% | |||||||||
Federal National Mortgage Association | 3.000% | 4/1/2037 | 1.38% | |||||||||
Federal National Mortgage Association | 3.000% | 5/1/2037 | 1.36% | |||||||||
Federal National Mortgage Association | 3.500% | 5/1/2052 | 1.36% | |||||||||
Federal National Mortgage Association | 4.000% | 6/1/2052 | 0.96% | |||||||||
Total | 52.60% |
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 |
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, if any, 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 May 2, 2022 (commencement of operations) to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return* | $1,000.00 | $ 994.00 | $0.79 | 0.48% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses)** | $1,000.00 | $1,022.41 | $2.41 | 0.48% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 60/365 (to reflect the period from May 2, 2022 (commencement of operations) through June 30, 2022). |
** | Expenses (hypothetical expenses if the Fund had been in existence from 1/1/2022) are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
SCHEDULE OF INVESTMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 10.0% |
| |||||||
Federal Home Loan Mortgage Corp. | $ | 1,194,131 | $ | 1,149,231 | ||||
4.00% due 6/1/2052 | 1,393,805 | 1,375,340 | ||||||
Federal National Mortgage Association | 2,971,763 | 2,910,277 | ||||||
3.00% due 5/1/2037 | 2,945,869 | 2,880,099 | ||||||
3.00% due 5/1/2052 | 2,080,341 | 1,938,626 | ||||||
3.50% due 4/1/2052 | 3,091,721 | 2,977,045 | ||||||
3.50% due 5/1/2052 | 2,973,922 | 2,862,483 | ||||||
4.00% due 5/1/2052 | 3,074,819 | 3,034,081 | ||||||
4.00% due 6/1/2052 | 2,042,816 | 2,015,751 | ||||||
Total Agency Mortgage–Backed Securities (Cost $21,282,924) |
| 21,142,933 | ||||||
Asset–Backed Securities – 22.3% |
| |||||||
Aligned Data Centers Issuer LLC | 900,000 | 796,754 | ||||||
Ally Auto Receivables Trust | 1,650,000 | 1,639,645 | ||||||
American Express Credit Account Master Trust | 1,700,000 | 1,698,427 | ||||||
AmeriCredit Automobile Receivables Trust | 1,125,000 | 1,071,588 | ||||||
Anchorage Capital CLO Ltd. | 1,000,000 | 941,200 | ||||||
Apidos CLO XXII | 1,000,000 | 952,100 | ||||||
Ares XXVII CLO Ltd. | 1,000,000 | 936,100 | ||||||
Ares XXVIIIR CLO Ltd. | 1,100,000 | 1,045,990 | ||||||
Avis Budget Rental Car Funding AESOP LLC | 1,100,000 | 986,162 | ||||||
BA Credit Card Trust | 1,650,000 | 1,580,445 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Benefit Street Partners CLO XVI Ltd. | $ | 1,200,000 | $ | 1,139,040 | ||||
BMW Vehicle Owner Trust | 1,100,000 | 1,090,829 | ||||||
Canyon Capital CLO Ltd. | 1,200,000 | 1,124,160 | ||||||
CARLYLE U.S. CLO Ltd. | 1,000,000 | 952,600 | ||||||
CarMax Auto Owner Trust | 850,000 | 794,277 | ||||||
Dryden 53 CLO Ltd. | 1,100,000 | 1,039,610 | ||||||
Dryden Senior Loan Fund | 1,000,000 | 959,000 | ||||||
Exeter Automobile Receivables Trust | 1,050,000 | 1,038,877 | ||||||
Ford Credit Auto Owner Trust | 1,100,000 | 1,052,037 | ||||||
Ford Credit Floorplan Master Owner Trust | 1,100,000 | 1,009,918 | ||||||
GLS Auto Receivables Issuer Trust | 790,477 | 790,255 | ||||||
GM Financial Automobile Leasing Trust | 1,240,000 | 1,235,599 | ||||||
GM Financial Consumer Automobile Receivables Trust | 1,680,000 | 1,588,391 | ||||||
Hertz Vehicle Financing III LLC | 960,000 | 946,024 | ||||||
Hyundai Auto Lease Securitization Trust | 1,200,000 | 1,196,150 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Hyundai Auto Receivables Trust | $ | 1,430,000 | $ | 1,384,843 | ||||
Jamestown CLO XI Ltd. | 1,200,000 | 1,149,240 | ||||||
Kubota Credit Owner Trust | 1,117,103 | 1,115,370 | ||||||
Master Credit Card Trust | 1,380,000 | 1,309,359 | ||||||
Neuberger Berman Loan Advisers CLO 26 Ltd. | 1,000,000 | 952,800 | ||||||
Octagon Investment Partners 36 Ltd. | 1,209,375 | 1,145,399 | ||||||
OHA Credit Partners XIV Ltd. | 1,000,000 | 955,700 | ||||||
Santander Drive Auto Receivables Trust | 1,009,443 | 1,005,416 | ||||||
2022-3 A3 | 1,200,000 | 1,192,311 | ||||||
Synchrony Card Funding LLC | 1,300,000 | 1,291,109 | ||||||
Toyota Auto Loan Extended Note Trust | 975,000 | 884,390 | ||||||
Toyota Auto Receivables Owner Trust | 1,440,000 | 1,356,080 | ||||||
Verizon Owner Trust | 1,200,000 | 1,173,401 | ||||||
Volkswagen Auto Lease Trust | 1,500,000 | 1,465,502 | ||||||
Voya CLO Ltd. | 1,000,000 | 956,100 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
World Omni Auto Receivables Trust | $ | 1,200,000 | $ | 1,119,581 | ||||
World Omni Automobile Lease Securitization Trust | 1,000,000 | 954,894 | ||||||
Total Asset–Backed Securities (Cost $47,751,472) |
| 47,016,673 | ||||||
Senior Secured Loans – 1.8% |
| |||||||
Airlines – 0.4% |
| |||||||
Air Canada | 1,000,000 | 917,500 | ||||||
|
| |||||||
917,500 | ||||||||
Entertainment – 0.5% |
| |||||||
Delta 2 (Lux) Sarl | 1,000,000 | 973,000 | ||||||
|
| |||||||
973,000 | ||||||||
Healthcare-Services – 0.5% |
| |||||||
Global Medical Response, Inc. | 997,414 | 925,730 | ||||||
|
| |||||||
925,730 | ||||||||
Retail – 0.4% |
| |||||||
Great Outdoors Group LLC | 997,487 | 906,716 | ||||||
|
| |||||||
906,716 | ||||||||
Total Senior Secured Loans (Cost $3,961,970) |
| 3,722,946 | ||||||
Corporate Bonds & Notes – 10.0% |
| |||||||
Aerospace & Defense – 0.5% |
| |||||||
Boeing Co. | 500,000 | 478,325 | ||||||
Northrop Grumman Corp. | 500,000 | 489,530 | ||||||
|
| |||||||
967,855 | ||||||||
Beverages – 0.2% |
| |||||||
PepsiCo, Inc. | 500,000 | 484,985 | ||||||
|
| |||||||
484,985 |
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks – 3.3% |
| |||||||
Bank of America Corp. | $ | 500,000 | $ | 484,665 | ||||
3.864% (3.864% fixed rate until 07/23/2023; LIBOR 3 Month + 0.94% thereafter) | 500,000 | 497,785 | ||||||
Credit Suisse Group AG | 500,000 | 484,670 | ||||||
Discover Bank | 500,000 | 499,780 | ||||||
Goldman Sachs Group, Inc. | 500,000 | 486,325 | ||||||
Huntington National Bank | 500,000 | 499,580 | ||||||
JPMorgan Chase & Co. | 500,000 | 488,875 | ||||||
2.301% (2.301% fixed rate until 10/15/2025; SOFR + 1.16% thereafter) | 500,000 | 476,565 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 500,000 | 463,565 | ||||||
3.761% due 7/26/2023 | 500,000 | 499,530 | ||||||
Morgan Stanley | 500,000 | 482,340 | ||||||
3.737% (3.737% fixed rate until 04/24/2023; LIBOR 3 Month + 0.85% thereafter) | 500,000 | 498,655 | ||||||
PNC Bank NA | 500,000 | 502,045 | ||||||
3.875% due 4/10/2025 | 500,000 | 495,205 | ||||||
|
| |||||||
6,859,585 | ||||||||
Computers – 0.2% |
| |||||||
Apple, Inc. | 500,000 | 494,485 | ||||||
|
| |||||||
494,485 | ||||||||
Diversified Financial Services – 0.5% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | 500,000 | 498,945 | ||||||
American Express Co. | 500,000 | 496,720 | ||||||
|
| |||||||
995,665 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Electric – 0.5% |
| |||||||
DTE Energy Co. | $ | 500,000 | $ | 483,255 | ||||
Public Service Enterprise Group, Inc. | 500,000 | 489,885 | ||||||
|
| |||||||
973,140 | ||||||||
Electronics – 0.2% |
| |||||||
Honeywell International, Inc. | 500,000 | 491,095 | ||||||
|
| |||||||
491,095 | ||||||||
Entertainment – 0.2% |
| |||||||
Magallanes, Inc. | 500,000 | 490,180 | ||||||
|
| |||||||
490,180 | ||||||||
Healthcare-Products – 0.2% |
| |||||||
Abbott Laboratories | 400,000 | 401,616 | ||||||
|
| |||||||
401,616 | ||||||||
Healthcare-Services – 0.2% |
| |||||||
UnitedHealth Group, Inc. | 500,000 | 476,270 | ||||||
|
| |||||||
476,270 | ||||||||
Insurance – 0.2% |
| |||||||
Chubb INA Holdings, Inc. | 500,000 | 498,665 | ||||||
|
| |||||||
498,665 | ||||||||
Lodging – 0.2% |
| |||||||
Marriott International, Inc. | 500,000 | 495,260 | ||||||
|
| |||||||
495,260 | ||||||||
Media – 0.5% |
| |||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 500,000 | 503,090 | ||||||
iHeartCommunications, Inc. | 750,000 | 599,325 | ||||||
|
| |||||||
1,102,415 | ||||||||
Oil & Gas – 0.5% |
| |||||||
Canadian Natural Resources Ltd. | 500,000 | 495,285 | ||||||
CITGO Petroleum Corp. | 500,000 | 483,775 | ||||||
|
| |||||||
979,060 | ||||||||
Pharmaceuticals – 0.2% |
| |||||||
Bristol Myers Squibb Co. | 500,000 | 495,590 | ||||||
|
| |||||||
495,590 | ||||||||
Pipelines – 0.3% |
| |||||||
Energy Transfer LP | 500,000 | 509,600 | ||||||
|
| |||||||
509,600 |
6 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Real Estate Investment Trusts (REITs) – 0.7% |
| |||||||
Boston Properties LP | $ | 500,000 | $ | 487,490 | ||||
Essex Portfolio LP | 500,000 | 490,375 | ||||||
Simon Property Group LP | 500,000 | 494,545 | ||||||
|
| |||||||
1,472,410 | ||||||||
Retail – 0.2% |
| |||||||
Target Corp. | 500,000 | 501,440 | ||||||
|
| |||||||
501,440 | ||||||||
Semiconductors – 0.7% |
| |||||||
Broadcom Corp. / Broadcom Cayman Finance Ltd. | 500,000 | 499,495 | ||||||
NXP BV / NXP Funding LLC | 1,000,000 | 1,010,280 | ||||||
|
| |||||||
1,509,775 | ||||||||
Telecommunications – 0.5% |
| |||||||
Verizon Communications, Inc. | 500,000 | 496,835 | ||||||
Vodafone Group PLC | 500,000 | 502,255 | ||||||
|
| |||||||
999,090 | ||||||||
Total Corporate Bonds & Notes (Cost $21,509,916) |
| 21,198,181 | ||||||
Non–Agency Mortgage–Backed Securities – 5.8% |
| |||||||
BANK | 1,860,000 | 1,697,449 | ||||||
Benchmark Mortgage Trust | 1,150,000 | 1,114,978 | ||||||
Commercial Mortgage Trust | 1,200,000 | 1,156,075 | ||||||
2019-GC44 AM | 1,085,000 | 965,530 | ||||||
DBGS Mortgage Trust | 1,100,000 | 1,087,610 | ||||||
DBUBS Mortgage Trust | 793,000 | 768,262 | ||||||
Freddie Mac STACR REMIC Trust | 600,000 | 576,936 | ||||||
Hilton USA Trust | 845,000 | 808,632 | ||||||
Morgan Stanley Bank of America Merrill Lynch Trust | 970,000 | 960,996 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
Wells Fargo Commercial Mortgage Trust | $ | 1,380,000 | $ | 1,358,701 | ||||
2016-LC25 A4 | 1,380,000 | 1,347,194 | ||||||
WFRBS Commercial Mortgage Trust | 440,000 | 436,340 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $12,476,308) |
| 12,278,703 | ||||||
U.S. Government Agencies – 3.7% |
| |||||||
Federal Farm Credit Banks Funding Corp. | 4,000,000 | 3,915,040 | ||||||
Federal Home Loan Bank | 4,000,000 | 3,788,000 | ||||||
Total U.S. Government Agencies (Cost $7,767,286) |
| 7,703,040 | ||||||
U.S. Government Securities – 36.7% |
| |||||||
U.S. Treasury Note | 79,980,000 | 76,405,894 | ||||||
2.50% due 4/30/2024 | 1,000,000 | 991,367 | ||||||
Total U.S. Government Securities (Cost $77,775,044) |
| 77,397,261 | ||||||
Shares | Value | |||||||
Exchange–Traded Funds – 4.8% |
| |||||||
Vanguard Short-Term | 204,000 | 10,224,480 | ||||||
Total Exchange–Traded Funds (Cost $10,312,934) |
| 10,224,480 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 4.6% |
| |||||||
Repurchase Agreements – 4.6% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $9,747,483, due 7/1/2022(4) | $ | 9,747,418 | 9,747,418 | |||||
Total Repurchase Agreements (Cost $9,747,418) |
| 9,747,418 | ||||||
Total Investments(5) – 99.7% (Cost $212,585,272) |
| 210,431,635 | ||||||
Assets in excess of other liabilities(6) – 0.3% |
| 601,104 | ||||||
Total Net Assets – 100.0% |
| $ | 211,032,739 |
(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, 2022, |
The accompanying notes are an integral part of these financial statements. | 7 |
SCHEDULE OF INVESTMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
the aggregate market value of these securities amounted to $26,453,325, representing 12.5% 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. |
(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, 2022. |
(3) | Variable coupon rate based on weighted average interest rate of underlying mortgages. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 9,953,300 | $ | 9,942,411 |
(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, 2022:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2022 | 279 | Long | $ | 58,756,296 | $ | 58,594,360 | $ | (161,936 | ) | ||||||||||||||
U.S. 10-Year Treasury Note | September 2022 | 172 | Long | 20,500,592 | 20,387,375 | (113,217 | ) | |||||||||||||||||
Total |
| $ | 79,256,888 | $ | 78,981,735 | $ | (275,153 | ) |
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
U.S. 5-Year Treasury Note | September 2022 | 359 | Short | $ | (40,422,611 | ) | $ | (40,297,750 | ) | $ | 124,861 | |||||||||||||
U.S. Long Bond | September 2022 | 2 | Short | (275,931 | ) | (277,250 | ) | (1,319 | ) | |||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2022 | 79 | Short | (10,134,789 | ) | (10,062,625 | ) | 72,164 | ||||||||||||||||
U.S. Ultra Bond | September 2022 | 7 | Short | (1,087,014 | ) | (1,080,407 | ) | 6,607 | ||||||||||||||||
Total |
| $ | (51,920,345) | $ | (51,718,032) | $ | 202,313 |
Centrally cleared credit default swap agreements — buy protection(7):
Reference Entity | Implied Credit Spread at 6/30/22(8) | Notional(9) | Maturity | (Pay)/Receive Fixed Rate | Periodic Payment Frequency | Upfront Payments Made | Value | Unrealized Appreciation | ||||||||||||||||||||||||
CDX.NA.HY.S38 | 5.79% | USD 11,088,000 | 6/20/2027 | (5.00)% | Quarterly | $ | (36,463 | ) | $ | 323,710 | $ | 360,173 |
(7) | When a credit event occurs as defined under the terms of the swap agreement, the Fund as a buyer of credit protection will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced obligation or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced obligation. |
(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:
H15T1Y — 1-year Constant Maturity Treasury Rate
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
USD — United States Dollar
8 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 21,142,933 | $ | — | $ | 21,142,933 | ||||||||
Asset–Backed Securities | — | 47,016,673 | — | 47,016,673 | ||||||||||||
Senior Secured Loans | — | 3,722,946 | — | 3,722,946 | ||||||||||||
Corporate Bonds & Notes | — | 21,198,181 | — | 21,198,181 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 12,278,703 | — | 12,278,703 | ||||||||||||
U.S. Government Agencies | — | 7,703,040 | — | 7,703,040 | ||||||||||||
U.S. Government Securities | — | 77,397,261 | — | 77,397,261 | ||||||||||||
Exchange–Traded Funds | 10,224,480 | — | — | 10,224,480 | ||||||||||||
Repurchase Agreements | — | 9,747,418 | — | 9,747,418 | ||||||||||||
Total | $ | 10,224,480 | $ | 200,207,155 | $ | — | $ | 210,431,635 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Assets | $ | 203,632 | $ | — | $ | — | $ | 203,632 | ||||||||
Liabilities | (276,472 | ) | — | — | (276,472 | ) | ||||||||||
Swap Contracts | ||||||||||||||||
Assets | — | 360,173 | — | 360,173 | ||||||||||||
Total | $ | (72,840 | ) | $ | 360,173 | $ | — | $ | 287,333 |
The accompanying notes are an integral part of these financial statements. | 9 |
FINANCIAL INFORMATION — GUARDIAN SHORT DURATION BOND VIP FUND
For the Period Ended June 30, 2022 (unaudited)1 | ||||
Investment Income | ||||
Interest | $ | 1,006,645 | ||
|
| |||
Total Investment Income | 1,006,645 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 159,429 | |||
Professional fees | 14,987 | |||
Custodian and accounting fees | 9,473 | |||
Trustees’ and officers’ fees | 6,745 | |||
Administrative fees | 5,373 | |||
Transfer agent fees | 2,333 | |||
Shareholder reports | 2,117 | |||
Other expenses | 2,270 | |||
|
| |||
Total Expenses | 202,727 | |||
Less: Fees waived | (25,584 | ) | ||
|
| |||
Total Expenses, Net | 177,143 | |||
|
| |||
Net Investment Income/(Loss) | 829,502 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | (199,033 | ) | ||
Net realized gain/(loss) from futures contracts | (191,498 | ) | ||
Net realized gain/(loss) from swap contracts | 43,238 | |||
Net change in unrealized appreciation/(depreciation) on investments | (2,153,637 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | (72,840 | ) | ||
Net change in unrealized appreciation/(depreciation) on swap contracts | 360,173 | |||
|
| |||
Net Loss on Investments and Derivative Contracts | (2,213,597 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (1,384,095 | ) | |
|
| |||
1 | Commenced operations on May 2, 2022. |
10 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN SHORT DURATION BOND VIP FUND
1 | Commenced operations on May 2, 2022. |
The accompanying notes are an integral part of these financial statements. | 11 |
FINANCIAL INFORMATION — GUARDIAN SHORT DURATION 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 Period Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income(1) | Net Realized and Unrealized Loss | Total Operations | Net Asset Value, End of Period | Total Return(2),(3) | |||||||||||||||||||
Period Ended 6/30/22(5) | $ | 10.00 | $ | 0.04 | $ | (0.10 | ) | $ | (0.06 | ) | $ | 9.94 | (0.60)% |
12 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN SHORT DURATION 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) | |||||||||||||||||
$ | 211,033 | 0.48% | 0.55% | 2.36% | 2.29% | 44% |
(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 May 2, 2022. |
The accompanying notes are an integral part of these financial statements. | 13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Short Duration Bond VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on May 2, 2022. 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 level of current income consistent with preservation 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 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.
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.
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”).
Exchange-traded financial futures and swap contracts are valued at the last settlement price on the market where they are primarily traded.
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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SHORT DURATION 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 period ended June 30, 2022, 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, 2022 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 obligationsFund Code Not Found 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, 2022, 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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SHORT DURATION 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 period ended June 30, 2022, 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, 2022.
f. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.
16 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
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 0.45% 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. The Fund has no sub-adviser.
Park Avenue has contractually agreed through April 30, 2023 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 0.50%% 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 and 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 period ended June 30, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $25,584.
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.
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 period ended June 30, 2022, were as follows:
Other Investments | U.S. Agency | |||||||
Purchases | $ | 116,425,669 | $ | 174,939,616 | ||||
Sales | 21,355,627 | 67,919,539 |
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
17 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SHORT DURATION BOND 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.
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, 2022, 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.
i. LIBOR Replacement Risk The terms of many investments, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments, or the value or return on certain other fund investments. As a result, LIBOR may be relevant to, and directly affect, a Fund’s performance. In July 2017, the Chief Executive of the UK Financial Conduct Authority (the “FCA”) announced that the FCA would no longer persuade nor compel banks to submit
18 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative, immediately after December 31, 2021, for all four non-U.S. dollar LIBORs (British Pound (“GBP”), Euro, Swiss Franc and Japanese Yen) and for one-week and two-month U.S. dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings, including three-month U.S. dollar LIBOR. In addition, in connection with supervisory guidance from regulators, some regulated entities will cease to enter into most new LIBOR contracts after January 1, 2022. Although a Fund may continue to invest in instruments that reference LIBOR or otherwise use LIBOR reference rates due to favorable liquidity or pricing, new LIBOR assets may no longer be available. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. Replacement rates that have been identified include the Secured Overnight Financing Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities, and the Sterling Overnight Index Average Rate (“SONIA”), which is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market, although other replacement rates could be adopted by market participants. At this time, it is not possible to predict the effect of the establishment of SOFR, SONIA or any other replacement rates or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Loan Risk Investments in loans are particularly subject to, among other risks, credit risk, interest rate risk, and counterparty risk. The Fund’s investments in loans can be difficult to value accurately and may be more susceptible to liquidity risk than fixed income (or debt) investments of similar credit quality and/or maturity. Investments or transactions in loans are often subject to long settlement periods (potentially longer than seven days), which could limit the ability of the Fund to invest sale proceeds in other investments and to use proceeds to meet its current redemption obligations. As a result, the Fund may be forced to sell other, more desirable, liquid investments, sell illiquid investments at a loss or take other measures to raise cash. Loans often are rated below investment-grade and may be unrated and subject the Fund to the risk that the value of the collateral for the loan may be insufficient to cover the borrower’s obligations should the borrower fail to make payments or become insolvent. Participations in loans may subject the Fund to the credit risk of both the borrower and the issuer of the participation and may make enforcement of loan covenants (if any) more difficult for the Fund as legal action may have to go through the issuer of the participations. Investments in loans that lack or possess fewer or contingent contractual restrictive covenants are particularly susceptible to the risks associated with these investments. In addition, loans and other similar investments may not be considered “securities” and, as a result, the Fund may not be entitled to rely on the anti-fraud protections under the federal securities laws and instead may have to resort to state law and direct claims.
k. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the period ended June 30, 2022 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.
19 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
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, 2022, 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 | $ | 203,632 | $ | — | ||||
Swap Contracts2 | — | 360,173 | ||||||
Liability Derivatives | ||||||||
Futures Contracts1 | $ | (276,472 | ) | $ | — |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
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 Statement of Assets and Liabilities. |
Transactions in derivative investments for the period ended June 30, 2022 were as follows:
Interest Contracts | Credit Contracts | |||||||
Net Realized Gain/(Loss) | ||||||||
Futures Contracts1 | $ | (191,498 | ) | $ | — | |||
Swap Contracts2 | — | 43,238 | ||||||
Net Change in Unrealized Appreciation/(Depreciation) | ||||||||
Futures Contracts3 | $ | (72,840 | ) | $ | — | |||
Swap Contracts4 | — | 360,173 | ||||||
Average Number of Notional Amounts | ||||||||
Futures Contracts5 | 884 | — | ||||||
Swap Contracts — Buy/Sell Protection | $ | — | $ | 20,644,000 |
1 | Statement of Operations location: Net realized gain/(loss) from futures contracts. |
2 | Statement of Operations location: Net realized gain/(loss) from swap contracts. |
3 | Statement of Operations location: Net change in unrealized appreciation/(depreciation) on futures contracts. |
4 | 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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the period ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are
20 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SHORT DURATION BOND VIP FUND
indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which
may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
21 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
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.
22 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
23 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management Agreement
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 December 8-9, 2020 (the “Meeting”), the Board considered and approved a proposed investment management agreement (the “Management Agreement”) between the Trust, on behalf of Guardian Equity Income VIP Fund, Guardian Core Fixed Income VIP Fund and Guardian Short Duration Bond VIP Fund (the “New Funds”), and Park Avenue Institutional Advisers LLC (the “Manager”). The Board also considered and approved a proposed sub-advisory agreement (the “Sub-advisory Agreement,” collectively with the Management Agreement, the “Agreements”) between the Manager and Wellington Management Company LLP (“Wellington”) with respect to the Guardian Equity Income VIP Fund. The Trustees who are not parties to the Agreements or “interested persons” (as defined in the 1940 Act) of a party to the Agreements (the “Independent Trustees”) unanimously approved the Agreements for an initial term of two years.1
The Board is responsible for overseeing the management of each Fund. In determining whether to approve 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. At a Board meeting held on September 23—24, 2020, the Board received presentations from the Manager and Wellington regarding the services to be
1 | Each New Fund commenced operations on May 2, 2022. |
rendered and the proposed investment strategies for the New Funds. In advance of the Meeting, the Trustees received written responses from the Manager and Wellington 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 Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements.
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 Wellington.
In reaching its decisions to approve the Agreements, the Board took into account the materials and information described above as well as other materials and information provided to the Board and discussed with and among the Trustees. 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 to be provided to the New Funds by the Manager and Wellington; (ii) the investment performance of accounts managed by the Manager and Wellington with strategies similar to the applicable New Funds; (iii) the fees to be charged and estimated profitability; (iv) the extent to which economies of scale may in the future exist for a New Fund, and the extent to which a New Fund may benefit from future economies of scale; and (v) any other benefits anticipated to be derived by the Manager or Wellington (or their respective affiliates) from their relationships with the New Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services to be provided to the New Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment
24 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
advisory services to be provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services to be 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 Trustees considered that the Guardian Equity Income VIP Fund would operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager would have under this structure, including monitoring and evaluating the performance of Wellington, monitoring the Wellington for adherence to the stated investment objectives, strategies, policies and restrictions of the Guardian Equity Income VIP Fund and supervising Wellington with respect to the services that Wellington would provide under the Sub-advisory Agreement. The Trustees also considered the process used by the Manager, consistent with this structure, to identify and recommend Wellington, and its ability to monitor and oversee sub-advisers and recommend replacement sub-advisers, when necessary, and provide other services under the Management Agreement. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the New Funds may benefit from the Manager’s ability to use similar resources and capabilities of its affiliates in providing services to the New Funds.
The Trustees considered information regarding the nature, extent and quality of services to be provided to the Guardian Equity Income VIP Fund by Wellington. The Trustees also considered, among other things, the terms of the Sub-advisory Agreement and the range of investment advisory services to be provided by Wellington under the oversight of the Manager and Wellington’s experience with managing other funds that are a series of the Trust. In evaluating these investment advisory services, the Trustees considered, among other things, Wellington’s investment philosophy, investment approach and approach to portfolio construction, and its approach to managing risk. The Trustees also considered information regarding accounts managed by Wellington with a similar strategy as the Guardian Equity Income VIP Fund, including performance and portfolio characteristics. The Trustees received and evaluated information regarding the
background, education, expertise and/or experience of the investment professionals that would serve as portfolio managers for the Guardian Equity Income VIP Fund and the capabilities, resources and reputation of Wellington.
The Trustees considered that Guardian Core Fixed Income VIP Fund and Guardian Short Duration Bond VIP Fund would be managed without a sub-adviser by the Manager. In evaluating the investment advisory services to be provided by the Manager with respect to these New Funds, the Trustees considered, among other things, the Manager’s investment philosophy and style, research and securities selection process and approach to portfolio construction, and the Manager’s approach to managing risk. The Trustees also considered information regarding accounts managed by the Manager with similar strategies as the applicable New Fund, including performance and portfolio characteristics. The Trustees received and evaluated information regarding the background, expertise and/or experience of the investment professionals that would serve as portfolio managers for the New Funds and the capabilities, resources and reputations of the Manager and its affiliates.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations and in light of the New Funds’ anticipated operations, that the nature, extent and quality of services to be provided to the New Funds by the Manager and Wellington were appropriate.
Investment Performance
The New Funds had not commenced operations prior to the Meeting. Accordingly, the New Funds did not yet have an investment performance record. The Board considered historical performance information with respect to other accounts managed by the Manager and Wellington with similar investment strategies as the New Funds, and comparisons to relevant benchmarks. The Trustees concluded that the historical performance records of similarly managed accounts, viewed together with the other relevant factors and information considered by the Trustees, supported a decision to approve each Agreement. The Trustees also concluded that it was appropriate to revisit the New Funds’ investment performance in connection with future reviews of the Agreements.
Costs and Profitability
The Trustees considered the proposed management fees to be paid by the Funds to the Manager under the
25 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the proposed 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 Financial Solutions, Inc., an independent provider of industry data, which showed that the New Funds’ proposed management fees fell within the following quintiles (with the first quintile representing the lowest management fees and the fifth quintile representing the highest management fees): the second quintile for the Guardian Core Fixed Income VIP Fund and the Guardian Equity Income VIP Fund and the third quintile for the Guardian Short Duration Bond VIP Fund.
The Trustees considered the proposed sub-advisory fee to be paid under the Sub-advisory Agreement and evaluated the reasonableness of that fee. The Trustees also considered that the fees to be paid to Wellington would be paid by the Manager and not the Guardian Equity Income VIP Fund and that the Manager had negotiated the fees with Wellington at arm’s-length.
The Trustees received comparative information relating to each New Fund’s anticipated operating expense ratio and the actual operating expense ratio of a peer group of funds. In this regard, the Board noted that the New Funds’ anticipated operating expense ratios within the following quintiles (with the first quintile representing the lowest expense ratios and the fifth quintile representing the highest expense ratios): the second quintile for Guardian Core Fixed Income VIP Fund and Guardian Equity Income VIP Fund and the third quintile for Guardian Short Duration Bond VIP Fund. The Trustees considered estimates of the New Funds’ projected asset levels and the Manager’s commitment to limit the New Funds’ operating expenses through an expense limitation agreement with the Trust through at least April 20, 2022. Although the Board recognized that the comparisons between the proposed management fees and anticipated operating expenses of the New 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 proposed management fees and evaluation of the anticipated operating expenses.
The Trustees reviewed information regarding the Manager’s projected costs of sponsoring the New Funds and projected profitability of the New Funds to the Manager based on the anticipated assets and expenses
of the New Funds. The Trustees noted that the information, including with respect to revenues and expenses, contained estimates because the New Funds had not yet commenced operations at the time of the Board meeting. The Trustees did not consider any projected profitability information from Wellington because the Manager would be responsible for payment of the sub-advisory fee and had negotiated the fee with Wellington at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Trustees concluded that the proposed management and sub-advisory fees were reasonable in light of the nature, extent and quality of services expected to be rendered to the New Funds by the Manager and Wellington. The Trustees also concluded that the projected profitability of the New Funds to the Manager was acceptable and the Trustees determined it was appropriate to revisit this information in connection with future reviews of the Agreements.
Economies of Scale
The New Funds had not commenced operations prior to the Board meeting. As a result, no specific information was available concerning the possible effect that asset growth and economies of scale have on a New Fund’s expenses. The Trustees concluded that it was appropriate to revisit potential economies of scale in connection with future reviews of the Agreements or earlier, if appropriate, and that they were satisfied with the extent to which economies of scale would be shared for the benefit of shareholders based on anticipated asset levels.
Ancillary Benefits
The Trustees 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 New Funds. The Trustees acknowledged that the New Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts. 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
26 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
Trustees considered the potential benefits, other than sub-advisory fees, that Wellington and its affiliates may receive because of their relationships with the Guardian Equity Income VIP Fund, 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 Wellington and its affiliates are consistent with those expected for a sub-adviser to a mutual fund such as the applicable New 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.
27 |
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.
28 |
This Page Intentionally Left Blank
29 |
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
PUB11741
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Small Cap Core VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Small Cap Core VIP Fund
1 | ||||
2 | ||||
Financial Information | ||||
Schedule of Investments | 3 | |||
Statement of Assets and Liabilities | 6 | |||
Statement of Operations | 6 | |||
Statements of Changes in Net Assets | 7 | |||
Financial Highlights | 8 | |||
Notes to Financial Statements | 10 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 16 | |||
17 | ||||
Approval of Investment Management and Sub-advisory Agreements | 18 | |||
Portfolio Holdings and Proxy Voting Procedures | 24 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN SMALL CAP CORE VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $260,733,753 |
Sector Allocation1 As of June 30, 2022 |
Top Ten Holdings2 As of June 30, 2022 | ||||
Holding | % of Total Net Assets | |||
Murphy USA, Inc. | 2.20% | |||
Century Communities, Inc. | 2.08% | |||
Black Hills Corp. | 1.70% | |||
Gray Television, Inc. | 1.64% | |||
HealthEquity, Inc. | 1.61% | |||
Textainer Group Holdings Ltd. | 1.58% | |||
Olin Corp. | 1.57% | |||
CommVault Systems, Inc. | 1.51% | |||
HF Sinclair Corp. | 1.47% | |||
Primoris Services Corp. | 1.46% | |||
Total | 16.82% |
1 | The Fund’s holdings are allocated to each sector based on the MSCI Global Industry Classification Standard (GICS®). Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
1 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 793.60 | $4.58 | 1.03% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,019.69 | $5.16 | 1.03% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2 |
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Common Stocks – 98.4% |
| |||||||
Auto Components – 2.0% |
| |||||||
Goodyear Tire & Rubber Co.(1) | 210,340 | $ | 2,252,742 | |||||
Visteon Corp.(1) | 29,040 | 3,007,963 | ||||||
|
| |||||||
5,260,705 | ||||||||
Banks – 8.6% |
| |||||||
Bank OZK | 101,393 | 3,805,279 | ||||||
Cadence Bank | 141,369 | 3,319,344 | ||||||
National Bank Holdings Corp., Class A | 57,600 | 2,204,352 | ||||||
Veritex Holdings, Inc. | 92,925 | 2,718,986 | ||||||
Washington Federal, Inc. | 123,805 | 3,716,626 | ||||||
WesBanco, Inc. | 106,726 | 3,384,281 | ||||||
Wintrust Financial Corp. | 42,206 | 3,382,811 | ||||||
|
| |||||||
22,531,679 | ||||||||
Biotechnology – 0.9% |
| |||||||
Amarin Corp. PLC, ADR(1) | 934,845 | 1,392,919 | ||||||
Ultragenyx Pharmaceutical, Inc.(1) | 14,822 | 884,281 | ||||||
|
| |||||||
2,277,200 | ||||||||
Capital Markets – 0.6% |
| |||||||
CONX Corp.(1) | 165,930 | 1,646,026 | ||||||
|
| |||||||
1,646,026 | ||||||||
Chemicals – 2.4% |
| |||||||
Avient Corp. | 56,528 | 2,265,642 | ||||||
Olin Corp. | 88,523 | 4,096,845 | ||||||
|
| |||||||
6,362,487 | ||||||||
Communications Equipment – 0.8% |
| |||||||
Extreme Networks, Inc.(1) | 225,400 | 2,010,568 | ||||||
|
| |||||||
2,010,568 | ||||||||
Construction & Engineering – 1.5% |
| |||||||
Primoris Services Corp. | 175,072 | 3,809,567 | ||||||
|
| |||||||
3,809,567 | ||||||||
Consumer Finance – 2.5% |
| |||||||
Encore Capital Group, Inc.(1) | 56,166 | 3,244,710 | ||||||
Oportun Financial Corp.(1) | 136,997 | 1,132,965 | ||||||
PROG Holdings, Inc.(1) | 127,951 | 2,111,192 | ||||||
|
| |||||||
6,488,867 | ||||||||
Diversified Consumer Services – 1.3% |
| |||||||
Stride, Inc.(1) | 84,076 | 3,429,460 | ||||||
|
| |||||||
3,429,460 | ||||||||
Diversified Financial Services – 0.6% |
| |||||||
East Resources Acquisition Co.(1) | 152,130 | 1,534,992 | ||||||
|
| |||||||
1,534,992 | ||||||||
Diversified Telecommunication Services – 0.8% |
| |||||||
Anterix, Inc.(1) | 50,639 | 2,079,744 | ||||||
|
| |||||||
2,079,744 | ||||||||
Electric Utilities – 1.2% |
| |||||||
Portland General Electric Co. | 61,904 | 2,991,820 | ||||||
|
| |||||||
2,991,820 |
June 30, 2022 (unaudited) | Shares | Value | ||||||
Electrical Equipment – 0.9% |
| |||||||
EnerSys | 41,635 | $ | 2,454,800 | |||||
|
| |||||||
2,454,800 | ||||||||
Electronic Equipment, Instruments & Components – 2.7% |
| |||||||
Advanced Energy Industries, Inc. | 35,092 | 2,561,014 | ||||||
Itron, Inc.(1) | 58,342 | 2,883,845 | ||||||
nLight, Inc.(1) | 151,622 | 1,549,577 | ||||||
|
| |||||||
6,994,436 | ||||||||
Energy Equipment & Services – 1.3% |
| |||||||
Helmerich & Payne, Inc. | 80,994 | 3,487,602 | ||||||
|
| |||||||
3,487,602 | ||||||||
Entertainment – 0.5% |
| |||||||
PLAYSTUDIOS, Inc. (1)(2) | 325,000 | 1,391,000 | ||||||
PLAYSTUDIOS, Inc. (1) | 5,681 | 24,315 | ||||||
|
| |||||||
1,415,315 | ||||||||
Equity Real Estate Investment Trusts (REITs) – 5.8% |
| |||||||
Corporate Office Properties Trust | 129,334 | 3,387,257 | ||||||
Kite Realty Group Trust | 177,348 | 3,066,347 | ||||||
LXP Industrial Trust | 224,778 | 2,414,116 | ||||||
Physicians Realty Trust | 198,524 | 3,464,244 | ||||||
RLJ Lodging Trust | 263,383 | 2,905,114 | ||||||
|
| |||||||
15,237,078 | ||||||||
Food & Staples Retailing – 0.9% |
| |||||||
Sprouts Farmers Market, Inc.(1) | 94,407 | 2,390,385 | ||||||
|
| |||||||
2,390,385 | ||||||||
Food Products – 2.0% |
| |||||||
Sovos Brands, Inc.(1) | 174,193 | 2,764,443 | ||||||
Utz Brands, Inc. | 178,304 | 2,464,161 | ||||||
|
| |||||||
5,228,604 | ||||||||
Health Care Equipment & Supplies – 3.0% |
| |||||||
Lantheus Holdings, Inc.(1) | 51,844 | 3,423,259 | ||||||
Novocure Ltd.(1) | 15,467 | 1,074,957 | ||||||
Omnicell, Inc.(1) | 26,159 | 2,975,586 | ||||||
Quotient Ltd.(1) | 868,186 | 208,365 | ||||||
|
| |||||||
7,682,167 | ||||||||
Health Care Providers & Services – 4.5% |
| |||||||
Acadia Healthcare Co., Inc.(1) | 44,405 | 3,003,110 | ||||||
CareMax, Inc.(1)(2) | 213,620 | 775,441 | ||||||
CareMax, Inc.(1) | 71,458 | 259,392 | ||||||
HealthEquity, Inc.(1) | 68,382 | 4,197,971 | ||||||
R1 RCM, Inc.(1) | 170,347 | 3,570,473 | ||||||
|
| |||||||
11,806,387 | ||||||||
Health Care Technology – 0.5% |
| |||||||
Health Catalyst, Inc.(1) | 98,054 | 1,420,802 | ||||||
|
| |||||||
1,420,802 | ||||||||
Hotels, Restaurants & Leisure – 2.0% |
| |||||||
Bloomin’ Brands, Inc. | 170,300 | 2,830,386 | ||||||
Everi Holdings, Inc.(1) | 150,648 | 2,457,069 | ||||||
|
| |||||||
5,287,455 |
The accompanying notes are an integral part of these financial statements. | 3 |
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2022 (unaudited) | Shares | Value | ||||||
Household Durables – 2.1% |
| |||||||
Century Communities, Inc. | 120,338 | $ | 5,411,600 | |||||
|
| |||||||
5,411,600 | ||||||||
Independent Power and Renewable Electricity Producers – 1.2% |
| |||||||
Sunnova Energy International, Inc.(1) | 173,409 | 3,195,928 | ||||||
|
| |||||||
3,195,928 | ||||||||
Insurance – 2.2% |
| |||||||
Assured Guaranty Ltd. | 58,505 | 3,263,994 | ||||||
BRP Group, Inc., Class A(1) | 98,285 | 2,373,583 | ||||||
|
| |||||||
5,637,577 | ||||||||
Internet & Direct Marketing Retail – 0.1% |
| |||||||
ThredUp, Inc., Class A(1) | 139,045 | 347,612 | ||||||
|
| |||||||
347,612 | ||||||||
IT Services – 1.9% |
| |||||||
Euronet Worldwide, Inc.(1) | 24,600 | 2,474,514 | ||||||
Thoughtworks Holding, Inc.(1) | 178,721 | 2,521,753 | ||||||
|
| |||||||
4,996,267 | ||||||||
Leisure Products – 1.3% |
| |||||||
Solo Brands, Inc., Class A(1) | 205,842 | 835,718 | ||||||
Vista Outdoor, Inc.(1) | 91,683 | 2,557,956 | ||||||
|
| |||||||
3,393,674 | ||||||||
Life Sciences Tools & Services – 1.3% |
| |||||||
NanoString Technologies, Inc.(1) | 48,583 | 617,004 | ||||||
Syneos Health, Inc.(1) | 36,822 | 2,639,401 | ||||||
|
| |||||||
3,256,405 | ||||||||
Machinery – 2.7% |
| |||||||
Altra Industrial Motion Corp. | 106,227 | 3,744,502 | ||||||
Hillman Solutions Corp.(1) | 388,275 | 3,354,696 | ||||||
|
| |||||||
7,099,198 | ||||||||
Media – 3.3% |
| |||||||
Advantage Solutions, Inc.(1) | 197,580 | 750,804 | ||||||
Advantage Solutions, Inc.(1)(2) | 269,628 | 1,024,587 | ||||||
Gray Television, Inc. | 253,716 | 4,285,263 | ||||||
Integral Ad Science Holding Corp.(1) | 259,113 | 2,572,992 | ||||||
|
| |||||||
8,633,646 | ||||||||
Metals & Mining – 2.6% |
| |||||||
Commercial Metals Co. | 91,166 | 3,017,595 | ||||||
Constellium SE(1) | 153,244 | 2,024,353 | ||||||
MP Materials Corp.(1) | 49,876 | 1,600,022 | ||||||
|
| |||||||
6,641,970 | ||||||||
Mortgage Real Estate Investment Trusts (REITs) – 0.8% |
| |||||||
Redwood Trust, Inc. | 266,758 | 2,056,704 | ||||||
|
| |||||||
2,056,704 | ||||||||
Multi-Utilities – 1.7% |
| |||||||
Black Hills Corp. | 60,959 | 4,435,986 | ||||||
|
| |||||||
4,435,986 | ||||||||
Oil, Gas & Consumable Fuels – 5.2% |
| |||||||
Brigham Minerals, Inc., Class A | 123,369 | 3,038,578 | ||||||
CNX Resources Corp.(1) | 188,914 | 3,109,524 | ||||||
HF Sinclair Corp. | 85,048 | 3,840,768 | ||||||
June 30, 2022 (unaudited) | Shares | Value | ||||||
Oil, Gas & Consumable Fuels (continued) |
| |||||||
Magnolia Oil & Gas Corp., Class A | 171,745 | $ | 3,604,928 | |||||
|
| |||||||
13,593,798 | ||||||||
Pharmaceuticals – 0.9% |
| |||||||
Intra-Cellular Therapies, Inc.(1) | 41,271 | 2,355,749 | ||||||
|
| |||||||
2,355,749 | ||||||||
Professional Services – 3.0% |
| |||||||
ICF International, Inc. | 27,894 | 2,649,930 | ||||||
Korn Ferry | 48,361 | 2,805,905 | ||||||
Sterling Check Corp.(1) | 148,623 | 2,424,041 | ||||||
|
| |||||||
7,879,876 | ||||||||
Road & Rail – 1.1% |
| |||||||
Marten Transport Ltd. | 165,789 | 2,788,571 | ||||||
|
| |||||||
2,788,571 | ||||||||
Semiconductors & Semiconductor Equipment – 2.8% |
| |||||||
Semtech Corp.(1) | 64,077 | 3,522,312 | ||||||
SMART Global Holdings, Inc.(1) | 226,875 | 3,713,944 | ||||||
|
| |||||||
7,236,256 | ||||||||
Software – 4.4% |
| |||||||
CommVault Systems, Inc.(1) | 62,425 | 3,926,532 | ||||||
NCR Corp.(1) | 112,882 | 3,511,759 | ||||||
Rapid7, Inc.(1) | 33,534 | 2,240,071 | ||||||
WalkMe Ltd.(1) | 183,690 | 1,860,780 | ||||||
|
| |||||||
11,539,142 | ||||||||
Specialty Retail – 5.0% |
| |||||||
Group 1 Automotive, Inc. | 17,829 | 3,027,364 | ||||||
Murphy USA, Inc. | 24,679 | 5,746,999 | ||||||
Petco Health & Wellness Co., Inc.(1) | 171,056 | 2,521,365 | ||||||
Urban Outfitters, Inc.(1) | 87,982 | 1,641,744 | ||||||
|
| |||||||
12,937,472 | ||||||||
Thrifts & Mortgage Finance – 2.5% |
| |||||||
NMI Holdings, Inc., Class A(1) | 187,394 | 3,120,110 | ||||||
WSFS Financial Corp. | 81,386 | 3,262,765 | ||||||
|
| |||||||
6,382,875 | ||||||||
Trading Companies & Distributors – 5.0% |
| |||||||
Custom Truck One Source, Inc.(1)(2) | 342,859 | 1,920,010 | ||||||
Custom Truck One Source, Inc.(1) | 85,458 | 478,565 | ||||||
GATX Corp. | 33,901 | 3,192,118 | ||||||
Rush Enterprises, Inc., Class A | 67,560 | 3,256,392 | ||||||
Textainer Group Holdings Ltd. | 149,940 | 4,109,856 | ||||||
|
| |||||||
12,956,941 | ||||||||
Total Common Stocks (Cost $267,329,607) |
| 256,605,393 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 1.7% |
| |||||||
Repurchase Agreements – 1.7% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $4,262,479, due 7/1/2022(3) | $ | 4,262,450 | $ | 4,262,450 | ||||
Total Repurchase Agreements (Cost $4,262,450) | 4,262,450 | |||||||
Total Investments – 100.1% (Cost $271,592,057) | 260,867,843 | |||||||
Liabilities in excess of other assets – (0.1)% |
| (134,090 | ) | |||||
Total Net Assets – 100.0% | $ | 260,733,753 |
(1) | Non–income–producing security. |
(2) | Security is restricted. Acquired through a private placement transaction exempt from registration under the Securities Act of 1933. May be subject to legal or contractual restrictions on resale. At June 30, 2022, the aggregate market value of these securities amounted to $5,111,038, representing 2.0% of net assets. |
(3) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 4,352,500 | $ | 4,347,738 |
Legend:
ADR — American Depositary Receipt
The following is a summary of the inputs used as of June 30, 2022 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 | $ | 256,605,393 | $ | — | $ | — | $ | 256,605,393 | ||||||||
Repurchase Agreements | — | 4,262,450 | — | 4,262,450 | ||||||||||||
Total | $ | 256,605,393 | $ | 4,262,450 | $ | — | $ | 260,867,843 |
The accompanying notes are an integral part of these financial statements. | 5 |
FINANCIAL INFORMATION — GUARDIAN SMALL CAP CORE VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 1,561,526 | ||
Interest | 743 | |||
|
| |||
Total Investment Income | 1,562,269 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 953,095 | |||
Distribution fees | 345,324 | |||
Professional fees | 32,558 | |||
Trustees’ and officers’ fees | 30,495 | |||
Administrative fees | 21,135 | |||
Custodian and accounting fees | 20,105 | |||
Transfer agent fees | 7,215 | |||
Shareholder reports | 6,034 | |||
Other expenses | 7,407 | |||
|
| |||
Total Expenses | 1,423,368 | |||
|
| |||
Net Investment Income/(Loss) | 138,901 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | ||||
Net realized gain/(loss) from investments | 6,497,794 | |||
Net change in unrealized appreciation/(depreciation) on investments | (69,745,700 | ) | ||
|
| |||
Net Loss on Investments | (63,247,906 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (63,109,005) | ||
|
| |||
6 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN SMALL CAP CORE VIP FUND
The accompanying notes are an integral part of these financial statements. | 7 |
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) | |||||||||||||||||||
Six Months Ended 6/30/22 | $ | 13.42 | $ | 0.01 | $ | (2.78 | ) | $ | (2.77 | ) | $ | 10.65 | (20.64)% | (4) | ||||||||||
Year Ended 12/31/21 | 11.40 | 0.00 | (5) | 2.02 | 2.02 | 13.42 | 17.72% | |||||||||||||||||
Year Ended 12/31/20 | 11.13 | 0.05 | 0.22 | 0.27 | 11.40 | 2.43% | ||||||||||||||||||
Period Ended 12/31/19(6) | 10.00 | 0.01 | 1.12 | 1.13 | 11.13 | 11.30% | (4) |
8 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN SMALL CAP CORE VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income to Average Net Assets(3) | Gross Ratio of Net Investment Income to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 260,734 | 1.03% | (4) | 1.03% | (4) | 0.10% | (4) | 0.10% | (4) | 26% | (4) | |||||||||||
284,144 | 1.04% | 1.04% | 0.01% | 0.01% | 45% | |||||||||||||||||
337,527 | 1.05% | 1.05% | 0.53% | 0.53% | 69% | |||||||||||||||||
310,451 | 1.01% | (4) | 1.09% | (4) | 0.57% | (4) | 0.49% | (4) | 98% | (4) |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers and expense limitations. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Rounds to $0.00 per share. |
(6) | Commenced operations on October 21, 2019. |
The accompanying notes are an integral part of these financial statements. | 9 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Small Cap Core VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks capital appreciation.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services — Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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”). 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.
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 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
Various inputs are used in determining the valuation of the Fund’s investments. These inputs are summarized in three broad levels listed below.
• | Level 1 — unadjusted inputs using quoted prices in active markets for identical investments. |
• | Level 2 — other significant observable inputs, including, but not limited to, quoted prices for similar investments, inputs other than quoted prices that are observable for investments (such as interest rates, prepayment speeds, credit risks, price below current market value, etc.) or other market corroborated inputs. |
• | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input; both individually and in aggregate, that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by the Trust. The Trust considers observable data to be that market data which is readily available, regularly distributed or updated, reliable and verifiable, and provided by independent sources that are actively involved in the relevant market. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Changes in valuation techniques may result in transfers into or out of a financial instrument’s assigned level within the hierarchy.
The FASB requires reporting entities to make disclosures about purchases, sales, issuances and settlements of Level 3 securities on a gross basis. For the six months ended June 30, 2022, 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, 2022 is included in the Schedule of Investments.
Investments Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include active listed equities. Investments that trade in markets that are not
considered to be active, but are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. These include certain U.S. government and sovereign obligations, private investment in public equity, most government agency securities, investment-grade corporate bonds, certain mortgage products, state, municipal and provincial obligations, and certain foreign equity securities, including securities whose prices may have been affected by events occurring after the close of trading on their principal exchange or market and, as a result, whose values are determined by a pricing service as described above, or securities whose values are otherwise determined using fair valuation methods approved by the Fund’s Board of Trustees.
Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. Level 3 investments include, among others, private placement securities. When observable prices are not available for these securities, the Trust uses one or more valuation techniques for which sufficient and reliable data is available. The inputs used by the Trust in estimating the value of Level 3 investments include, for example, the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations, and other transactions across the capital structure. Level 3 investments may also be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the Trust in the absence of market information. Assumptions used by the Trust due to the lack of observable inputs may significantly impact the resulting fair value and therefore the Fund’s results of operations. As of June 30, 2022, 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, 2022, the Fund did not hold any derivatives.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or
11 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
c. Foreign Currency Translation The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. The market value of investment securities and other assets and liabilities are translated at the exchange rate as of the valuation date. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rates in effect on the dates of the respective transactions. The Fund does not isolate the portion of the fluctuations on investments resulting from changes in foreign currency exchange rates from the fluctuations in market prices of investments held. Such fluctuations are included in the Net change in net realized and unrealized gain/(loss) from investments on the Statement of Operations.
Reported realized foreign currency gains and losses arise from the disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. These reported realized foreign currency gains and losses, if any, are included in Net realized gain/(loss) from foreign currency transactions on the Statement of Operations. Unrealized foreign currency gains and losses arise from changes (due to changes in exchange rates) in the value of foreign currency and other assets and liabilities denominated in foreign currencies, which are held at period end, if any, and are included in Net change in unrealized appreciation/(depreciation) on translation of assets and liabilities in foreign currencies on the Statement of Operations.
d. Foreign Capital Gains Tax The Fund may be subject to foreign taxes on income, gains on investments or currency purchases/repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest.
e. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the
ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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, 2023 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, and 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, 2022, Park Avenue did not waive any fees or pay any Fund expenses.
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
12 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
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, 2022, the Fund paid distribution fees in the amount of $345,324 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 $109,352,870 and $71,843,172, respectively, for the six months ended June 30, 2022. During the six months ended June 30, 2022, there were no purchases or sales of U.S. government securities.
b. Foreign Securities Foreign securities investments involve special risks and considerations not typically associated with U.S. investments. These risks include, but are not limited to, currency risk; adverse political, regulatory, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign issuers may be less liquid and their prices more volatile than those of comparable U.S. issuers.
c. Industry or Sector Concentration In its normal course of business, the Fund may invest a significant portion of its assets in companies within a limited number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
d. Repurchase Agreements The Fund may invest in repurchase agreements to maintain liquidity and earn income over periods of time as short as overnight. The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked to market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral (although it may be prevented or delayed from doing so in certain circumstances) and may be required to claim any resulting loss against the seller. Park Avenue monitors the creditworthiness of the seller with which the Fund enters into repurchase agreements.
e. Restricted and Illiquid Securities A restricted security cannot be resold to the general public without prior registration under the Securities Act of 1933, as amended (except pursuant to an applicable exemption). The values of these securities may be highly volatile. If the security is subsequently registered and resold, the issuer would typically bear the expense of all registrations at no cost to the Fund. Restricted and illiquid securities are valued according to the policies and procedures adopted by the Trust’s Board of Trustees and are noted, if any, in the Fund’s Schedule of
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
Investments. As of June 30, 2022, the Fund held four restricted securities, and did not hold any illiquid securities.
f. Private Investment in Public Equity A Fund may invest in securities that are purchased in private investment in public equity (“PIPE”) transactions. PIPEs are an accredited investor’s purchase of stock in a public company at a discount to the current market value per share for the purpose of raising capital and may also issue warrants enabling a Fund to purchase additional shares at a price equal to or at a premium to current market prices. Securities acquired by a Fund in such transactions are subject to resale restrictions under securities laws. Because the shares issued in a PIPE transaction are “restricted securities” under the federal securities laws, a Fund cannot freely trade the securities until the issuer files a registration statement to provide for the public resale of the shares, which typically occurs after the completion of the PIPE transaction and the public registration process with the SEC is completed, a period which can last many months. While issuers in PIPE transactions typically agree that they will register the securities for resale by a Fund after the transaction closes (thereby removing resale restrictions), there is no guarantee that the securities will in fact be registered, or that the registration will be maintained. In addition, a PIPE issuer may require a Fund to agree to other resale restrictions as a condition to the sale of such securities. Thus, a Fund’s ability to resell securities acquired in PIPE transactions may be limited, and even though a public market may exist for such securities, the securities held by a Fund may be deemed illiquid.
g. Special Purpose Acquisition Companies A Fund may invest in stock, warrants, rights and other securities of special purpose acquisition companies (“SPACs”) or similar special purpose entities in a private placement transaction or as part of a public offering. A SPAC, sometimes referred to as “blank check company,” is a private or publicly traded company that raises investment capital for the purpose of acquiring or merging with an existing company. The shares of a SPAC are typically issued in “units” that include one share of common stock and one right or warrant (or partial right or warrant) conveying the right to purchase additional shares of common stock. At a specified time, the rights and warrants may be separated from the common stock at the election of the holder, after which time each security typically is freely tradeable. Private companies can combine with a SPAC to go public by taking the SPAC’s place on an exchange as an alternative to making an initial public offering. Additionally, a Fund may purchase units or shares of SPACs that have completed
an IPO on a secondary market, during a SPAC’s IPO or through a PIPE offering. PIPE transactions involve the purchase of securities typically at a discount to the market price of the company’s common stock and may be subject to transfer restrictions, which typically would make them less liquid than equity issued through a public offering. Investments in SPACs also have risks peculiar to the SPAC structure and investment process. Until an acquisition or merger is completed, a SPAC generally invests its assets, less a portion retained to cover expenses, in U.S. government securities, money market securities and cash and does not typically pay dividends in respect of its common stock. To the extent a SPAC is invested in cash or similar securities, this may impact a Fund’s ability to meet its investment objective. SPAC shareholders may not approve any proposed acquisition or merger, or an acquisition or merger, once effected, may prove unsuccessful. If an acquisition or merger is not completed within a pre-established period (typically, two years), the remainder of funds invested in the SPAC are returned to its shareholders. While a SPAC investor may receive both stock in the SPAC, as well as warrants or other rights at no marginal cost, those warrants or other rights may expire worthless or may be repurchased or retired by the SPAC at an unfavorable price. A Fund may also be delayed in receiving any redemption or liquidation proceeds from a SPAC to which it is entitled. An investment in a SPAC is typically subject to a higher risk of dilution by additional later offerings of interests in the SPAC or by other investors exercising existing rights to purchase shares of the SPAC. Moreover, interests in SPACs may be illiquid and/or be subject to restrictions on resale, which may remain for an extended time, and may only be traded in the over-the-counter market.
6. Temporary Borrowings
The Fund, with other funds managed by Park Avenue, is party to a credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN SMALL CAP CORE VIP FUND
Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting
supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management and Sub-advisory Agreements
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including
the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio
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SUPPLEMENTAL INFORMATION (UNAUDITED)
managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers 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.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile
having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted |
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that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that |
would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board |
22 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the |
1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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.
23 |
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 |
This Page Intentionally Left Blank
25 |
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
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian Total Return Bond VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian Total Return Bond VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 11 | |||
Statement of Operations | 11 | |||
Statements of Changes in Net Assets | 12 | |||
Financial Highlights | 14 | |||
Notes to Financial Statements | 16 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 24 | |||
Recent Rulemaking | 25 | |||
Approval of Investment Management Agreement | 26 | |||
Portfolio Holdings and Proxy Voting Procedures | 32 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN TOTAL RETURN BOND VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $292,246,407 |
Bond Sector Allocation1 As of June 30, 2022 |
Bond Quality Allocation2 As of June 30, 2022 |
1 |
GUARDIAN TOTAL RETURN BOND VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 2.500% | 4/30/2024 | 7.53% | |||||||||
U.S. Treasury Note | 1.875% | 2/15/2032 | 6.07% | |||||||||
Vanguard Short-Term Inflation-Protected Securities ETF | — | — | 4.63% | |||||||||
Federal National Mortgage Association | 3.000% | 5/1/2052 | 3.15% | |||||||||
U.S. Treasury Bond | 2.250% | 8/15/2049 | 1.66% | |||||||||
Federal National Mortgage Association | 3.500% | 5/1/2052 | 1.56% | |||||||||
Federal National Mortgage Association | 3.500% | 6/1/2052 | 1.51% | |||||||||
U.S. Treasury Note | 0.250% | 10/31/2025 | 1.40% | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2024 | 1.37% | |||||||||
Federal Home Loan Mortgage Corp. | 3.500% | 6/1/2052 | 1.31% | |||||||||
Total | 30.19% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 886.00 | $3.69 | 0.79% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,020.88 | $3.96 | 0.79% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
SCHEDULE OF INVESTMENTS – GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 13.6% |
| |||||||
Federal Home Loan Mortgage Corp. | $ | 2,258,087 | $ | 2,104,745 | ||||
3.50% due 6/1/2052 | 3,980,435 | 3,830,768 | ||||||
4.00% due 6/1/2052 | 746,681 | 736,789 | ||||||
Federal National Mortgage Association | 9,862,343 | 9,190,513 | ||||||
3.50% due 5/1/2052 | 4,741,497 | 4,563,937 | ||||||
3.50% due 6/1/2052 | 4,582,085 | 4,409,674 | ||||||
4.00% due 6/1/2052 | 3,562,472 | 3,515,273 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 2,900,000 | 2,883,209 | ||||||
K069 A2 | 2,650,000 | 2,625,397 | ||||||
K073 A2 | 1,325,000 | 1,325,916 | ||||||
K075 A2 | 2,915,000 | 2,951,801 | ||||||
K103 A2 | 1,573,000 | 1,494,535 | ||||||
Total Agency Mortgage–Backed Securities (Cost $40,166,842) |
| 39,632,557 | ||||||
Asset–Backed Securities – 15.6% |
| |||||||
American Express Credit Account Master Trust | 2,306,000 | 2,303,866 | ||||||
American Tower Trust I | 1,500,000 | 1,493,543 | ||||||
AmeriCredit Automobile Receivables Trust | 1,340,379 | 1,338,241 | ||||||
Ares XXXIIR CLO Ltd. | 1,200,000 | 1,118,520 | ||||||
Ares XXXIV CLO Ltd. | 450,000 | 428,473 | ||||||
Battalion CLO XX Ltd. | 2,000,000 | 1,784,000 | ||||||
BlueMountain CLO Ltd. | 800,000 | 761,898 | ||||||
Carlyle U.S. CLO Ltd. | 3,000,000 | 2,803,590 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset-Backed Securities (continued) |
| |||||||
CarMax Auto Owner Trust | $ | 1,400,000 | $ | 1,308,220 | ||||
CIFC Funding Ltd. | 800,000 | 764,880 | ||||||
DB Master Finance LLC | 1,044,750 | 889,099 | ||||||
Dell Equipment Finance Trust | 1,378,934 | 1,362,236 | ||||||
Elmwood CLO IX Ltd. | 3,000,000 | 2,806,842 | ||||||
Ford Credit Auto Owner Trust | 1,100,000 | 1,052,037 | ||||||
Ford Credit Floorplan Master Owner Trust | 1,500,000 | 1,377,161 | ||||||
Ford Credit Floorplan Master Owner Trust | 665,000 | 664,674 | ||||||
GLS Auto Receivables Issuer Trust | 1,098,850 | 1,098,541 | ||||||
GM Financial Consumer Automobile Receivables Trust | 1,460,903 | 1,427,303 | ||||||
Golden Credit Card Trust | 1,590,000 | 1,592,054 | ||||||
ICG U.S. CLO Ltd. | 1,300,000 | 1,251,124 | ||||||
Master Credit Card Trust | 1,590,000 | 1,508,610 | ||||||
Neuberger Berman CLO XVI-S Ltd. | 1,000,000 | 947,068 | ||||||
Neuberger Berman CLO XVII Ltd. | 1,100,000 | 1,053,580 | ||||||
Octagon Investment Partners 50 Ltd. | 1,100,000 | 1,019,366 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS – GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset-Backed Securities (continued) |
| |||||||
Octagon Loan Funding Ltd. | $ | 3,200,000 | $ | 3,032,000 | ||||
OHA Credit Funding 3 Ltd. | 3,000,000 | 2,808,960 | ||||||
Oscar U.S. Funding XIV LLC | 1,350,000 | 1,326,158 | ||||||
Riserva CLO Ltd. | 3,000,000 | 2,747,700 | ||||||
Santander Drive Auto Receivables Trust | 1,342,837 | 1,337,480 | ||||||
Synchrony Card Funding LLC | 1,190,000 | 1,181,861 | ||||||
Voya CLO Ltd. | 955,000 | 912,121 | ||||||
Total Asset–Backed Securities (Cost $47,431,902) |
| 45,501,206 | ||||||
Corporate Bonds & Notes – 30.2% |
| |||||||
Aerospace & Defense – 0.5% |
| |||||||
Boeing Co. | 1,150,000 | 1,103,299 | ||||||
Northrop Grumman Corp. | 350,000 | 369,649 | ||||||
|
| |||||||
1,472,948 | ||||||||
Agriculture – 0.7% |
| |||||||
Cargill, Inc. | 2,300,000 | 1,917,303 | ||||||
|
| |||||||
1,917,303 | ||||||||
Apparel – 0.2% |
| |||||||
NIKE, Inc. | 750,000 | 688,635 | ||||||
|
| |||||||
688,635 | ||||||||
Beverages – 0.6% |
| |||||||
Anheuser-Busch InBev Worldwide, Inc. | 750,000 | 702,810 | ||||||
PepsiCo, Inc. | 1,400,000 | 1,193,850 | ||||||
|
| |||||||
1,896,660 | ||||||||
Building Materials – 0.3% |
| |||||||
Cornerstone Building Brands, Inc. | 1,500,000 | 966,120 | ||||||
|
| |||||||
966,120 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Commercial Banks – 5.6% |
| |||||||
ASB Bank Ltd. | $ | 1,900,000 | $ | 1,578,786 | ||||
Bank of America Corp. | 3,900,000 | 3,750,552 | ||||||
Credit Suisse Group AG | 800,000 | 791,272 | ||||||
Goldman Sachs Group, Inc. | 1,200,000 | 1,151,844 | ||||||
4.387% (4.387% fixed rate until 6/15/2026; SOFR + 1.51% thereafter) | 600,000 | 592,014 | ||||||
Huntington National Bank | 1,400,000 | 1,393,854 | ||||||
JPMorgan Chase & Co. | 1,700,000 | 1,639,378 | ||||||
Morgan Stanley | 3,000,000 | 2,851,740 | ||||||
Toronto-Dominion Bank | 1,500,000 | 1,484,265 | ||||||
UBS Group AG | 1,000,000 | 989,380 | ||||||
|
| |||||||
16,223,085 | ||||||||
Commercial Services – 0.1% |
| |||||||
Team Health Holdings, Inc. | 500,000 | 352,290 | ||||||
|
| |||||||
352,290 | ||||||||
Cosmetics & Personal Care – 0.8% |
| |||||||
Estee Lauder Cos., Inc. | 1,150,000 | 1,031,814 | ||||||
Procter & Gamble Co. | 1,500,000 | 1,415,640 | ||||||
|
| |||||||
2,447,454 |
The accompanying notes are an integral part of these financial statements. | 5 |
SCHEDULE OF INVESTMENTS – GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Diversified Financial Services – 0.3% |
| |||||||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | $ | 1,100,000 | $ | 957,605 | ||||
|
| |||||||
957,605 | ||||||||
Electric – 1.0% |
| |||||||
Ameren Illinois Co. | 810,000 | 782,914 | ||||||
CenterPoint Energy Houston Electric LLC | 450,000 | 339,165 | ||||||
Duke Energy Corp. | 1,250,000 | 942,812 | ||||||
NextEra Energy Capital Holdings, Inc. | 500,000 | 512,235 | ||||||
Wisconsin Public Service Corp. | 500,000 | 363,020 | ||||||
|
| |||||||
2,940,146 | ||||||||
Electronics – 0.6% |
| |||||||
Honeywell International, Inc. | 1,400,000 | 1,158,388 | ||||||
2.70% due 8/15/2029 | 500,000 | 459,455 | ||||||
|
| |||||||
1,617,843 | ||||||||
Entertainment – 0.8% |
| |||||||
Affinity Gaming | 1,500,000 | 1,261,215 | ||||||
Magallanes, Inc. | 750,000 | 670,042 | ||||||
Premier Entertainment Sub LLC / Premier Entertainment Finance Corp. | 200,000 | 142,724 | ||||||
5.875% due 9/1/2031(3) | 400,000 | 277,468 | ||||||
|
| |||||||
2,351,449 | ||||||||
Environmental Control – 0.7% |
| |||||||
Waste Management, Inc. | 2,450,000 | 1,951,057 | ||||||
|
| |||||||
1,951,057 | ||||||||
Food – 0.6% |
| |||||||
Kraft Heinz Foods Co. | 900,000 | 831,699 | ||||||
Kroger Co. | 1,150,000 | 914,503 | ||||||
|
| |||||||
1,746,202 | ||||||||
Healthcare-Products – 0.5% |
| |||||||
Abbott Laboratories | 1,400,000 | 1,484,756 | ||||||
|
| |||||||
1,484,756 | ||||||||
Healthcare-Services – 0.2% |
| |||||||
UnitedHealth Group, Inc. | 600,000 | 600,144 | ||||||
|
| |||||||
600,144 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Housewares – 0.3% |
| |||||||
SWF Escrow Issuer Corp. | $ | 1,250,000 | $ | 873,075 | ||||
|
| |||||||
873,075 | ||||||||
Insurance – 2.1% |
| |||||||
Athene Holding Ltd. | 950,000 | 803,976 | ||||||
Chubb INA Holdings, Inc. | 2,100,000 | 1,678,614 | ||||||
CNA Financial Corp. | 1,305,000 | 1,050,290 | ||||||
Hartford Financial Services Group, Inc. | 1,200,000 | 1,070,316 | ||||||
MetLife, Inc. | 1,600,000 | 1,613,184 | ||||||
|
| |||||||
6,216,380 | ||||||||
Internet – 0.5% |
| |||||||
Amazon.com, Inc. | 1,500,000 | 1,331,160 | ||||||
|
| |||||||
1,331,160 | ||||||||
Leisure Time – 0.5% |
| |||||||
Viking Cruises Ltd. | 1,365,000 | 1,400,408 | ||||||
|
| |||||||
1,400,408 | ||||||||
Machinery-Construction & Mining – 0.2% |
| |||||||
Caterpillar, Inc. | 500,000 | 453,690 | ||||||
|
| |||||||
453,690 | ||||||||
Machinery-Diversified – 0.9% |
| |||||||
John Deere Capital Corp. | 2,800,000 | 2,766,988 | ||||||
|
| |||||||
2,766,988 | ||||||||
Media – 0.7% |
| |||||||
Audacy Capital Corp. | 500,000 | 267,310 | ||||||
Charter Communications Operating LLC / Charter Communications Operating Capital | 400,000 | 329,184 | ||||||
3.90% due 6/1/2052 | 400,000 | 279,228 | ||||||
Sinclair Television Group, Inc. | 1,750,000 | 1,295,122 | ||||||
|
| |||||||
2,170,844 | ||||||||
Miscellaneous Manufacturing – 1.2% |
| |||||||
Parker-Hannifin Corp. | 2,800,000 | 2,785,356 | ||||||
4.50% due 9/15/2029 | 600,000 | 596,994 | ||||||
|
| |||||||
3,382,350 | ||||||||
Oil & Gas – 2.1% |
| |||||||
BP Capital Markets America, Inc. | 450,000 | 350,482 | ||||||
6 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS – GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Oil & Gas (continued) |
| |||||||
Cenovus Energy, Inc. | $ | 400,000 | $ | 331,296 | ||||
4.25% due 4/15/2027 | 320,000 | 313,984 | ||||||
CITGO Petroleum Corp. | 250,000 | 241,888 | ||||||
Hess Corp. | 3,300,000 | 3,218,358 | ||||||
Marathon Oil Corp. | 1,250,000 | 1,221,237 | ||||||
PBF Holding Co. LLC / PBF Finance Corp. | 250,000 | 211,878 | ||||||
9.25% due 5/15/2025(3) | 265,000 | 277,548 | ||||||
|
| |||||||
6,166,671 | ||||||||
Oil & Gas Services – 0.1% |
| |||||||
TechnipFMC PLC | 300,000 | 298,503 | ||||||
|
| |||||||
298,503 | ||||||||
Packaging & Containers – 0.1% |
| |||||||
WRKCo, Inc. | 450,000 | 379,139 | ||||||
|
| |||||||
379,139 | ||||||||
Pharmaceuticals – 1.5% |
| |||||||
AbbVie, Inc. | 600,000 | 531,822 | ||||||
Bausch Health Cos., Inc. | 190,000 | 98,922 | ||||||
Bristol Myers Squibb Co. | 2,100,000 | 1,927,653 | ||||||
Pfizer, Inc. | 750,000 | 627,360 | ||||||
3.45% due 3/15/2029 | 1,300,000 | 1,264,445 | ||||||
|
| |||||||
4,450,202 | ||||||||
Pipelines – 1.0% |
| |||||||
ONEOK, Inc. | 850,000 | 888,395 | ||||||
Targa Resources Partners LP / Targa Resources Partners Finance Corp. | 2,250,000 | 1,929,532 | ||||||
|
| |||||||
2,817,927 | ||||||||
Real Estate Investment Trusts (REITs) – 1.3% |
| |||||||
American Tower Corp. | 500,000 | 475,740 | ||||||
Essex Portfolio LP | 900,000 | 772,299 | ||||||
Mid-America Apartments LP | 800,000 | 763,568 | ||||||
Prologis LP | 700,000 | 605,913 | ||||||
Simon Property Group LP | 1,300,000 | 1,055,626 | ||||||
|
| |||||||
3,673,146 |
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Retail – 0.6% |
| |||||||
AutoZone, Inc. | $ | 1,000,000 | $ | 970,280 | ||||
O’Reilly Automotive, Inc. | 900,000 | 897,219 | ||||||
|
| |||||||
1,867,499 | ||||||||
Semiconductors – 1.2% |
| |||||||
Broadcom, Inc. | 550,000 | 497,937 | ||||||
Lam Research Corp. | 1,450,000 | 1,223,945 | ||||||
NVIDIA Corp. | 1,700,000 | 1,442,654 | ||||||
NXP BV / NXP Funding LLC / NXP USA, Inc. | 250,000 | 205,465 | ||||||
|
| |||||||
3,370,001 | ||||||||
Software – 0.4% |
| |||||||
Electronic Arts, Inc. | 730,000 | 593,607 | ||||||
Microsoft Corp. | 700,000 | 672,441 | ||||||
|
| |||||||
1,266,048 | ||||||||
Telecommunications – 1.5% |
| |||||||
T-Mobile USA, Inc. | 250,000 | 209,747 | ||||||
3.40% due 10/15/2052 | 200,000 | 147,694 | ||||||
Verizon Communications, Inc. | 2,750,000 | 2,281,262 | ||||||
Vodafone Group PLC | 1,200,000 | 1,193,184 | ||||||
4.875% due 6/19/2049 | 500,000 | 459,785 | ||||||
|
| |||||||
4,291,672 | ||||||||
Transportation – 0.5% |
| |||||||
Union Pacific Corp. | 900,000 | 800,352 | ||||||
3.50% due 2/14/2053 | 300,000 | 245,154 | ||||||
United Parcel Service, Inc. | 500,000 | 511,370 | ||||||
|
| |||||||
1,556,876 | ||||||||
Total Corporate Bonds & Notes (Cost $97,556,533) |
| 88,346,276 | ||||||
Non–Agency Mortgage–Backed Securities – 8.1% |
| |||||||
BANK | 1,413,000 | 1,258,597 | ||||||
BB-UBS Trust | 2,500,000 | 2,424,400 | ||||||
Citigroup Commercial Mortgage Trust | 1,330,000 | 1,321,848 | ||||||
2016-C3 AS | 1,125,000 | 1,052,614 | ||||||
The accompanying notes are an integral part of these financial statements. | 7 |
SCHEDULE OF INVESTMENTS – GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
Commercial Mortgage Trust | $ | 2,500,000 | $ | 2,490,854 | ||||
Freddie Mac STACR REMIC Trust | 880,000 | 846,173 | ||||||
Grace Trust | 1,100,000 | 895,891 | ||||||
GS Mortgage Securities Corp. II | 1,800,000 | 1,879,924 | ||||||
GS Mortgage Securities Trust | 750,000 | 749,981 | ||||||
Jackson Park Trust | 680,000 | 591,950 | ||||||
Life Mortgage Trust | 1,474,455 | 1,400,231 | ||||||
Morgan Stanley Capital I Trust | 750,000 | 655,080 | ||||||
NYC Commercial Mortgage Trust | 580,000 | 476,719 | ||||||
ONE Park Mortgage Trust | 500,000 | 471,486 | ||||||
SLG Office Trust | 1,800,000 | 1,532,019 | ||||||
Stack Infrastructure Issuer LLC | 1,250,000 | 1,117,924 | ||||||
Wells Fargo Commercial Mortgage Trust | 2,000,000 | 1,938,191 | ||||||
2021-SAVE A | 1,181,728 | 1,131,880 | ||||||
WFRBS Commercial Mortgage Trust | 1,500,000 | 1,487,524 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $25,893,110) |
| 23,723,286 | ||||||
U.S. Government Securities – 22.1% |
| |||||||
U.S. Treasury Bond | 5,900,000 | 4,840,766 | ||||||
U.S. Treasury Note | 4,500,000 | 4,100,274 | ||||||
0.625% due 5/15/2030 | 700,000 | 583,734 | ||||||
0.875% due 11/15/2030 | 2,200,000 | 1,857,281 | ||||||
1.25% due 5/31/2028 | 1,100,000 | 990,773 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
U.S. Government Securities (continued) |
| |||||||
1.50% due 9/30/2024 | $ | 4,150,000 | $ | 4,013,828 | ||||
1.625% due 5/15/2031 | 3,580,000 | 3,198,506 | ||||||
1.875% due 2/15/2032 | 19,570,000 | 17,729,197 | ||||||
2.25% due 3/31/2024 | 2,200,000 | 2,172,328 | ||||||
2.50% due 4/30/2024 | 22,200,000 | 22,008,352 | ||||||
2.75% due 4/30/2027 | 3,300,000 | 3,255,656 | ||||||
Total U.S. Government Securities (Cost $68,057,629) |
| 64,750,695 | ||||||
Shares | Value | |||||||
Exchange–Traded Funds – 4.6% |
| |||||||
Vanguard Short-Term | 270,000 | 13,532,400 | ||||||
Total Exchange–Traded Funds (Cost $13,720,900) |
| 13,532,400 | ||||||
Principal Amount | Value | |||||||
Short–Term Investments – 4.6% |
| |||||||
Repurchase Agreements – 4.6% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $13,335,560, due 7/1/2022(4) | $ | 13,335,471 | 13,335,471 | |||||
Total Repurchase Agreements (Cost $13,335,471) |
| 13,335,471 | ||||||
Total Investments(5) – 98.8% (Cost $306,162,387) |
| 288,821,891 | ||||||
Assets in excess of other liabilities(6) – 1.2% |
| 3,424,516 | ||||||
Total Net Assets – 100.0% |
| $ | 292,246,407 |
(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, 2022. |
(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, 2022, the aggregate market value of these securities amounted to $63,466,501, representing 21.7% 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. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 13,617,100 | $ | 13,602,203 |
(5) | Securities are segregated to cover anticipated or existing derivative positions or to be announced securities (TBA). |
8 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS – GUARDIAN TOTAL RETURN BOND VIP FUND
(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, 2022:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
U.S. 2-Year Treasury Note | September 2022 | 148 | Long | $ | 31,179,179 | $ | 31,082,313 | $ | (96,866 | ) | ||||||||||||||
U.S. 10-Year Treasury Note | September 2022 | 67 | Long | 7,935,389 | 7,941,594 | 6,205 | ||||||||||||||||||
U.S. Long Bond | September 2022 | 250 | Long | 35,021,279 | 34,656,250 | (365,029 | ) | |||||||||||||||||
U.S. Ultra Bond | September 2022 | 139 | Long | 21,669,096 | 21,453,781 | (215,315 | ) | |||||||||||||||||
Total |
| $ | 95,804,943 | $ | 95,133,938 | $ | (671,005 | ) | ||||||||||||||||
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||||||
U.S. 5-Year Treasury Note | September 2022 | 36 | Short | $ | (4,053,521 | ) | $ | (4,041,000 | ) | $ | 12,521 | |||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2022 | 328 | Short | (42,069,307 | ) | (41,779,000 | ) | 290,307 | ||||||||||||||||
Total |
| $ | (46,122,828 | ) | $ | (45,820,000 | ) | $ | 302,828 |
Centrally cleared credit default swap agreements — buy protection(7):
Reference Entity | Implied Credit Spread at 6/30/22(8) | Notional(9) | Maturity | (Pay)/ Receive Fixed Rate | Periodic Payment Frequency | Upfront Payments Made | Value | Unrealized Appreciation | ||||||||||||||||||||||||||||
CDX.NA.HY.S38 | 5.79% | USD | 23,166,000 | 6/20/2027 | (5.00 | )% | Quarterly | $ | (113,412 | ) | $ | 676,323 | $ | 789,735 |
(7) | When a credit event occurs as defined under the terms of the swap agreement, the Fund as a buyer of credit protection will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced obligation or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced obligation. |
(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
H15T1Y — 1-year Constant Maturity Treasury Rate
LIBOR — London Interbank Offered Rate
SOFR — Secured Overnight Financing Rate
USD — United States Dollar
The accompanying notes are an integral part of these financial statements. | 9 |
SCHEDULE OF INVESTMENTS – GUARDIAN TOTAL RETURN BOND VIP FUND
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 39,632,557 | $ | — | $ | 39,632,557 | ||||||||
Asset–Backed Securities | — | 45,501,206 | — | 45,501,206 | ||||||||||||
Corporate Bonds & Notes | — | 88,346,276 | — | 88,346,276 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 23,723,286 | — | 23,723,286 | ||||||||||||
U.S. Government Securities | — | 64,750,695 | — | 64,750,695 | ||||||||||||
Exchange–Traded Funds | 13,532,400 | — | — | 13,532,400 | ||||||||||||
Repurchase Agreements | — | 13,335,471 | — | 13,335,471 | ||||||||||||
Total | $ | 13,532,400 | $ | 275,289,491 | $ | — | $ | 288,821,891 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts |
| |||||||||||||||
Assets | $ | 309,033 | $ | — | $ | — | $ | 309,033 | ||||||||
Liabilities | (677,210 | ) | — | — | (677,210 | ) | ||||||||||
Swap Contracts |
| |||||||||||||||
Assets | — | 789,735 | — | 789,735 | ||||||||||||
Total | $ | (368,177 | ) | $ | 789,735 | $ | — | $ | 421,558 |
10 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 323,016 | ||
Interest | 4,280,858 | |||
|
| |||
Total Investment Income | 4,603,874 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 704,170 | |||
Distribution fees | 393,802 | |||
Professional fees | 40,426 | |||
Trustees’ and officers’ fees | 37,867 | |||
Custodian and accounting fees | 29,367 | |||
Administrative fees | 26,172 | |||
Transfer agent fees | 7,178 | |||
Shareholder reports | 6,671 | |||
Other expenses | 8,637 | |||
|
| |||
Total Expenses | 1,254,290 | |||
Less: Fees waived | (9,877 | ) | ||
|
| |||
Total Expenses, Net | 1,244,413 | |||
|
| |||
Net Investment Income/(Loss) | 3,359,461 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | (24,253,170 | ) | ||
Net realized gain/(loss) from futures contracts | (4,031,724 | ) | ||
Net realized gain/(loss) from swap contracts | 1,543,139 | |||
Net change in unrealized appreciation/(depreciation) on investments | (16,757,225 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 261,808 | |||
Net change in unrealized appreciation/(depreciation) on swap contracts | 1,042,840 | |||
|
| |||
Net Loss on Investments and Derivative Contracts | (42,194,332 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (38,834,871 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 11 |
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
12 | The accompanying notes are an integral part of these financial statements. |
This Page Intentionally Left Blank
13 |
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.
Financial Highlights Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/22 | $ | 10.61 | $ | 0.10 | $ | (1.31 | ) | $ | (1.21 | ) | $ | 9.40 | (11.40)% | (4) | ||||||||||
Year Ended 12/31/21 | 10.70 | 0.18 | (0.27 | ) | (0.09 | ) | 10.61 | (0.84)% | ||||||||||||||||
Year Ended 12/31/20 | 10.03 | 0.14 | 0.53 | 0.67 | 10.70 | 6.68% | ||||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.03 | 0.00 | (6) | 0.03 | 10.03 | 0.30% | (4) |
14 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN TOTAL RETURN BOND VIP FUND
Ratios/Supplemental Data | ||||||||||||||||||||||
Net Assets, End of Period (000s) | Net Ratio of Expenses to Average Net Assets(3) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income to Average Net Assets(3) | Gross Ratio of Net Investment Income to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 292,246 | 0.79% | (4) | 0.80% | (4) | 2.13% | (4) | 2.12% | (4) | 109% | (4) | |||||||||||
355,203 | 0.79% | 0.79% | 1.68% | 1.68% | 155% | |||||||||||||||||
333,391 | 0.79% | 0.81% | 1.40% | 1.38% | 112% | |||||||||||||||||
337,312 | 0.75% | (4) | 0.85% | (4) | 1.56% | (4) | 1.46% | (4) | 18% | (4) |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers and expense limitations. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
(6) | Rounds to $0.00 per share. |
The accompanying notes are an integral part of these financial statements. | 15 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian Total Return Bond VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks total return with an emphasis on current income as well as capital appreciation.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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.
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.
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”).
Exchange-traded financial futures and swap contracts are valued at the last settlement price on the market where they are primarily traded.
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.
16 |
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, 2022, 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, 2022 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, 2022, 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.
17 |
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, 2022, 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, 2022.
f. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. Interest income, which includes amortization/accretion of premium/discount, is determined using the interest income accrual method, and is accrued and recorded daily.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
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 0.45% 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. The Fund has no sub-adviser.
Park Avenue has contractually agreed through April 30, 2023 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 and 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, 2022, 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, 2022, the Fund paid distribution fees in the amount of $393,802 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, 2022, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 216,865,884 | $ | 119,327,694 | ||||
Sales | 316,871,165 | 47,912,792 |
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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
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, 2022, 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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
occurs will TIPS offer a higher real yield than a conventional Treasury bond of the same maturity.
i. LIBOR Replacement Risk The terms of many investments, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments, or the value or return on certain other fund investments. As a result, LIBOR may be relevant to, and directly affect, a Fund’s performance. In July 2017, the Chief Executive of the UK Financial Conduct Authority (the “FCA”) announced that the FCA would no longer persuade nor compel banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative, immediately after December 31, 2021, for all four non-U.S. dollar LIBORs (British Pound (“GBP”), Euro, Swiss Franc and Japanese Yen) and for one-week and two-month U.S. dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings, including three-month U.S. dollar LIBOR. In addition, in connection with supervisory guidance from regulators, some regulated entities will cease to enter into most new LIBOR contracts after January 1, 2022. Although a Fund may continue to invest in instruments that reference LIBOR or otherwise use LIBOR reference rates due to favorable liquidity or pricing, new LIBOR assets may no longer be available. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. Replacement rates that have been identified include the Secured Overnight Financing Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities, and the Sterling Overnight Index Average Rate (“SONIA”), which is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market, although other replacement rates could be adopted by market participants. At this time, it is not possible to predict the effect of the establishment of SOFR, SONIA or any other replacement rates or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as
LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into U.S. Treasury futures contracts for the six months ended June 30, 2022 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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
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, 2022, 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 Contracts | |||||||
Asset Derivatives | ||||||||
Futures Contracts1 | $ | 309,033 | $ | — | ||||
Swap Contracts2 | — | 789,735 | ||||||
Liability Derivatives | ||||||||
Futures Contracts1 | $ | (677,210 | ) | $ | — |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
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 Statement of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2022 were as follows:
Interest Rate Contracts | Credit Contracts | |||||||
Net Realized Gain/(Loss) | ||||||||
Futures Contracts1 | $ | (4,031,724 | ) | $ | — | |||
Swap Contracts2 | — | 1,543,139 | ||||||
Net Change in Unrealized Appreciation/(Depreciation) | ||||||||
Futures Contracts3 | $ | 261,808 | $ | — | ||||
Swap Contracts4 | — | 1,042,840 |
Interest Rate Contracts | Credit Contracts | |||||||
Average Number of Notional Amounts | ||||||||
Futures Contracts5 | 1,097 | — | ||||||
Swap Contracts — Buy/Sell Protection | $ | — | $ | 34,566,571 |
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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of (a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
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.
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN TOTAL RETURN BOND VIP FUND
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new
monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management Agreement
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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
subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
During the course of their deliberations, the Independent Trustees met twice to discuss and
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SUPPLEMENTAL INFORMATION (UNAUDITED)
evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk
management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
Based upon these considerations, the Trustees concluded, within the context of their full deliberations,
27 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset
28 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period |
and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception period. The Board also noted that the Fund’s performance was below the benchmark index |
for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
Conclusion
Based on a comprehensive consideration and evaluation of all of the information and factors summarized above, among others, the Board as a whole, including the Independent Trustees, approved the Agreements.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
The Statement of Additional Information (“SAI”) includes additional information about the Trust’s Trustees and Officers and is available, without charge, upon request by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
Portfolio Holdings and Proxy Voting Procedures
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Securities and Exchange Commission’s website at https://www.sec.gov. The Fund’s Form N-PORT information is also available, without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is included in the SAI. The SAI and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 may be obtained (i) without charge, upon request, by calling toll-free 1-888-GUARDIAN (1-888-482-7342) or by visiting our website at http://guardianvpt.onlineprospectus.net/GuardianVPT/Prospectuses; and (ii) on the Securities and Exchange Commission’s website at https://www.sec.gov.
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This report is transmitted to shareholders only. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Fund unless accompanied or preceded by the Fund’s current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
The Guardian Life Insurance Company of America New York, NY 10001-2159
PUB10524
Guardian Variable
Products Trust
2022
Semiannual Report
All Data as of June 30, 2022
Guardian U.S. Government Securities VIP Fund
Not FDIC insured. May lose value. No bank guarantee. | www.guardianlife.com |
Guardian U.S. Government Securities VIP Fund
1 | ||||
3 | ||||
Financial Information | ||||
Schedule of Investments | 4 | |||
Statement of Assets and Liabilities | 7 | |||
Statement of Operations | 7 | |||
Statements of Changes in Net Assets | 8 | |||
Financial Highlights | 10 | |||
Notes to Financial Statements | 12 | |||
Supplemental Information | ||||
Liquidity Risk Management Program | 19 | |||
Recent Rulemaking | 20 | |||
Approval of Investment Management Agreement | 21 | |||
Portfolio Holdings and Proxy Voting Procedures | 27 |
Except as otherwise specifically stated, all information, including portfolio security positions, is as of June 30, 2022. Fund holdings will vary. Information contained herein has been obtained from sources believed reliable, but is not guaranteed.
GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Fund Characteristics (unaudited)
Total Net Assets: $226,326,122
Bond Sector Allocation1 As of June 30, 2022 |
Bond Quality Allocation2 As of June 30, 2022 |
1 |
GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
Top Ten Holdings1 As of June 30, 2022 | ||||||||||||
Holding | Coupon Rate | Maturity Date | % of Total Net Assets | |||||||||
U.S. Treasury Note | 1.500% | 9/30/2024 | 13.08% | |||||||||
U.S. Treasury Note | 1.625% | 11/30/2026 | 10.52% | |||||||||
U.S. Treasury Note | 1.375% | 11/15/2031 | 5.86% | |||||||||
Vanguard Short-Term Inflation-Protected Securities ETF | — | — | 4.76% | |||||||||
Fannie Mae ACES | 3.610% | 2/25/2031 | 3.44% | |||||||||
CGRBS Commercial Mortgage Trust | 3.704% | 3/13/2035 | 2.87% | |||||||||
Federal Home Loan Bank | 1.375% | 2/17/2023 | 2.84% | |||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 2.524% | 10/25/2029 | 2.71% | |||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 3.117% | 6/25/2027 | 2.63% | |||||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 2.595% | 9/25/2029 | 2.51% | |||||||||
Total | 51.22% |
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 |
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, 2022 to June 30, 2022. 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 1/1/22 | Ending Account Value | Expenses Paid During Period* 1/1/22-6/30/22 | Expense Ratio During Period 1/1/22-6/30/22 | |||||||||||
Based on Actual Return | $1,000.00 | $ 937.70 | $3.60 | 0.75% | ||||||||||
Based on Hypothetical Return (5% Return Before Expenses) | $1,000.00 | $1,021.08 | $3.76 | 0.75% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
3 |
SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Agency Mortgage–Backed Securities – 29.4% |
| |||||||
Fannie Mae ACES | $ | 2,008,119 | $ | 1,982,347 | ||||
2016-M11 A2 | 4,500,000 | 4,324,111 | ||||||
2019-M4 A2 | 7,764,000 | 7,781,482 | ||||||
2021-M4 A2 | 1,000,000 | 850,046 | ||||||
Freddie Mac Multifamily Structured Pass-Through Certificates | 2,647,228 | 2,637,338 | ||||||
K030 A2 | 1,946,391 | 1,939,545 | ||||||
K032 A2 | 2,490,000 | 2,479,414 | ||||||
K048 A2 | 2,045,000 | 2,039,089 | ||||||
K053 A2 | 2,225,000 | 2,198,098 | ||||||
K058 A2 | 1,500,000 | 1,460,315 | ||||||
K065 A2 | 1,300,000 | 1,292,473 | ||||||
K066 A2 | 6,000,000 | 5,941,165 | ||||||
K073 A2 | 4,277,000 | 4,279,959 | ||||||
K082 A2 | 3,385,000 | 3,475,488 | ||||||
K099 A2 | 6,000,000 | 5,689,898 | ||||||
K101 A2 | 6,500,000 | 6,126,037 | ||||||
K124 A2 | 4,200,000 | 3,642,799 | ||||||
K730 A2 | 3,878,310 | 3,882,953 | ||||||
K740 A2 | 5,000,000 | 4,542,862 | ||||||
Total Agency Mortgage–Backed Securities (Cost $72,423,201) |
| 66,565,419 | ||||||
Asset–Backed Securities – 3.6% |
| |||||||
AmeriCredit Automobile Receivables Trust | 1,500,000 | 1,488,130 | ||||||
BlueMountain CLO Ltd. | 600,000 | 571,424 | ||||||
Enterprise Fleet Financing LLC | 675,496 | 671,082 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Asset–Backed Securities (continued) |
| |||||||
Hyundai Auto Lease Securitization Trust | $ | 2,000,000 | $ | 1,942,908 | ||||
NextGear Floorplan Master Owner Trust | 1,750,000 | 1,684,371 | ||||||
Verizon Owner Trust | 1,000,000 | 988,140 | ||||||
Voya CLO Ltd. | 925,000 | 883,467 | ||||||
Total Asset–Backed Securities (Cost $8,474,355) |
| 8,229,522 | ||||||
Non–Agency Mortgage–Backed Securities – 14.0% |
| |||||||
BAMLL Commercial Mortgage Securities Trust | 1,450,000 | 1,386,514 | ||||||
BB-UBS Trust | 1,000,000 | 969,760 | ||||||
CGRBS Commercial Mortgage Trust | 2,000,000 | 1,998,764 | ||||||
2013-VN05 B | 6,500,000 | 6,506,586 | ||||||
Citigroup Commercial Mortgage Trust | 1,700,000 | 1,689,580 | ||||||
CityLine Commercial Mortgage Trust | 1,000,000 | 963,845 | ||||||
Commercial Mortgage Trust 2013-WWP B | 3,075,000 | 3,081,333 | ||||||
2013-WWP C | 3,500,000 | 3,504,174 | ||||||
2013-WWP D | 1,767,000 | 1,770,279 | ||||||
2014-UBS3 A4 | 1,550,000 | 1,538,809 | ||||||
2015-CR23 A4 | 2,500,000 | 2,448,924 | ||||||
GS Mortgage Securities Corp. II | 1,700,000 | 1,775,484 | ||||||
GS Mortgage Securities Trust | 1,410,000 | 1,409,964 | ||||||
4 | The accompanying notes are an integral part of these financial statements. |
SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Non–Agency Mortgage–Backed Securities (continued) |
| |||||||
Hudson Yards Mortgage Trust | $ | 600,000 | $ | 556,791 | ||||
ONE Park Mortgage Trust | 500,000 | 476,400 | ||||||
Wells Fargo Commercial Mortgage Trust | 636,315 | 609,474 | ||||||
WFRBS Commercial Mortgage Trust | 1,000,000 | 991,683 | ||||||
Total Non–Agency Mortgage–Backed Securities (Cost $32,957,937) |
| 31,678,364 | ||||||
U.S. Government Agencies – 14.2% |
| |||||||
Federal Farm Credit Banks Funding Corp. | 3,800,000 | 3,610,114 | ||||||
0.50% due 7/2/2025 | 4,100,000 | 3,786,555 | ||||||
0.125% due 4/13/2023 | 5,500,000 | 5,385,160 | ||||||
Federal Home Loan Bank | 3,950,000 | 3,946,880 | ||||||
1.25% due 6/9/2028 | 5,500,000 | 4,908,750 | ||||||
0.875% due 6/12/2026 | 3,000,000 | 2,744,670 | ||||||
1.375% due 2/17/2023 | 6,490,000 | 6,435,808 | ||||||
Federal National Mortgage Association | 1,300,000 | 1,193,244 | ||||||
Total U.S. Government Agencies (Cost $33,804,920) |
| 32,011,181 | ||||||
U.S. Government Securities – 33.0% |
| |||||||
U.S. Treasury Note | 3,000,000 | 2,727,422 | ||||||
0.875% due 11/15/2030 | 500,000 | 422,109 | ||||||
1.375% due 11/15/2031 | 15,300,000 | 13,270,359 | ||||||
1.50% due 9/30/2024 | 30,600,000 | 29,595,937 | ||||||
1.625% due 11/30/2026 | 25,300,000 | 23,805,719 | ||||||
2.00% due 4/30/2024 | 2,400,000 | 2,358,000 | ||||||
2.00% due 8/15/2025 | 2,650,000 | 2,567,395 | ||||||
Total U.S. Government Securities (Cost $80,142,998) |
| 74,746,941 | ||||||
Shares | Value | |||||||
Exchange–Traded Funds – 4.8% |
| |||||||
Vanguard Short-Term | 215,000 | 10,775,800 | ||||||
Total Exchange–Traded Funds (Cost $10,933,850) |
| 10,775,800 | ||||||
June 30, 2022 (unaudited) | Principal Amount | Value | ||||||
Short–Term Investments – 0.4% |
| |||||||
Repurchase Agreements – 0.4% |
| |||||||
Fixed Income Clearing Corp., 0.24%, dated 6/30/2022, proceeds at maturity value of $989,433, due 7/1/2022(4) | $ | 989,426 | $ | 989,426 | ||||
Total Repurchase Agreements (Cost $989,426) |
| 989,426 | ||||||
Total Investments(5) – 99.4% (Cost $239,726,687) |
| 224,996,653 | ||||||
Assets in excess of other liabilities(6) – 0.6% |
| 1,329,469 | ||||||
Total Net Assets – 100.0% |
| $ | 226,326,122 |
(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, 2022. |
(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, 2022, the aggregate market value of these securities amounted to $29,352,656, representing 13.0% of net assets. These securities have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
(4) | The table below presents collateral for repurchase agreements. |
Security | Coupon | Maturity Date | Principal Amount | Value | ||||||||||||
U.S. Treasury Note | 3.00% | 6/30/2024 | $ | 1,010,400 | $ | 1,009,295 |
(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 |
SCHEDULE OF INVESTMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
(6) | Assets in excess of other liabilities include net unrealized depreciation on futures contracts as follows: |
Open futures contracts at June 30, 2022:
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Depreciation | ||||||||||||||||||
U.S. 5-Year Treasury Note | September 2022 | 284 | Long | $ | 32,091,054 | $ | 31,879,000 | $ | (212,054 | ) | ||||||||||||||
U.S. Ultra 10-Year Treasury Note | September 2022 | 17 | Long | 2,181,244 | 2,165,375 | (15,869 | ) | |||||||||||||||||
Total |
| $ | 34,272,298 | $ | 34,044,375 | $ | (227,923 | ) |
Type | Expiration | Contracts | Position | Notional Amount | Notional Value | Unrealized Appreciation | ||||||||||||||||||
U.S. 10-Year Treasury Note | September 2022 | 85 | Short | $ | (10,131,946 | ) | $ | (10,075,156 | ) | $ | 56,790 |
Legend:
CLO — Collateralized Loan Obligation
LIBOR — London Interbank Offered Rate
The following is a summary of the inputs used as of June 30, 2022 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 | $ | — | $ | 66,565,419 | $ | — | $ | 66,565,419 | ||||||||
Asset–Backed Securities | — | 8,229,522 | — | 8,229,522 | ||||||||||||
Non–Agency Mortgage–Backed Securities | — | 31,678,364 | — | 31,678,364 | ||||||||||||
U.S. Government Agencies | — | 32,011,181 | — | 32,011,181 | ||||||||||||
U.S. Government Securities | — | 74,746,941 | — | 74,746,941 | ||||||||||||
Exchange–Traded Funds | 10,775,800 | — | — | 10,775,800 | ||||||||||||
Repurchase Agreements | — | 989,426 | — | 989,426 | ||||||||||||
Total | $ | 10,775,800 | $ | 214,220,853 | $ | — | $ | 224,996,653 | ||||||||
Other Financial Instruments | ||||||||||||||||
Futures Contracts | ||||||||||||||||
Assets | $ | 56,790 | $ | — | $ | — | $ | 56,790 | ||||||||
Liabilities | (227,923 | ) | — | — | (227,923 | ) | ||||||||||
Total | $ | (171,133 | ) | $ | — | $ | — | $ | (171,133 | ) |
6 | The accompanying notes are an integral part of these financial statements. |
FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
For the Six Months Ended June 30, 2022 (unaudited) | ||||
Investment Income | ||||
Dividends | $ | 94,946 | ||
Interest | 1,730,616 | |||
|
| |||
Total Investment Income | 1,825,562 | |||
|
| |||
Expenses | ||||
Investment advisory fees | 575,301 | |||
Distribution fees | 306,011 | |||
Professional fees | 34,733 | |||
Trustees’ and officers’ fees | 29,448 | |||
Administrative fees | 20,652 | |||
Custodian and accounting fees | 20,005 | |||
Transfer agent fees | 7,774 | |||
Shareholder reports | 6,052 | |||
Other expenses | 6,696 | |||
|
| |||
Total Expenses | 1,006,672 | |||
Less: Fees waived | (88,638 | ) | ||
|
| |||
Total Expenses, Net | 918,034 | |||
|
| |||
Net Investment Income/(Loss) | 907,528 | |||
|
| |||
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Derivative Contracts | ||||
Net realized gain/(loss) from investments | (1,976,921 | ) | ||
Net realized gain/(loss) from futures contracts | (1,945,155 | ) | ||
Net change in unrealized appreciation/(depreciation) on investments | (13,586,040 | ) | ||
Net change in unrealized appreciation/(depreciation) on futures contracts | 109,748 | |||
|
| |||
Net Loss on Investments and Derivative Contracts | (17,398,368 | ) | ||
|
| |||
Net Decrease in Net Assets Resulting From Operations | $ | (16,490,840 | ) | |
|
| |||
The accompanying notes are an integral part of these financial statements. | 7 |
FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
8 | The accompanying notes are an integral part of these financial statements. |
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9 |
FINANCIAL INFORMATION — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
The Financial Highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods (or, if shorter, the period since inception). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund.
Six Months Ended Numbers are unaudited | ||||||||||||||||||||||||
Per Share Operating Performance | ||||||||||||||||||||||||
Net Asset Value, | Net Investment Income(1) | Net Realized and Unrealized Gain/(Loss) | Total Operations | Net Asset Value, End of Period | Total Return(2) | |||||||||||||||||||
Six Months Ended 6/30/22 | $ | 10.27 | $ | 0.04 | $ | (0.68 | ) | $ | (0.64 | ) | $ | 9.63 | (6.23)% | (4) | ||||||||||
Year Ended 12/31/21 | 10.53 | 0.06 | (0.32 | ) | (0.26 | ) | 10.27 | (2.47)% | ||||||||||||||||
Year Ended 12/31/20 | 10.00 | 0.09 | 0.44 | 0.53 | 10.53 | 5.30% | ||||||||||||||||||
Period Ended 12/31/19(5) | 10.00 | 0.02 | (0.02 | ) | 0.00 | 10.00 | 0.00% | (4) |
10 | The accompanying notes are an integral part of these financial statements. |
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) | Gross Ratio of Expenses to Average Net Assets | Net Ratio of Net Investment Income to Average Net Assets(3) | Gross Ratio of Net Investment Income to Average Net Assets | Portfolio Turnover Rate | |||||||||||||||||
$ | 226,326 | 0.75% | (4) | 0.82% | (4) | 0.74% | (4) | 0.67% | (4) | 11% | (4) | |||||||||||
273,908 | 0.75% | 0.82% | 0.61% | 0.54% | 64% | |||||||||||||||||
263,190 | 0.75% | 0.84% | 0.84% | 0.75% | 76% | |||||||||||||||||
270,003 | 0.70% | (4) | 0.89% | (4) | 1.29% | (4) | 1.10% | (4) | 31% | (4) |
(1) | Calculated based on the average shares outstanding during the period. |
(2) | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
(3) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers and expense limitations. |
(4) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. For the period ended December 31, 2019, certain non-recurring fees (i.e., audit fees) are not annualized. |
(5) | Commenced operations on October 21, 2019. |
The accompanying notes are an integral part of these financial statements. | 11 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
June 30, 2022 (unaudited)
1. Organization
Guardian Variable Products Trust (the “Trust”), a Delaware statutory trust organized on January 12, 2016, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently has twenty-four series. Guardian U.S. Government Securities VIP Fund (the “Fund”) is a series of the Trust. The Fund is a diversified fund and commenced operations on October 21, 2019. The financial statements for other series of the Trust are presented in separate reports.
The Trust has authorized an unlimited number of shares of beneficial interest with no par value. Shares are bought and sold at closing net asset value (“NAV”). Shares of the Fund are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”) that fund certain variable annuity contracts and variable life insurance policies issued by GIAC. GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”).
The Fund seeks total return with an emphasis on current income as well as capital appreciation.
2. Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The Fund follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services – Investment Companies. The following policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
a. Investment Valuations 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.
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.
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”).
Exchange-traded financial futures contracts are valued at the last settlement price on the market where they are primarily traded.
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 |
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, 2022, 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, 2022 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, 2022, the Fund had no securities classified as Level 3.
Derivatives Exchange-traded derivatives, such as futures contracts, exchange-traded option contracts and certain swaps, are typically classified within Level 1 or Level 2 of the fair value hierarchy depending on whether or not they are deemed to be actively traded. Certain non-exchange-traded derivatives, such as generic forwards, certain swaps and options, have inputs which can generally be corroborated by market data and are therefore classified within Level 2.
b. Securities Transactions Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
c. Futures Contracts The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the counterparty, either
13 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
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, 2022.
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, 2022.
f. Investment Income Dividend income net of foreign taxes withheld, if any, is generally recorded on the ex-dividend date. Distributions received from real estate investment trusts, if any, may be classified as dividends, capital gains and/or return of capital. 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
14 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
expenses other than series-specific expenses are allocated daily to each series based upon the proportion of net assets attributable to each series.
3. Transactions with Affiliates
a. Investment Advisory Fee and Expense Limitation Under the terms of the advisory agreement, which, after its two year initial term, is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to Park Avenue. Park Avenue is a wholly-owned subsidiary of Guardian Life and receives an investment advisory fee at an annual rate of 0.47% of the Fund’s average daily net assets. The fee is accrued daily and paid monthly. The Fund has no sub-adviser.
Park Avenue has contractually agreed through April 30, 2023 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 and 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, 2022, Park Avenue waived fees and/or paid Fund expenses in the amount of $88,638.
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, 2022, the Fund paid distribution fees in the amount of $306,011 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, 2022, were as follows:
Other Investments | U.S. Government and Agency Obligations | |||||||
Purchases | $ | 12,683,721 | $ | 14,023,057 | ||||
Sales | 6,700,582 | 49,242,652 |
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.
15 |
NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
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, 2022, 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 Replacement Risk The terms of many investments, financings or other transactions in the U.S. and globally have been historically tied to LIBOR, which functions as a reference rate or benchmark for various commercial and financial contracts. LIBOR may be a significant factor in determining payment obligations under derivatives transactions, the cost of financing of a Fund’s investments, or the value or return on certain other fund investments. As a result, LIBOR may be relevant to, and directly affect, a Fund’s performance. In July 2017, the Chief Executive of the UK Financial Conduct Authority (the “FCA”) announced that the FCA would no longer persuade nor compel banks to submit rates for the calculation of LIBOR after 2021. On
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator, or no longer be representative, immediately after December 31, 2021, for all four non-U.S. dollar LIBORs (British Pound (“GBP”), Euro, Swiss Franc and Japanese Yen) and for one-week and two-month U.S. dollar LIBOR settings, and immediately after June 30, 2023 for the remaining U.S. dollar LIBOR settings, including three-month U.S. dollar LIBOR. In addition, in connection with supervisory guidance from regulators, some regulated entities will cease to enter into most new LIBOR contracts after January 1, 2022. Although a Fund may continue to invest in instruments that reference LIBOR or otherwise use LIBOR reference rates due to favorable liquidity or pricing, new LIBOR assets may no longer be available. Regulators and market participants have been working together to identify or develop successor reference rates and how the calculation of associated spreads (i.e., the amounts above the relevant reference rates paid by borrowers in the market) (if any) should be adjusted. Replacement rates that have been identified include the Secured Overnight Financing Rate (“SOFR”), which is intended to replace U.S. dollar LIBOR and measures the cost of overnight borrowings through repurchase agreement transactions collateralized with U.S. Treasury securities, and the Sterling Overnight Index Average Rate (“SONIA”), which is intended to replace GBP LIBOR and measures the overnight interest rate paid by banks for unsecured transactions in the sterling market, although other replacement rates could be adopted by market participants. At this time, it is not possible to predict the effect of the establishment of SOFR, SONIA or any other replacement rates or any other reforms to LIBOR. There is no assurance that the composition or characteristics of any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of a Fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades. In addition, there are challenges to converting certain contracts and transactions to a new benchmark and neither the full effects of the transition process nor its ultimate outcome is known. The transition process might lead to increased volatility and illiquidity in markets for instruments with terms tied to LIBOR, reduced values of LIBOR related investments, and reduced effectiveness of hedging strategies, adversely affecting the Fund’s performance or NAV. In addition, the alternative reference rate may be an ineffective substitute resulting in prolonged adverse market conditions for the Fund.
j. Disclosures About Derivative Instruments and Hedging Activities The Fund entered into futures contracts for the six months ended June 30, 2022 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
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NOTES TO FINANCIAL STATEMENTS — GUARDIAN U.S. GOVERNMENT SECURITIES VIP FUND
to perform under the agreement’s terms and the possible lack of liquidity with respect to the agreements.
As of June 30, 2022, 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 | ||||
Asset Derivatives | ||||
Futures Contracts1 | $ | 56,790 | ||
Liability Derivatives | ||||
Futures Contracts1 | $ | (227,923 | ) |
1 | Statement of Assets and Liabilities location: Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
Transactions in derivative investments for the six months ended June 30, 2022 were as follows:
Interest Contracts | ||||
Net Realized Gain/(Loss) | ||||
Futures Contracts1 | $ | (1,945,155 | ) | |
Net Change in Unrealized Appreciation/(Depreciation) | ||||
Futures Contracts2 | $ | 109,748 | ||
Average Number of Notional Amounts | ||||
Futures Contracts3 | 701 |
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 credit agreement with respect to a $10 million committed revolving credit facility from State Street Bank and Trust Company (the “Credit Agreement”) for temporary borrowing purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is based on a daily fluctuating rate per annum equal to the Applicable Rate (as defined in the Credit Agreement) plus the Applicable Margin (as defined in the Credit Agreement) that is subject to change from time to time as and when the Applicable Rate changes. Under the current Credit Agreement, the Applicable Rate for any day is defined as the rate per annum equal to the sum of
(a) 0.10% plus (b) the higher of (i) the Federal Funds Effective Rate for such day and (ii) the Overnight Bank Funding Rate for such day; the Applicable Margin is 1.25%. In addition to the interest charged on any borrowings by the Fund, each fund pays a commitment fee of 0.30% per annum on its share of the unused portion of the credit facility. The agreement is in place until January 6, 2023. The Fund did not utilize the credit facility during the six months ended June 30, 2022.
7. Indemnifications
Under the Trust’s organizational documents and, in some cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.
8. Additional Information
The outbreak of COVID-19 has materially reduced consumer demand and economic output, disrupting supply chains, resulting in market closures, travel restrictions and quarantines, strained healthcare systems, and adversely impacting local and global economies, including those in which the Funds invest. A Fund’s operations may be interrupted as a result, which may contribute to the negative impact on investment performance. As with other serious economic disruptions, governmental authorities and regulators are responding to this crisis with significant fiscal and monetary policy changes, including by providing direct capital infusions into companies, introducing new monetary programs and considerably lowering interest rates, which, in some cases resulted in negative interest rates. These actions, including their possible unexpected or sudden reversal or potential ineffectiveness, could further increase volatility in securities and other financial markets, reduce market liquidity, heighten investor uncertainty, and lead to sustained economic downturn or a global recession, domestic and foreign political and social instability, damage to diplomatic and international trade relations. As a result, the value of a Fund’s shares may fall, sometimes sharply and for extended periods, causing investors to lose money.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Liquidity Risk Management Program
In compliance with Rule 22e-4 under the Investment Company Act of 1940, as amended (the “Liquidity Rule”), Guardian Variable Products Trust (the “Trust”) has adopted and implemented a written liquidity risk management program (the “Program”) for each series of the Trust (each, a “Fund”), which is reasonably designed to assess and manage each Fund’s liquidity risk. The Fund’s “liquidity risk” is the risk that the Fund could not meet requests to redeem shares issued by the Fund without significant dilution of the remaining investors’ interests in the Fund.
The Board of Trustees of the Trust (the “Board”) approved the designation of Park Avenue Institutional Advisers LLC (the “Administrator” or “PAIA”) as Program administrator. The Administrator established a Liquidity Risk Management Committee, which is comprised of certain officers of the Trust and PAIA, that assists the Administrator in the implementation and day-to-day administration of the Program and in carrying out the Administrator’s liquidity risk management responsibilities.
In accordance with the Program, each Fund’s liquidity risk is assessed no less frequently than annually, 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, no less than monthly, 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 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 that must be invested in highly liquid investments that are assets, as applicable. The Fund was not required to adopt a highly liquid investment minimum during the period.
At a meeting of the Board held on March 23-24, 2022, the Board received a report (the “Report”) prepared by the Administrator addressing the Program’s operation and assessing the adequacy and effectiveness of its implementation for the period from January 1, 2021 through December 31, 2021 (the “Reporting Period”). The Report noted that the Administrator believes the Program operated effectively during the Reporting Period and continues to be reasonably designed to effectively assess and manage each Fund’s liquidity risk. The Report also noted that the Administrator believes the Program has been adequately and effectively implemented since its inception.
There can be no assurance that the Program will achieve its objectives under all circumstances. Please refer to the Fund’s prospectus for more information regarding the Fund’s exposure to liquidity risk and other risks to which an investment in the Fund may be subject.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Rule 2a-5 and Rule 31a-4
In December 2020, the Securities and Exchange Commission (“SEC”) adopted Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good faith for purposes of the 1940 Act and defines when market quotations are “readily available” for purposes of the 1940 Act, the threshold for determining whether a fund must fair value a security. The SEC also adopted new Rule 31a-4 under the 1940 Act, which sets forth recordkeeping requirements associated with fair value determinations. The compliance date for Rule 2a-5 and Rule 31a-4 is September 8, 2022.
Rule 18f-4
In October 2020, the SEC adopted Rule 18f-4 under the 1940 Act related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 supersedes the framework currently used by funds to comply with Section 18 of the 1940 Act and requires funds whose use of derivatives is more than a limited specified exposure to establish a derivatives risk management program and appoint a derivatives risk manager. The compliance date for Rule 18f-4 is August 19, 2022.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Approval of Investment Management Agreement
Section 15(c) of the Investment Company Act of 1940, as amended (the “1940 Act”), requires that a fund’s investment advisory and sub-advisory agreements be approved initially by the fund’s board of trustees. Section 15(c) also requires that the continuation of these agreements, after an initial term of up to two years, be annually reviewed and approved by the board. Any such agreement must be approved by a vote of a majority of the trustees who are not parties to the agreement or “interested persons” (as defined in the 1940 Act) of a party to the agreement at a meeting of the board called for the purpose of voting on such approval.
At a meeting of the Board of Trustees (the “Board”) of Guardian Variable Products Trust (the “Trust”) held on March 23-24, 2022 (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 All Cap Core VIP Fund; Guardian Core Plus Fixed Income VIP Fund; 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 Equity VIP Fund (formerly, Guardian International Value VIP Fund); Guardian Large Cap Disciplined Growth VIP Fund; Guardian Large Cap Disciplined Value VIP Fund; Guardian Large Cap Fundamental Growth VIP Fund; Guardian Mid Cap Relative Value VIP Fund; Guardian Mid Cap Traditional Growth VIP Fund; Guardian Multi-Sector Bond VIP Fund; Guardian Select Mid Cap Core VIP Fund; Guardian Small Cap Core VIP Fund; Guardian Small-Mid Cap Core VIP Fund; Guardian Strategic Large Cap Core VIP Fund; Guardian Total Return Bond VIP Fund and Guardian U.S. Government Securities VIP Fund (each, a “Fund,” and together, the “Funds”), in substantially the form presented at this meeting (“Investment Management Agreement”), is in the best interests of the Funds and their shareholders; 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 subadvisers to certain of the Funds (the “Sub-advised Funds”), namely (i) ClearBridge Investments, LLC with respect to Guardian Large Cap Fundamental Growth VIP Fund and Guardian Small Cap Core VIP Fund; (ii) Putnam Investment Management, LLC with respect to Guardian Diversified Research VIP Fund; (iii) AllianceBernstein L.P. with respect to Guardian Growth & Income VIP Fund and Guardian Strategic Large Cap Core VIP Fund; (iv) J.P. Morgan Investment Management Inc. with respect to Guardian International Growth VIP Fund; (v) Wellington Management Company LLP with respect to Guardian Integrated Research VIP Fund, 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) Janus Henderson Investors US LLC (formerly, Janus Capital Management LLC) with respect to Guardian Mid Cap Traditional Growth VIP Fund; (viii) Allspring Global Investments, LLC with respect to Guardian Mid Cap Relative Value VIP Fund and Guardian Small-Mid Cap Core VIP Fund; (ix) Lord, Abbett & Co. LLC with respect to Guardian Core Plus Fixed Income VIP Fund; (x) FIAM LLC with respect to Guardian Select Mid Cap Core VIP Fund; and (xi) Massachusetts Financial Services Company with respect to Guardian All Cap Core VIP Fund, each in substantially the form presented at this meeting (each, a “Subadviser” and collectively, the “Subadvisers”) 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 Subadviser to a series of questions and requests for information encompassing a wide variety of topics provided by independent counsel on behalf of the Independent Trustees. The Independent Trustees also received materials and information regarding the legal standards applicable to their consideration of the Agreements and the process and criteria used by the Manager to identify and select the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
During the course of their deliberations, the Independent Trustees met twice to discuss and evaluate the materials, information and Agreements in executive session with their independent legal counsel, outside of the presence of the Trustees who are not Independent Trustees and representatives from Fund management, the Manager or any Subadviser.
In reaching its decisions to renew its approval of the Agreements, the Board took into account the materials and information described above, as well as other materials and information provided to the Board throughout the year. Individual Trustees may have given different weight to different factors and information with respect to each Agreement, and the Trustees did not identify any single factor or information that, in isolation, would be controlling in deciding to approve the Agreements. The discussion below is intended to summarize the broad factors that figured prominently in the Board’s decisions to renew its approval of the Agreements rather than to be all-inclusive. These broad factors included: (i) the nature, extent and quality of the services provided to the Funds by the Manager and to the Sub-advised Funds by the Subadvisers; (ii) the investment performance of each Fund; (iii) estimated profitability of the Manager; (iv) fees and expenses; (v) the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds; and (vi) any other benefits derived by the Manager or the Subadvisers (or their respective affiliates) from their relationships with the Funds.
Nature, Extent and Quality of Services
The Trustees considered information regarding the nature, extent and quality of services provided to the Funds by the Manager. The Trustees also considered, among other things, the terms of the Management Agreement and the range of investment advisory services provided by the Manager. In addition, the Trustees reviewed the range of non-investment advisory services provided by the Manager consistent with the terms of the Management Agreement, notably coordinating the preparation and filing of various regulatory documents, coordinating the preparation and assembly of Board meeting materials, and assisting the Board with certain valuation matters. The Board also received a description of the Manager’s and each Subadviser’s business continuity plans and of their respective approaches to data privacy and cybersecurity, and related testing. The Board received information regarding the response of the Manager and the Subadvisers to the COVID-19 pandemic, including
the implementation of remote work arrangements. The Board also received information about the Manager’s role as administrator of the Funds’ liquidity risk management program, the Manager’s approach to risk management, and the Manager’s vendor oversight programs.
The Trustees considered that the Sub-advised Funds operate in a “manager-of-managers” structure and reviewed the responsibilities that the Manager has under this structure, including monitoring and evaluating the performance of the Subadvisers, monitoring the Subadvisers for adherence to the stated investment objectives, strategies, policies and restrictions of the Funds and supervising the Subadvisers with respect to the services that the Subadvisers 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 subadvisers, and the Manager’s ability to monitor and oversee subadvisers and recommend replacement subadvisers, 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 Subadvisers on a periodic basis, follow through with additional inquiries on any questions or concerns that arise during the meetings and, as necessary, then report the results of the meetings to the Board. The Trustees reviewed information regarding the experience and background of the Manager’s key personnel and the Manager’s organizational structure and resources, including investment, legal and administrative capabilities of the Manager. In this regard, the Trustees recognized that the Funds may benefit from the Manager’s ability to use resources and capabilities of its affiliates in providing services to the Funds.
The Trustees considered information regarding the nature, extent and quality of services provided to the Sub-advised Funds by the Subadvisers. The Trustees also considered, among other things, the terms of the Sub-advisory Agreements and the range of investment advisory services provided by the Subadvisers under the oversight of the Manager. In evaluating these investment advisory services, the Trustees considered, among other things, the Subadvisers’ investment philosophies, styles and/or processes and approaches to managing the respective Sub-advised Funds. The Trustees received and evaluated information regarding the background, education, expertise and/or experience of the investment professionals who serve as portfolio managers for the Sub-advised Funds and the capabilities and resources of the Subadvisers.
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SUPPLEMENTAL INFORMATION (UNAUDITED)
Based upon these considerations, the Trustees concluded, within the context of their full deliberations, that the nature, extent and quality of services provided to the Funds by the Manager and the Sub-advised Funds by each respective Subadviser were appropriate.
Investment Performance
In connection with each of its regular quarterly meetings, the Board receives information on the performance of each Fund, including net performance, relative performance rankings within the relevant Morningstar peer group, and performance as compared to benchmark index returns. At each quarterly Board meeting, members of the Manager’s funds management team review with the Board the economic and market environment, absolute and relative performance of each Fund, and any relevant information about risk management and style consistency in connection with management of the Funds. The Board considered investment performance for each Fund over the one-year, three-year, five-year (where available) and since-inception periods.
The Board also received and reviewed a report prepared by Broadridge Financial Solutions (“Broadridge”), an independent provider of mutual fund industry data, which included comparisons of the performance of each Fund to performance of an appropriate peer universe. For details regarding each Fund’s performance, see the “Fund-by-Fund Factors” section below.
The Manager discussed with the Board factors contributing to the Funds’ performance results. In addition, for certain Funds, the Manager provided to the Board longer term performance records of the Subadvisers for strategies used in managing the Funds. The Board concluded that the investment performance generated by the Manager and each Subadviser was generally satisfactory, or, that any steps being taken by the Manager and Subadvisers to address any performance issues were satisfactory.
Profitability
The Board received and considered the Manager’s estimate of its profitability, which included allocations by the Manager of its costs in providing management services to the Funds. The Board considered the estimated profitability of the Manager both overall and on a Fund-by-Fund basis.
The Board received and considered profitability information from most of the Subadvisers, but noted that the Manager had negotiated the fees with the Subadvisers at arm’s-length. Accordingly, the Board
concluded that the profitability of the Subadvisers is a less relevant factor than Manager profitability.
Based on the consideration of this information, the Board concluded that the profitability of the Funds to the Manager was acceptable.
Fees and Expenses
The Trustees considered the management fees paid by the Funds to the Manager under the Management Agreement and evaluated the reasonableness of these fees. The Trustees received and reviewed comparative information with respect to the management fee and total expenses for each Fund and the management fees and total expenses for a peer group of other funds selected by Broadridge. The Trustees considered the Manager’s commitment to limit the total expenses of each Fund through an expense limitation agreement with the Trust. The Trustees also considered that the Manager proposed (and the Board approved) changes to the expense limitation for three Funds, in each case bringing total expenses closer to the median for the peer group. Although the Board recognized that the comparisons between the management fees and actual expenses of the Funds and those of the identified peer group are imprecise, given different terms of agreements and variations in fund strategies, the Trustees found that the comparative information supported their consideration and approval of the management fees and evaluation of the total expenses. For details regarding each Fund’s fee and expense comparisons, see the “Fund-by-Fund Factors” section below.
The Trustees considered the sub-advisory fees paid under the Sub-advisory Agreements and evaluated the reasonableness of those fees. The Trustees also considered that the fees paid to the Sub-advisers would be paid by the Manager and not the Funds and that the Manager had negotiated the fees with the Subadvisers at arm’s-length.
Based on the consideration of the information and factors summarized above, as well as other relevant information and factors, the Board concluded that the management and sub-advisory fees were reasonable in light of the nature, extent and quality of services rendered to the Funds by the Manager and the Sub-advisers.
Economies of Scale
The Board considered the extent to which economies of scale may exist, and the extent to the benefits of economies of scale are shared with the Funds. In this
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SUPPLEMENTAL INFORMATION (UNAUDITED)
regard, the Board noted that for eleven of sixteen Funds, the management and sub-advisory fee included breakpoints that are tiered based on growth in asset levels of each such Fund and that for the other Funds, the fees reflected appropriate levels based on current and expected asset levels. The Board also noted that the expenses of the Funds are subject to expense limitations provided by the Manager. The Board noted that expected economies of scale, where they exist, may be shared through the use of fee breakpoints, expense limitations by the Manager, and/or a lower overall fee.
Ancillary Benefits
The Board considered the potential benefits, other than management fees, that the Manager and/or its affiliates may receive because of the Manager’s relationship with the Funds. The Trustees considered that the Funds were designed to serve as investment options under variable contracts issued by affiliates of the Manager that would receive fees under those contracts and that Park Avenue Securities LLC, an affiliate of the Manager and principal underwriter of the Funds, and participating insurance companies, including insurance companies affiliated with the Manager, would be entitled to receive fees from the Funds under a plan of distribution adopted pursuant to Rule 12b-1 under the 1940 Act. The Trustees considered that the Manager and its affiliates may benefit from (i) greater efficiencies in annuity administration and operations and potential cost savings due to a reduction in the number of unaffiliated funds available as annuity contract investment options, and (ii) increased dividends-received deductions due to the Funds’ status under the tax laws as disregarded entities. In addition, the Trustees considered the potential benefits, other than sub-advisory fees, that the Subadvisers and their affiliates may receive because of their relationships with the Funds, including the ability to receive research from soft dollar commissions consistent with Trust policies. The Trustees concluded that benefits that may accrue to the Manager and its affiliates are reasonable and the benefits that may accrue to the Subadvisers and their affiliates are consistent with those expected for a subadviser to a mutual fund such as the applicable Fund.
Fund-by-Fund Factors
The Broadridge report groups fees, expenses and performance into five quintiles, with the top quintile having the highest performance or lowest fees/expenses, and the bottom quintile having the lowest performance or highest fees/expenses. For purposes of the descriptions below, a Fund’s performance is
considered “in line with” the benchmark index if it is within 0.20%.
Guardian Large Cap Fundamental Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, the 4th quintile for its performance universe for the 3-year period and the 5th quintile for its performance universes for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Large Cap Disciplined Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year and 5-year periods and in the 2nd quintile for the 3-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Integrated Research VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year period, in the 3rd quintile for the 3-year period and in the 4th quintile for 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Diversified Research VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year period, in the 1st quintile of its performance universe for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
24 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 2nd quintile and that actual total expenses were in the 3rd quintile. |
Guardian Large Cap Disciplined Value VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 2nd quintile of the expense group and that actual total expenses were in the 3rd quintile. |
Guardian Growth & Income VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 3rd quintile for the 3-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 5-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 3-year period. |
• | The Board noted that the contractual management fee and the actual management fee were in the 1st quintile of the expense group and that actual total expenses were in the 2nd quintile. |
Guardian Mid Cap Traditional Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 4th quintile for the 3-year and 5-year periods. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period. The Board also noted that the Fund’s performance was below the benchmark index for the 3-year and 5-year periods. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 4th quintile. The Board also noted that the Manager proposed, and the Board approved, a revision to the expense limitation that would decrease the Fund’s expense limitation from 1.10% to 1.09% reflecting movement closer to the median of the expense group. |
Guardian Mid Cap Relative Value VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period, in the 1st quintile for the 3-year period and in the 2nd quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 2nd quintile of the expense group. |
Guardian International Growth VIP Fund
• | The Board noted that the Fund’s performance was in the 2nd quintile of its performance universe for the 1-year and 5-year periods and in the 1st quintile for the 3-year period. The Board also noted that the Fund’s performance was above the benchmark index for the 3-year and 5- year periods. The Board noted that the Fund’s performance was below the benchmark index for the 1-year period. |
• | The Board noted that the contractual management fee was in the 2nd quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian International Equity VIP Fund (formerly, Guardian International Value VIP Fund)
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year, 3-year and 5-year periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year, 3-year and 5-year periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 3rd quintile of the expense group and that the actual management fee was in the 2nd quintile. |
Guardian Core Plus Fixed Income VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period, in the 4th quintile for the 3-year period and in the 5th quintile for the 5-year period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year and 3-year periods. The Board noted that the Fund’s performance was in line with the benchmark index for the 5-year period. |
25 |
SUPPLEMENTAL INFORMATION (UNAUDITED)
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group, that the actual management fee was in the 3rd quintile and that actual total expenses were in the 2nd quintile. |
Guardian Small Cap Core VIP Fund
• | The Board noted that the Fund’s performance was in the 4th quintile of its performance universe for the 1-year period and in the 5th quintile for the since-inception period. The Board also noted that the Fund’s performance was higher than the benchmark index for the 1-year period and lower than the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian Global Utilities VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 1st quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee and actual total expenses were in the 1st quintile of the expense group and that the actual management fee was in the 3rd quintile. |
Guardian U.S. Government Securities VIP Fund
• | The Board noted that the Fund’s performance was in the 5th quintile of its performance universe for the 1-year and since-inception periods. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile of the expense group. |
Guardian Total Return Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 3rd quintile of its performance universe for the 1-year period and in the 4th quintile for the since-inception |
period. The Board also noted that the Fund’s performance was below the benchmark index for the 1-year period and was in line with the benchmark index for the since-inception period. |
• | The Board noted that the contractual management fee was in the 1st quintile of the expense group and that the actual management fee and actual total expenses were in the 3rd quintile. |
Guardian Multi-Sector Bond VIP Fund
• | The Board noted that the Fund’s performance was in the 1st quintile of its performance universe for the 1-year period and in the 3rd quintile for the since-inception period. The Board also noted that the Fund’s performance was above the benchmark index for the 1-year and since-inception periods. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile. |
Guardian All Cap Core VIP Fund, Guardian Select Mid Cap Core VIP Fund, Guardian Small-Mid Cap Core VIP Fund and Guardian Strategic Large Cap Core VIP Fund
• | Given each Fund’s short operational history, Broadridge did not provide performance information for these Funds. The Board noted that it would have opportunity to consider each Fund’s performance information at future contract review meetings and would receive monthly performance information from the Manager. |
• | The Board noted that the contractual management fee, the actual management fee and actual total expenses were in the 1st quintile for each Fund, except Guardian Strategic Large Cap Core VIP Fund. The Board noted that the contractual management fee and actual total expenses were in the 1st quintile for the Guardian Strategic Large Cap Core VIP Fund and the actual management fee was in the 2nd quintile. |
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 |
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 |
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
Item 1. (continued)
(b) | Not applicable to this semi-annual report. |
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.
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) Written solicitation to purchase securities under Rule 23c-1 -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. |
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 6, 2022 |
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 6, 2022 | ||||
By (Signature and Title)* | /s/ John H Walter | |||
John H Walter, Treasurer | ||||
(Principal Financial and Accounting Officer) | ||||
Date: September 6, 2022 |