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 811-21922 |
RS Variable Products Trust
|
| (Exact name of registrant as specified in charter) |
| | |
388 Market Street San Francisco, CA | | 94111 |
| (Address of principal executive offices) | | (Zip code) |
Terry R. Otton
c/o RS Investments
388 Market Street
San Francisco, CA 94111
|
| (Name and address of agent for service) |
Registrant’s telephone number, including area code: 800-766-3863
Date of fiscal year end: December 31
Date of reporting period: June 30, 2007
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507.
| Item 1. | Report to Shareholders. |
RS Variable Products Trust
RS Core Equity VIP Series
| | |
| 6.30.07 | |  |
| | |
 | | Table of Contents |
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| RS Core Equity VIP Series | | |
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| Portfolio Manager Biography | | 3 |
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| Letter from Portfolio Manager | | 3 |
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| Fund Performance | | 7 |
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| Understanding Your Fund’s Expenses | | 8 |
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Financial Information | | |
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| Schedule of Investments | | 9 |
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| Statement of Assets and Liabilities | | 11 |
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| Statement of Operations | | 11 |
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| Statements of Changes in Net Assets | | 12 |
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| Financial Highlights | | 14 |
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| Notes to Financial Statements | | 16 |
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| Supplemental Information | | 23 |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS Core Equity VIP Series |
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 | | Manind V. Govil (RS Investments) has managed the RS Core Equity VIP Series since 2005*. Mr. Govil joined RS Investments in October 2006 in connection with Guardian Investor Services LLC (GIS)’s acquisition of an interest in RS Investments. Prior to that, Mr. Govil had served as the head of equity investments at The Guardian Life Insurance Company of America (“Guardian Life”) since August 2005. From 2001 to August 2005, Mr. Govil served as the lead portfolio manager — large cap blend/core equity, co-head of equities and head of equity research at Mercantile Capital Advisers. Prior to 2001, he was lead portfolio manager — core equity, at Mercantile. Mr. Govil received a B.A. degree from the University of Bombay, India, and an M.B.A. from the University of Cincinnati and is a Chartered Financial Analyst. |
| * | Includes service as the portfolio manager of the Fund’s Predecessor Fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
Fund Philosophy
Seeks long-term capital appreciation.
Investment Process
We seek investment opportunities across the entire market spectrum, from growth stocks to value stocks. In our view “growth,” “value,” and “core” represent a continuum of investing rather than opposing or incompatible strategies. We do not employ preset hurdles for earnings growth or limits on valuation metrics; rather we look for stocks that we believe are mispriced relative to a company’s underlying fundamental prospects, creating an opportunity where potential reward significantly outweighs risk.
Intensive fundamental research is the cornerstone of our investment process, which involves a willingness to question consensus. Key elements of our research process include judging the skill, track record, and integrity of a company’s management as well as analyzing the company’s market share and profitability trends vs. peer companies.
We use a bottom-up investment process to invest in what we believe are the best individual stock opportunities within key market sectors. We also apply a risk-controlled portfolio construction process. As fundamental investors we use rigorous quantitative tools to help us screen a vast large-cap universe and highlight potentially mispriced securities as well as to manage our portfolio. Then our team of sector managers analyzes the fundamentals and the valuations of these individual companies to assess their risk/reward profiles and decide whether to recommend particular stocks for the Fund.
Performance
We are pleased to report that during the second quarter, RS Core Equity VIP Series returned 10.22% vs. 6.28% for the benchmark S&P 500® Index3. Our stock picks outperformed sector peers across most economic groups, most notably in technology and financials. Stock selection was slightly negative in the consumer discretionary and industrials sectors.
For the first half of 2007, the Fund returned 14.35% vs. 6.96% for the benchmark. Technology, financials, and health care were the strongest contributors to performance. Our utilities and industrials holdings lagged the rest of the portfolio yet have detracted only slightly from relative performance compared to the index.
Portfolio Review
Top-down sector allocations had a modestly positive net impact during the quarter and the half-year ended June 30, 2007 on relative performance vs. the benchmark; this factor was of minor importance compared with the bottom-up impact of individual stock selection, however. This is consistent with our investment
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| RS CORE EQUITY VIP SERIES | | 3 |
| | |
| | RS Core Equity VIP Series (continued) |
philosophy and process, which are geared toward finding the best individual stock ideas across the investment landscape.
The top three contributors to performance — for both the second quarter and the first half of 2007— were transaction processor MasterCard, computer and personal electronics maker Apple, and energy services contractor Transocean.
MasterCard was our top performer in 2006 and continues to bear fruit in 2007 as it posts results that exceed Wall Street’s expectations. As we wrote in our 2006 year-end letter, we believe the stock market has significantly underestimated MasterCard’s earnings potential along with its management’s skill and determination to unlock value for shareholders, including themselves.
Apple’s stock continued its strong first quarter performance as investors became increasingly excited about the iPhone launch on June 29. As the launch date neared, we were unable to justify our 4.7% position based on valuation derived from reasonable assumptions about iPhone sales. We sold most of the stock position in June, but are maintaining a modest position and would consider adding back at the right valuation.
Transocean is a leading provider of turnkey offshore oil- and gas-drilling and related services. The company has benefited from strong demand and limited supply for offshore rigs. Transocean had been one of the Fund’s largest holdings for some time, but we trimmed the position in June as the stock approached our price target; we redeployed funds to other stock ideas where we see more near-term upside.
There were no major detractors from the second quarter performance, and the only stock that has meaningfully crimped Fund returns during 2007 is American Airlines’ parent, AMR. AMR and the airline industry overall have suffered from higher fuel expenses. Though AMR stock is down year to date in an “up” stock market, we believe its operational turnaround remains on course. We added to the position on second quarter weakness as we still believe the stock has significant upside potential when external cost pressures do subside and the market recognizes and rewards AMR for better operating performance.
Changes to the Fund
Portfolio turnover was modest during the second quarter, but we did make a handful of changes. In addition to trimming Apple and Transocean, the most significant shifts were adding Home Depot and selling Lowe’s and Macy’s.
We bought Home Depot as a replacement for home improvement competitor Lowe’s, as we believe that Home Depot offers more upside potential and specific likely catalysts to drive that upside. We invested in Home Depot during the second quarter expecting the company to take action to divest the supply business, along with other shareholder-friendly actions such as a major share buyback. In late June the company announced specifics on both topics, including a better-than-expected $10.3 billion price for selling the supply business to private equity buyers. Home Depot also announced a $22 billion share buyback, amounting to about 30% of the company’s outstanding shares. We believe that Home Depot will now focus on improving sales at its core retail stores.
We became concerned early in the second quarter that sales were weakening in the core Macy’s stores. Macy’s was also progressing more slowly than we expected at integrating the recently acquired May Department Stores. This deterioration caused us to view Macy’s stock as fully valued. We redeployed the funds to more attractive opportunities.
Outlook
As a core offering, the RS Core Equity VIP Series seeks to deliver solid long-term results across the range of market environments. We believe that over long periods of time, a consistent focus on fundamental research and disciplined stock selection are key to building solid investment results.
Valuation dispersion among companies with stronger and weaker fundamental prospects has narrowed further since our previous report. We continue to find
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| 4 | | RS CORE EQUITY VIP SERIES |
attractively valued investment opportunities among traditional growth companies across market sectors, as valuations of “growth” and “value” stocks have tended to converge in recent quarters. The portfolio favors companies that we expect to grow market share while maintaining profit margins.
We wish to emphasize that we hold ourselves to the highest standards of professionalism and integrity for the benefit of our shareholders, with whom we invest alongside. Thank you for your investment in RS Core Equity VIP Series and for your ongoing support. We promise to do our very best, and we appreciate your confidence in us.
Sincerely,
Manind V. Govil
Portfolio Manager
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.
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| RS CORE EQUITY VIP SERIES | | 5 |
| | |
| | RS Core Equity VIP Series (continued) |
| | |
| Assets under Management $1,127,429,021 | | Data as of June 30, 2007 |
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 | | Sector Allocation vs. Index1 |
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| | Top Ten Holdings2 |
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| | |
| Company | | Percentage of Total Net Assets |
MasterCard, Inc. | | 5.10% |
Halliburton Co. | | 4.51% |
AT&T, Inc. | | 3.50% |
Enterprise Products Partners LP | | 3.05% |
The AES Corp. | | 2.98% |
The Boeing Co. | | 2.96% |
Wyeth | | 2.96% |
Aon Corp. | | 2.83% |
The Goldman Sachs Group, Inc. | | 2.71% |
Abbott Laboratories | | 2.63% |
| Total | | 33.23% |
1 | The sector allocation represents the Global Industry Classification Standard (GICS), which was developed by Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P). The Fund’s holdings are allocated to each sector based on their GICS classification. Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
3 | The S&P 500® Index of 500 primarily large-cap U.S. stocks is generally considered to be representative of U.S. stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses. |
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| 6 | | RS CORE EQUITY VIP SERIES |
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| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | | | | | |
| | | | | | | | |
| | | Inception
Date | | Year-to-Date | | 1 Year | | 3 Year | | 5 Year | | 10 Year | | Since
Inception |
RS Core Equity VIP Series | | 04/13/83 | |
14.35% | |
31.13% | |
13.67% | |
10.27% | |
5.05% | |
12.16% |
S&P 500® Index3 | | | |
6.96% | |
20.59% | |
11.67% | |
10.71% | |
7.13% | |
12.78% |
Since inception performance for the index is measured from 3/31/1983, the month end prior to the Fund’s commencement of operations.
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| | Results of a Hypothetical $10,000 Investment If invested on 06/30/97 |
The chart above shows the performance of a hypothetical $10,000 investment made 10 years ago in RS Core Equity VIP Series and the S&P 500® Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian Stock Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.58%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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| RS CORE EQUITY VIP SERIES | | 7 |
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| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
| | | | | |
Based on Actual Return | | $1,000.00 | | $1,143.50 | | $2.96 | | 0.56% |
| | | | | |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,022.03 | | $2.79 | | 0.56% |
| * | 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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| 8 | | RS CORE EQUITY VIP SERIES |
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| | Schedule of Investments — RS Core Equity VIP Series |
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| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Common Stocks — 97.4% |
| Aerospace & Defense — 4.4% |
General Dynamics Corp. | | 211,400 | | $ | 16,535,708 |
The Boeing Co. | | 347,200 | | | 33,386,752 |
| | | | | |
| | | | | 49,922,460 |
| Airlines — 1.2% |
AMR Corp.(1) | | 520,450 | | | 13,713,857 |
| | | | | |
| | | | | 13,713,857 |
| Biotechnology — 3.5% |
Celgene Corp.(1) | | 294,200 | | | 16,866,486 |
Gilead Sciences, Inc.(1) | | 572,800 | | | 22,207,456 |
| | | | | |
| | | | | 39,073,942 |
| Capital Markets — 4.4% |
Legg Mason, Inc. | | 196,200 | | | 19,302,156 |
The Goldman Sachs Group, Inc. | | 141,200 | | | 30,605,100 |
| | | | | |
| | | | | 49,907,256 |
| Chemicals — 0.7% |
Rohm & Haas Company | | 134,100 | | | 7,332,588 |
| | | | | |
| | | | | 7,332,588 |
| Commercial Banks — 2.0% |
PNC Financial Services Group, Inc. | | 157,900 | | | 11,302,482 |
SunTrust Banks, Inc. | | 136,200 | | | 11,677,788 |
| | | | | |
| | | | | 22,980,270 |
| Commercial Services & Supplies — 1.9% |
Waste Management, Inc. | | 551,500 | | | 21,536,075 |
| | | | | |
| | | | | 21,536,075 |
| Communications Equipment — 6.3% |
Corning, Inc.(1) | | 855,100 | | | 21,847,805 |
Nokia Oyj, ADR(1)(2) | | 939,400 | | | 26,406,534 |
QUALCOMM, Inc. | | 521,600 | | | 22,632,224 |
| | | | | |
| | | | | 70,886,563 |
| Computers & Peripherals — 3.1% |
Apple, Inc.(1) | | 93,500 | | | 11,410,740 |
EMC Corp.(1) | | 1,274,100 | | | 23,061,210 |
| | | | | |
| | | | | 34,471,950 |
| Consumer Finance — 1.6% |
American Express Co. | | 142,400 | | | 8,712,032 |
AmeriCredit Corp.(1) | | 336,900 | | | 8,944,695 |
| | | | | |
| | | | | 17,656,727 |
| Diversified Financial Services — 3.3% |
Interactive Brokers Group, Inc., Class A(1) | | 542,580 | | | 14,720,195 |
JPMorgan Chase & Co. | | 462,800 | | | 22,422,660 |
| | | | | |
| | | | | 37,142,855 |
| Diversified Telecommunication Services — 3.5% |
AT&T, Inc. | | 951,936 | | | 39,505,344 |
| | | | | |
| | | | | 39,505,344 |
| Electronic Equipment & Instruments — 0.8% |
Jabil Circuit, Inc. | | 410,700 | | | 9,064,149 |
| | | | | |
| | | | | 9,064,149 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Energy Equipment & Services — 6.3% |
Halliburton Co. | | 1,474,100 | | $ | 50,856,450 |
Transocean, Inc.(1) | | 186,200 | | | 19,733,476 |
| | | | | |
| | | | | 70,589,926 |
| Food Products — 4.1% |
Campbell Soup Co. | | 629,300 | | | 24,423,133 |
General Mills, Inc. | | 382,000 | | | 22,316,440 |
| | | | | |
| | | | | 46,739,573 |
| Health Care Providers & Services — 3.0% |
Medco Health Solutions, Inc.(1) | | 210,400 | | | 16,409,096 |
UnitedHealth Group, Inc. | | 342,300 | | | 17,505,222 |
| | | | | |
| | | | | 33,914,318 |
| Hotels, Restaurants & Leisure — 2.3% |
McDonald’s Corp. | | 513,800 | | | 26,080,488 |
| | | | | |
| | | | | 26,080,488 |
| Household Durables — 1.5% |
Newell Rubbermaid, Inc. | | 558,400 | | | 16,433,712 |
| | | | | |
| | | | | 16,433,712 |
| Independent Power Producers & Energy Traders — 3.0% |
The AES Corp.(1) | | 1,535,600 | | | 33,598,928 |
| | | | | |
| | | | | 33,598,928 |
| Industrial Conglomerates — 1.7% |
Tyco International Ltd. | | 559,500 | | | 18,905,505 |
| | | | | |
| | | | | 18,905,505 |
| Information Technology Services — 8.6% |
Accenture Ltd., Class A | | 526,400 | | | 22,577,296 |
Fidelity National Information Services, Inc. | | 200,434 | | | 10,879,558 |
MasterCard, Inc., Class A | | 346,300 | | | 57,440,781 |
Western Union Co. | | 305,400 | | | 6,361,482 |
| | | | | |
| | | | | 97,259,117 |
| Insurance — 4.3% |
Aon Corp. | | 749,800 | | | 31,948,978 |
W. R. Berkley Corp. | | 522,200 | | | 16,992,388 |
| | | | | |
| | | | | 48,941,366 |
| Internet Software & Services — 2.7% |
eBay, Inc.(1) | | 445,200 | | | 14,326,536 |
Google, Inc., Class A(1) | | 30,400 | | | 15,910,752 |
| | | | | |
| | | | | 30,237,288 |
| Machinery — 2.0% |
Caterpillar, Inc. | | 284,600 | | | 22,284,180 |
| | | | | |
| | | | | 22,284,180 |
| Media — 1.3% |
Grupo Televisa S.A., ADR(1)(2) | | 540,200 | | | 14,914,922 |
| | | | | |
| | | | | 14,914,922 |
| Oil, Gas & Consumable Fuels — 4.6% |
Chevron Corp. | | 63,600 | | | 5,357,664 |
Devon Energy Corp. | | 154,300 | | | 12,080,147 |
Enterprise Products Partners L.P. | | 1,079,280 | | | 34,331,897 |
| | | | | |
| | | | | 51,769,708 |
The accompanying notes are an integral part of these financial statements.
| | |
| | Schedule of Investments – RS Core Equity VIP Series (continued) |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Pharmaceuticals — 5.6% |
Abbott Laboratories | | 553,600 | | $ | 29,645,280 |
Wyeth | | 581,800 | | | 33,360,412 |
| | | | | |
| | | | | 63,005,692 |
| Road & Rail — 1.0% |
Burlington Northern Santa Fe Corp. | | 126,400 | | | 10,761,696 |
| | | | | |
| | | | | 10,761,696 |
| Specialty Retail — 2.6% |
The Home Depot, Inc. | | 739,700 | | | 29,107,195 |
| | | | | |
| | | | | 29,107,195 |
| Thrifts & Mortgage Finance — 2.4% |
Federal Home Loan Mortgage Corp. | | 270,800 | | | 16,437,560 |
People’s United Financial, Inc. | | 628,200 | | | 11,137,986 |
| | | | | |
| | | | | 27,575,546 |
| Tobacco — 2.3% |
Altria Group, Inc. | | 371,000 | | | 26,021,940 |
| | | | | |
| | | | | 26,021,940 |
| Wireless Telecommunication Services — 1.4% |
America Movil SAB de C.V., ADR(2) | | 260,400 | | | 16,126,573 |
| | | | | |
| | | | | 16,126,573 |
| | | | | |
Total Common Stocks
(Cost $898,049,455) | | | 1,097,461,709 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Other Investments — For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3) | | 21 | | $ | 897 |
RS Emerging Growth Fund, Class Y(3) | | 84 | | | 3,394 |
RS Emerging Markets Fund, Class A(3) | | 24 | | | 614 |
RS Global Natural Resources Fund, Class Y(3) | | 261 | | | 9,558 |
RS Growth Fund, Class Y(3) | | 197 | | | 3,287 |
RS Investors Fund, Class Y(3) | | 507 | | | 6,545 |
RS MidCap Opportunities Fund, Class Y(3) | | 169 | | | 2,736 |
RS Partners Fund, Class Y(3) | | 63 | | | 2,417 |
RS Smaller Company Growth Fund, Class Y(3) | | 86 | | | 1,967 |
RS Value Fund, Class Y(3) | | 60 | | | 1,861 |
| | | | | |
Total Other Investments
(Cost $31,160) | | | 33,276 |
| | | | | |
| | | Shares | | Value |
| | | | | |
| Short-Term Investments — 1.4% |
| Federated Prime Obligations Fund, Class B(4) | | 16,282,523 | | | 16,282,523 |
| | | | | |
Total Short-Term Investments
(Cost $16,282,523) | | | 16,282,523 |
| | | | | |
Total Investments — 98.8%
(Cost $914,363,138) | | | 1,113,777,508 |
| | | | | |
| Other Assets, Net — 1.2% | | | 13,651,513 |
| | | | | |
| Total Net Assets — 100.0% | | $ | 1,127,429,021 |
(1) | Non income-producing security. |
(2) | ADR — American Depositary Receipt. |
(3) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
(4) | Money Market Fund registered under the Investment Company Act of 1940. |
| | |
| 10 | | The accompanying notes are an integral part of these financial statements. |
| | |
| | Financial Information — RS Core Equity VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 1,113,777,508 | |
Receivable for investments sold | | | 30,060,051 | |
Receivable for fund shares subscribed | | | 602,600 | |
Dividends/interest receivable | | | 491,596 | |
Prepaid expenses | | | 24,870 | |
| | | | |
Total Assets | | | 1,144,956,625 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 15,823,740 | |
Payable for fund shares redeemed | | | 1,048,326 | |
Payable to adviser | | | 465,551 | |
Deferred trustees’ compensation | | | 33,276 | |
Accrued expenses/other liabilities | | | 156,711 | |
| | | | |
Total Liabilities | | | 17,527,604 | |
| | | | |
Total Net Assets | | $ | 1,127,429,021 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 1,269,178,878 | |
Accumulated undistributed net investment income | | | 5,402,980 | |
Accumulated net realized loss from investments | | | (346,567,207 | ) |
Net unrealized appreciation on investments | | | 199,414,370 | |
| | | | |
Total Net Assets | | $ | 1,127,429,021 | |
| | | | |
Investments, at Cost | | $ | 914,363,138 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 29,284,236 | |
| |
Net Asset Value Per Share | | | $38.50 | |
| | |
| | Statement of Operations For the Six Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 250,032 | |
Dividends | | | 7,823,564 | |
Withholding taxes on foreign dividends | | | (84,690 | ) |
| | | | |
Total Investment Income | | | 7,988,906 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 2,685,585 | |
Professional fees | | | 87,492 | |
Custodian fees | | | 87,834 | |
Shareholder reports | | | 56,810 | |
Trustees’ fees and expenses | | | 28,685 | |
Insurance expense | | | 25,204 | |
Administrative service fees | | | 16,171 | |
Registration fees | | | 475 | |
Other expense | | | 2,505 | |
| | | | |
Total Expenses | | | 2,990,761 | |
Less: Custody credits | | | (849 | ) |
| | | | |
Total Expenses, Net | | | 2,989,912 | |
| | | | |
Net Investment Income | | | 4,998,994 | |
| | | | |
Realized Gain and Change in Unrealized Appreciation on Investments | | | | |
Net realized gain from investments | | | 73,935,502 | |
Net change in unrealized appreciation on investments | | | 66,474,336 | |
| | | | |
Net Gain on Investments | | | 140,409,838 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 145,408,832 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| | Financial Information — RS Core Equity VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the Six
Months
Ended 6/30/07 | | | For the Year
Ended 12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 4,998,994 | | | $ | 11,883,633 | |
Net realized gain on investments | | | 73,935,502 | | | | 109,138,789 | |
Net change in unrealized appreciation on investments | | | 66,474,336 | | | | 41,502,180 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 145,408,832 | | | | 162,524,602 | |
| | | | | | | | |
| | |
Distributions to Shareholders from: | | | | | | | | |
Net investment income | | | — | | | | (19,311,193 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 25,004,148 | | | | 42,985,511 | |
Reinvestment of distributions | | | — | | | | 19,311,192 | |
Cost of shares redeemed | | | (91,849,085 | ) | | | (191,878,962 | ) |
| | | | | | | | |
Net decrease in net assets resulting from capital share transactions | | | (66,844,937 | ) | | | (129,582,259 | ) |
| | | | | | | | |
Net Increase in Net Assets | | | 78,563,895 | | | | 13,631,150 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 1,048,865,126 | | | | 1,035,233,976 | |
| | | | | | | | |
End of period | | $ | 1,127,429,021 | | | $ | 1,048,865,126 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income included in Net Assets | | $ | 5,402,980 | | | $ | 403,986 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 686,291 | | | | 1,388,085 | |
Reinvested | | | — | | | | 643,933 | |
Redeemed | | | (2,554,254 | ) | | | (6,223,863 | ) |
| | | | | | | | |
Net Decrease | | | (1,867,963 | ) | | | (4,191,845 | ) |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
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| | |
| RS CORE EQUITY VIP SERIES | | 13 |
| | |
| | Financial Information — RS Core Equity VIP Series |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past five years and the six months ended June 30, 2007. 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(loss) | | | Total From
Investment
Operations | | | Distributions
From Net
Investment
Income | | | Net Asset
Value,
End Of
Period |
| | | | | | | |
Six Months Ended 06/30/07(1) | | $ | 33.67 | | $ | 0.17 | | $ | 4.66 | | | $ | 4.83 | | | $ | — | | | $ | 38.50 |
| | | | | | | |
Year Ended 12/31/06 | | | 29.29 | | | 0.39 | | | 4.59 | | | | 4.98 | | | | (0.60 | ) | | | 33.67 |
| | | | | | | |
Year Ended 12/31/05 | | | 28.42 | | | 0.50 | | | 0.70 | | | | 1.20 | | | | (0.33 | ) | | | 29.29 |
| | | | | | | |
Year Ended 12/31/04 | | | 27.30 | | | 0.39 | | | 1.23 | | | | 1.62 | | | | (0.50 | ) | | | 28.42 |
| | | | | | | |
Year Ended 12/31/03 | | | 22.71 | | | 0.28 | | | 4.57 | | | | 4.85 | | | | (0.26 | ) | | | 27.30 |
| | | | | | | |
Year Ended 12/31/02 | | | 28.94 | | | 0.24 | | | (6.25 | ) | | | (6.01 | ) | | | (0.22 | ) | | | 22.71 |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | | | | |
Total
Return* | | Net Assets, End of Period (000s) | | Net Ratio
of Expenses To Average
Net Assets(2) | | Net Ratio of Net
Investment Income
To Average
Net Assets(2) | | Portfolio
Turnover Rate | | |
| | | | | | |
| 14.35% | | $ | 1,127,429 | | 0.56% | | 0.93% | | 29% | | |
| | | | | | |
| 17.26% | | | 1,048,865 | | 0.57% | | 1.17% | | 85% | | |
| | | | | | |
| 4.30% | | | 1,035,234 | | 0.56% | | 1.67% | | 103% | | |
| | | | | | |
| 6.00% | | | 1,261,203 | | 0.54% | | 1.29% | | 76% | | |
| | | | | | |
| 21.45% | | | 1,454,546 | | 0.54% | | 1.06% | | 77% | | |
| | | | | | |
| (20.88)% | | | 1,365,328 | | 0.54% | | 0.85% | | 65% | | |
| | (1) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | (2) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of custody credits. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
The accompanying notes are an integral part of these financial statements.
| | |
| | Notes to Financial Statements — RS Core Equity VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS Core Equity VIP Series (the “Fund” or “CEV”) is a series of the Trust. CEV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of CEV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost, which approximates market value (see Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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.
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of unin-
vested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $849. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
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 translated into U.S. dollars at the exchange rates quoted at the close of the New York Stock Exchange on each business day. 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 with the net realized and unrealized gain or loss from investments.
Forward Foreign Currency Contracts
CEV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the values of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by CEV. When forward contracts are closed, CEV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. CEV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.
Futures Contracts
CEV may enter into financial futures contracts. In entering into such contracts, CEV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by CEV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins paid or received by CEV. The daily changes in the variation margin are recognized as unrealized gains or losses by CEV. CEV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for CEV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of CEV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Fund.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
| | |
| | Notes to Financial Statements — RS Core Equity VIP Series (continued) |
June 30, 2007 (unaudited)
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was as follows:
| | | |
| | | Ordinary
Income |
2006 | | $ | 19,311,193 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:
| | | | | |
Undistributed
Ordinary
Income | | Capital Loss Carryforward | |
| $ | 411,379 | | $ | (419,817,030 | ) |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund elected to defer $289,962 net capital losses.
As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:
| | | | | | |
| | | Capital Loss
Carryforward | | | Expiration
Date |
| | $ | (83,266,729 | ) | | 2009 |
| | | (240,321,401 | ) | | 2010 |
| | | (95,938,938 | ) | | 2011 |
| | | | | | |
| Total | | $ | (419,527,068 | ) | | |
| | | | | | |
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co. LLC (“RS Investments”) an investment advisory fee calculated at an annual rate of 0.50% of the average daily net assets of the Fund.
Pursuant to a Sub-Administration and Accounting Services Agreement, Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments, receives fees at an annual rate of 0.052% of the Fund’s average daily net assets from RS Investments.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 0.57% of the average daily net assets of CEV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the
deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $306,473,970 and $386,634,062, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June 30, 2007 aggregated $218,319,224 and $18,973,769, respectively, resulting in net unrealized appreciation of $199,345,455. The cost of investments owned at June 30, 2007 for federal income tax purposes was $914,432,053.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, CEV 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, CEV maintains the right to sell the collateral and may claim any resulting loss against the seller.
| Note E. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for CEV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 686,291 | | | 1,388,085 | | | $ | 25,004,148 | | | $ | 42,985,511 | |
Shares issued in reinvestment of dividends | | — | | | 643,933 | | | | — | | | | 19,311,192 | |
Shares repurchased | | (2,554,254 | ) | | (6,223,863 | ) | | | (91,849,085 | ) | | | (191,878,962 | ) |
| | |
Net decrease | | (1,867,963 | ) | | (4,191,845 | ) | | $ | (66,844,937 | ) | | $ | (129,582,259 | ) |
| | |
| | |
| | Notes to Financial Statements — RS Core Equity VIP Series (continued) |
June 30, 2007 (unaudited)
| Note F. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note H. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of under- takings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of
Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional
| | |
| | Notes to Financial Statements — RS Core Equity VIP Series (continued) |
June 30, 2007 (unaudited)
allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capa-bilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution
| | |
| | Supplemental Information — unaudited (continued) |
capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
RS Variable Products Trust
RS Small Cap Core Equity VIP Series
| | |
| 6.30.07 | |  |
| | |
 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS Small Cap Core Equity VIP Series |
| | |
 | | Matthew P. Ziehl (RS Investments) has managed RS Small Cap Core Equity VIP Series since 2002* Mr. Ziehl joined RS Investments in October 2006 in connection with GIS’s acquisition of an interest in RS Investments. From December 2001 to October 2006, Mr. Ziehl served as managing director at The Guardian Life Insurance Company of America (“Guardian Life.”). Prior to joining Guardian Life, Mr. Ziehl was a team leader with Salomon Brothers Asset Management, Inc. for small growth portfolios since January 2001, and a co-portfolio manager of Salomon Brothers Small Cap Growth Fund since August 1999. He holds a B.A. in political science from Yale University and an M.B.A. from New York University. Mr. Ziehl is also a Chartered Financial Analyst. |
| * | Includes service as the portfolio manager of the Fund’s Predecessor Fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
Fund Philosophy
Seeks long-term capital appreciation.
Investment Process
We seek investment opportunities across the entire U.S. small-cap market spectrum, from growth stocks to value stocks. In our view “growth,” “value,” and “core” represent a continuum of investing rather than opposing or incompatible strategies. We do not employ preset hurdles for earnings growth or limits on valuation metrics; rather we look for stocks that are mispriced relative to a company’s underlying fundamental prospects, creating an opportunity where potential reward significantly outweighs risk.
We use a bottom-up investment process to invest in what we believe to be the best individual small-cap stock opportunities within all the key market sectors. As fundamental investors we also use rigorous quantitative tools to help us screen a vast small-cap universe and highlight stocks that appear to be attractive on both earnings and valuation metrics. Then our team of sector managers analyzes the fundamentals and the valuations of these individual companies to assess their risk/reward profiles and decide whether to recommend particular stocks for the Fund. Key elements of our research process include judging the skill, track record, and integrity of a company’s management as well as analyzing the company’s market share and profitability trends vs. peer companies.
Performance
The RS Small Cap Core Equity VIP Series returned 4.80% during the second quarter of 2007, outpacing the Russell 2000® Index3 which returned 4.42%. Our stock selection outperformed the index in financial services, technology, and industrials. These results overcame weaker stock selection in health care and consumer discretionary stocks.
The second quarter builds on a strong year-to-date performance advantage. Through the first half of 2007, the Fund returned 11.78% vs. 6.45% for the Russell 2000® Index. Stock selection in technology and financials drove most of the strong relative performance, while health care was the only sector with significantly negative results. Sector weightings had modest net impact on relative performance vs. the index.
Portfolio Review
Our stock selection in financial services was very strong in the second quarter. During the quarter, we were approximately market weighted at 21% of the portfolio in financial related stocks. International Securities Exchange is a leading options-trading exchange, which gained a roughly 30% market share since its inception in 1999 due, we believe, to a superior technological architecture that has driven down trading costs for participants. Early in the second quarter, International Securities announced that it was selling out to Deutsche Börse Group at a substantial premium. We sold our shares at that time, as the stock traded up to the takeout price and we did not
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| RS SMALL CAP CORE EQUITY VIP SERIES | | 3 |
| | |
| | RS Small Cap Core Equity VIP Series (continued) |
anticipate a competing offer. Other winners included Affiliated Managers Group, Investment Technology Group, and East West Bancorp.
Technology constituted approximately 19.6% of the portfolio, an overweight to the index. Again, strong stock selection led to relative gains over the index. Blue Coat Systems, a strong contributor in 2007, provides a suite of hardware and software products that allow network managers to improve performance and manage security of applications and internet-related communications over their networks. In particular, we think Blue Coat is very well positioned in the rapidly growing wide area network (WAN) accelerator space; WAN accelerators improve the speed and performance of network-based applications. Blue Coat’s latest quarterly results showed excellent growth in this area, and we believe that we are still in the early stages of rapid market growth in this segment. Blackboard, a provider of enterprise software to the education markets, also contributed strong returns in the quarter.
Trident Microsystems, which produces image-processing chips for digital televisions, predominantly large liquid-crystal display (LCD-based) televisions, hurt returns in the quarter. Trident has gained numerous design wins at key television makers including Sony and Sharp. We believe that the company is set for dramatic earnings growth in late 2007 and 2008, and it is therefore one of our largest holdings. Trident’s stock underperformed other chipmakers and the broader technology space in the second quarter on concerns that intense price competition at retail for flat-panel televisions would force component makers such as Trident to cut their prices. We believe these concerns to be overblown, as Trident has unique technology that allows cost savings by combining multiple functions on one chip; we believe this is a key reason for its recent design wins in the first place.
Rackable Systems, a provider of network servers and storage systems, declined sharply when the company reported disappointing quarterly results. We have sold the position as we sense that Rackable System’s competitive advantage will be challenged by Dell’s aggressive move into this market segment.
Industrials have been a strong contributor to benchmark returns in the past several years. Our weighting constituted just under 10% of portfolio assets during the quarter, and good stock selection more than compensated for our underweighting relative to the benchmark. B/E Aerospace is the leading manufacturer of aircraft seating and other interior systems for large commercial jets. The stock has benefited from increased visibility on demand for wide body aircraft, particularly the Airbus A380 and Boeing 787. Also driving revenues are the increased complexity and cost of business-class and first-class seats on large aircraft, both for new airplanes and for periodic retrofits of existing aircraft. As the stock rose during the second quarter, we trimmed our holding slightly to manage risk but maintain a significant position as we see an excellent business climate for several years forward.
Adam Weiner, who joined the RS Core Equity Team as of January 1, 2007 as our sector manager for industrial companies has helped us achieve strong performance from this group. We recently added several new industrial positions, bringing that sector closer to benchmark-neutral from the significant underweight we have maintained for several quarters. Newer additions to the portfolio sourced by Adam include Regal-Beloit Corp and EnPro Industries.
Regal-Beloit is one of the leading U.S. manufacturers of electric motors and generators. We bought the stock at depressed levels as investors were overly focused, we believe, on the company’s relatively modest exposure to a weakening residential housing market. We like Regal-Beloit’s leading market positions and management’s long-term track record of delivering value for its shareholders through targeted acquisitions and dividend growth.
EnPro Industries has the number one or two market positions with well-established brand names in a variety of niche industrial end markets for its highly engineered industrial products, including sealing products, bearings, air compressor systems, vacuum pumps, and diesel engines. We believe that investors tend to overlook the many positive attributes of this company due
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| 4 | | RS SMALL CAP CORE EQUITY VIP SERIES |
to litigation related to asbestos used in a small number of products many years ago. We believe this is a manageable issue for the company today and likely to diminish even more over the next five to 10 years.
The broad health care sector proved to be our biggest challenge during the quarter. We held approximately 13.8% of the portfolio in health care, and our stock selection returns trailed the index returns. Our biggest hurdle was Psychiatric Solutions, the largest provider of behavioral health facilities, with a roughly 50/50 mix of acute care psychiatric hospitals and residential treatment centers. The company has grown rapidly through acquisition, and we think it has demonstrated excellent operating results in terms of driving sales and profit margins in acquired facilities over subsequent years. The stock weakened during the second quarter due, we believe, to several short-term reasons, chiefly an underwhelming same-facility revenue growth rate vs. the year-ago quarter. Strong revenue growth in the corresponding 2006 period created a tough hurdle for earnings comparison, and remodeling at a number of facilities caused some transient dislocation of patients, which had a brief impact on revenues. Separately, the stock was pressured by disappointing results at Horizon Health Corp., a public competitor that Psychiatric Solutions was in the process of acquiring at the time. We believe that these issues are being resolved, and do not impact our long-term thesis regarding the stock, so we maintain our position despite the weakness during the quarter.
Another detractor during the quarter was Mentor Corp., a leading manufacturer of silicone breast implants, and a position we wrote about in our fourth quarter 2006 letter. Our thesis was that after 15 years of restrictions in the United States concerning the use of silicone implants, we believed that they would rapidly regain acceptance among patients and physicians for cosmetic use. Unfortunately, Mentor has lost some market share opportunity to its largest competitor, Allergen. We believe this is due in large part to a difference in company requirements for physicians. Mentor required that all patients be enrolled in a follow-up safety study, while Allergan made participation voluntary.
While our general thesis appears to be playing out, with silicone gaining momentum in the United States, we believed that Mentor’s more conservative protocol would be well accepted by both doctors and patients, and that the latter would wish to participate in the study but in reality this was not the case. While the federal Food and Drug Administration allowed both approaches, the protocol created more paperwork for busy doctors, many of whom, we believe, gravitated to Allergan’s product out of convenience.
Outlook
As we begin the third quarter of 2007, we remain close to benchmark-neutral in most sectors, consistent with our bottom-up investment process that emphasizes the merits of individual stocks rather than trying to predict sector-level or macroeconomic shifts. We added several consumer staples holdings, making that sector a 2.6% overweighting above the Russell 2000 Index. Conversely, we trimmed consumer discretionary to a 3.7% underweighting as we sold a number of retail and restaurant stocks.
Also, in keeping with our mission to provide a broadly diversified core small-cap fund, we own stocks across the style spectrum from value to growth. That said, the Fund does have a moderate tilt toward growth stocks, as it has for well over a year. In addition to finding ample opportunities in higher-growth sectors such as technology and health care, we are gravitating toward companies with stronger growth prospects in traditionally value-oriented sectors such as industrials and financials. Because the small-cap market has so powerfully favored value stocks since 2000, we find that many higher-growth companies do not command a degree of valuation premium to slower-growth companies commensurate with the difference in expected growth rates. That is why, paradoxically, small-cap growth stocks as a group appear to be a better “value” than small-cap value stocks. Of course this is a broad generalization, and our success or failure remains tied to how well we assess the fundamental sales and earnings prospects, and the stock price upside and downside, of individual companies.
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| RS SMALL CAP CORE EQUITY VIP SERIES | | 5 |
| | |
| | RS Small Cap Core Equity VIP Series (continued) |
Thank you for your investment in RS Small Cap Core Equity VIP Series and for your ongoing support.
Sincerely,
Matthew P. Ziehl
Portfolio Manager
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
Small cap investing entails special risks, as small cap stocks have tended to be more volatile and to drop more in down markets than large cap stocks. This may happen because small companies may be limited in terms of product lines, financial resources and management.
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| 6 | | RS SMALL CAP CORE EQUITY VIP SERIES |
Assets Under Management: $240,166,012 | Data as of June 30, 2007 |
| | |
 [GRAPHIC]
| | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| | |
| Company | | Percentage of Total Net Assets |
Digital Realty Trust, Inc. | | 2.82% |
Trident Microsystems, Inc. | | 2.78% |
Psychiatric Solutions, Inc. | | 2.60% |
Investment Technology Group, Inc. | | 2.26% |
NeuStar, Inc. | | 2.13% |
BE Aerospace, Inc. | | 2.11% |
Blackboard, Inc. | | 2.09% |
TETRA Technologies, Inc. | | 2.06% |
Century Aluminum Co. | | 2.05% |
Targa Resources Partners LP | | 2.03% |
| Total | | 22.93% |
1 | The sector allocation represents the Global Industry Classification Standard (GICS), which was developed by Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P). The Fund’s holdings are allocated to each sector based on their GICS classification. Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
3 | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which consists of the 3,000 largest U.S. companies based on total market capitalization. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses. |
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| RS SMALL CAP CORE EQUITY VIP SERIES | | 7 |
| | |
| | RS Small Cap Core Equity VIP Series (continued) |
| | |
| | Performance Update Average Annual Returns As of 06/30/07 |
| | | | | | | | | | | | | | |
| | | | | | | | |
| | | Inception
Date | | Year-to-Date | | 1 Year | | 3 Year | | 5 Year | | 10 Year | |
Since
Inception |
RS Small Cap Core Equity VIP Series | | 05/01/97 | | 11.78% | | 23.02% | | 13.20% | | 13.28% | | 9.37% | | 10.65% |
Russell 2000® Index3 | | | | 6.45% | | 16.43% | | 13.45% | | 13.88% | | 9.06% | | 10.41% |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 06/30/97 |
The chart above shows the performance of a hypothetical $10,000 investment made in RS Small Cap Core Equity VIP Series and the Russell 2000® Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian Small Cap Stock Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.85%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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| 8 | | RS SMALL CAP CORE EQUITY VIP SERIES |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,117.80 | | $4.34 | | 0.83% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,020.69 | | $4.15 | | 0.83% |
| * | 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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| RS SMALL CAP CORE EQUITY VIP SERIES | | 9 |
| | |
| | Schedule of Investments – RS Small Cap Core Equity VIP Series |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| | | | | |
| Common Stocks — 98.5% | | | | | |
| Aerospace & Defense — 3.7% | | | | | |
AAR Corp.1 | | 117,800 | | $ | 3,888,578 |
BE Aerospace, Inc.1 | | 122,600 | | | 5,063,380 |
| | | | | |
| | | | | 8,951,958 |
| Biotechnology — 2.1% | | | | | |
Achillion Pharmaceuticals, Inc.1 | | 63,100 | | | 377,338 |
Human Genome Sciences, Inc.1 | | 108,500 | | | 967,820 |
Keryx Biopharmaceuticals, Inc.1 | | 106,100 | | | 1,036,597 |
Progenics Pharmaceuticals, Inc.1 | | 69,700 | | | 1,503,429 |
Savient Pharmaceuticals, Inc.1 | | 101,200 | | | 1,256,904 |
| | | | | |
| | | | | 5,142,088 |
| Building Products — 1.6% | | | | | |
Goodman Global, Inc.1 | | 169,700 | | | 3,770,734 |
| | | | | |
| | | | | 3,770,734 |
| Capital Markets — 3.1% | | | | | |
Apollo Investment Corp. | | 97,355 | | | 2,095,080 |
Investment Technology Group, Inc.1 | | 125,400 | | | 5,433,582 |
| | | | | |
| | | | | 7,528,662 |
| Chemicals — 1.7% | | | | | |
Cytec Industries, Inc. | | 64,800 | | | 4,132,296 |
| | | | | |
| | | | | 4,132,296 |
| Commercial Banks — 5.1% | | | | | |
Center Financial Corp. | | 108,700 | | | 1,839,204 |
East West Bancorp, Inc. | | 65,800 | | | 2,558,304 |
IBERIABANK Corp. | | 41,300 | | | 2,042,285 |
PrivateBancorp, Inc. | | 84,800 | | | 2,442,240 |
Seacoast Banking Corporation of Florida | | 81,600 | | | 1,774,800 |
Signature Bank Corp.1 | | 49,200 | | | 1,677,720 |
| | | | | |
| | | | | 12,334,553 |
| Commercial Services & Supplies — 2.2% | | | |
Fuel Tech, Inc.1 | | 73,400 | | | 2,513,950 |
LECG Corp.1 | | 181,800 | | | 2,746,998 |
| | | | | |
| | | | | 5,260,948 |
| Communications Equipment — 3.3% | | | |
Blue Coat Systems, Inc.1 | | 94,500 | | | 4,679,640 |
Foundry Networks, Inc.1 | | 193,400 | | | 3,222,044 |
| | | | | |
| | | | | 7,901,684 |
| Construction & Engineering — 1.7% | | | |
Aecom Technology Corp.1 | | 161,790 | | | 4,014,010 |
| | | | | |
| | | | | 4,014,010 |
| Diversified Financial Services — 0.8% | | | |
Genesis Lease Ltd., ADR2 | | 66,900 | | | 1,833,060 |
| | | | | |
| | | | | 1,833,060 |
| Diversified Telecommunication Services — 3.0% |
NeuStar, Inc., Class A1 | | 176,200 | | | 5,104,514 |
PAETEC Holding Corp.1 | | 194,180 | | | 2,192,292 |
| | | | | |
| | | | | 7,296,806 |
| Electrical Equipment — 1.5% | | | | | |
Regal-Beloit Corp. | | 76,000 | | | 3,537,040 |
| | | | | |
| | | | | 3,537,040 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Energy Equipment & Services — 2.1% |
TETRA Technologies, Inc.1 | | 175,500 | | $ | 4,949,100 |
| | | | | |
| | | | | 4,949,100 |
| Food Products — 4.2% | | | | | |
B&G Foods, Inc., Class A | | 141,450 | | | 1,867,140 |
Flowers Foods, Inc. | | 110,000 | | | 3,669,600 |
J&J Snack Foods Corp. | | 31,100 | | | 1,173,714 |
Reddy Ice Holdings, Inc. | | 114,300 | | | 3,259,836 |
| | | | | |
| | | | | 9,970,290 |
| Health Care Equipment & Supplies — 6.2% |
DJ Orthopedics, Inc.1 | | 41,300 | | | 1,704,451 |
Hologic, Inc.1 | | 37,500 | | | 2,074,125 |
Immucor, Inc.1 | | 126,600 | | | 3,541,002 |
Micrus Endovascular Corp.1 | | 58,800 | | | 1,446,480 |
NuVasive, Inc.1 | | 120,000 | | | 3,241,200 |
SonoSite, Inc.1 | | 90,700 | | | 2,850,701 |
| | | | | |
| | | | | 14,857,959 |
| Health Care Providers & Services — 4.6% |
HMS Holdings Corp.1 | | 67,400 | | | 1,290,036 |
Pediatrix Medical Group, Inc.1 | | 63,600 | | | 3,507,540 |
Psychiatric Solutions, Inc.1 | | 172,200 | | | 6,243,972 |
| | | | | |
| | | | | 11,041,548 |
| Health Care Technology — 0.7% | | | | | |
Vital Images, Inc.1 | | 61,470 | | | 1,669,525 |
| | | | | |
| | | | | 1,669,525 |
| Hotels, Restaurants & Leisure — 2.9% |
Chipotle Mexican Grill, Inc., Class A1 | | 15,200 | | | 1,296,256 |
Chipotle Mexican Grill, Inc., Class B1 | | 19,800 | | | 1,556,874 |
Orient-Express Hotels Ltd., Class A | | 78,000 | | | 4,165,200 |
| | | | | |
| | | | | 7,018,330 |
| Information Technology Services — 2.0% |
CACI International, Inc., Class A1 | | 96,100 | | | 4,694,485 |
| | | | | |
| | | | | 4,694,485 |
| Insurance — 1.5% | | | | | |
Hanover Insurance Group, Inc. | | 75,500 | | | 3,683,645 |
| | | | | |
| | | | | 3,683,645 |
| Internet & Catalog Retail — 1.4% | | | | | |
FTD Group, Inc. | | 186,770 | | | 3,438,436 |
| | | | | |
| | | | | 3,438,436 |
| Internet Software & Services — 1.2% |
TheStreet.com, Inc. | | 259,481 | | | 2,823,153 |
| | | | | |
| | | | | 2,823,153 |
| Machinery — 2.6% | | | | | |
EnPro Industries, Inc.1 | | 87,800 | | | 3,756,962 |
Gardner Denver, Inc.1 | | 59,300 | | | 2,523,215 |
| | | | | |
| | | | | 6,280,177 |
| Metals & Mining — 3.5% | | | | | |
Century Aluminum Co.1 | | 90,200 | | | 4,927,626 |
Quanex Corp. | | 73,900 | | | 3,598,930 |
| | | | | |
| | | | | 8,526,556 |
The accompanying notes are an integral part of these financial statements.
| | |
| 10 | | RS SMALL CAP CORE EQUITY VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Multiline Retail — 0.9% | | | |
The Bon-Ton Stores, Inc. | | 56,800 | | $ | 2,275,408 |
| | | | | |
| | | | | 2,275,408 |
| Oil, Gas & Consumable Fuels — 5.0% | | | |
Bill Barrett Corp.1 | | 64,100 | | | 2,360,803 |
GeoMet, Inc.1 | | 273,500 | | | 2,095,010 |
Targa Resources Partners LP | | 145,570 | | | 4,876,595 |
Teekay LNG Partners LP | | 76,000 | | | 2,742,080 |
| | | | | |
| | | | | 12,074,488 |
| Personal Products — 1.5% | | | |
Playtex Products, Inc.1 | | 238,700 | | | 3,535,147 |
| | | | | |
| | | | | 3,535,147 |
| Real Estate Investment Trusts — 6.9% | | | |
Anthracite Capital, Inc. | | 207,520 | | | 2,427,984 |
Ashford Hospitality Trust | | 212,500 | | | 2,499,000 |
Capital Lease Funding, Inc. | | 218,800 | | | 2,352,100 |
Digital Realty Trust, Inc. | | 179,800 | | | 6,774,864 |
Healthcare Realty Trust, Inc. | | 91,300 | | | 2,536,314 |
| | | | | |
| | | | | 16,590,262 |
| Semiconductors & Semiconductor Equipment — 5.8% |
Atheros Communications1 | | 47,300 | | | 1,458,732 |
Netlogic Microsystems, Inc.1 | | 128,600 | | | 4,094,624 |
Silicon Motion Technology Corp., ADR1,2 | | 64,200 | | | 1,594,086 |
Trident Microsystems, Inc.1 | | 363,900 | | | 6,677,565 |
| | | | | |
| | | | | 13,825,007 |
| Software — 8.6% | | | | | |
Ansoft Corp.1 | | 140,300 | | | 4,137,447 |
Blackboard, Inc.1 | | 119,000 | | | 5,012,280 |
Concur Technologies, Inc.1 | | 68,900 | | | 1,574,365 |
FactSet Research Systems, Inc. | | 48,100 | | | 3,287,635 |
Informatica Corp.1 | | 311,200 | | | 4,596,424 |
Parametric Technology Corp.1 | | 95,500 | | | 2,063,755 |
| | | | | |
| | | | | 20,671,906 |
| Specialty Retail — 3.6% | | | | | |
bebe stores, inc. | | 254,900 | | | 4,080,949 |
Children’s Place Retail Stores, Inc.1 | | 50,900 | | | 2,628,476 |
The Men’s Wearhouse, Inc. | | 39,000 | | | 1,991,730 |
| | | | | |
| | | | | 8,701,155 |
| Textiles, Apparel & Luxury Goods — 2.5% | | | |
Carter’s, Inc.1 | | 121,800 | | | 3,159,492 |
Heelys, Inc.1 | | 106,500 | | | 2,754,090 |
| | | | | |
| | | | | 5,913,582 |
| Thrifts & Mortgage Finance — 1.0% | | | |
Downey Financial Corp. | | 34,700 | | | 2,289,506 |
| | | | | |
| | | | | 2,289,506 |
| | | | | |
Total Common Stocks
(Cost $209,414,213) | | | | | 236,533,504 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y3 | | 5 | | $ | 202 |
RS Emerging Growth Fund, Class Y3 | | 19 | | | 763 |
RS Emerging Markets Fund, Class A3 | | 5 | | | 138 |
RS Global Natural Resources Fund, Class Y3 | | 59 | | | 2,148 |
RS Growth Fund, Class Y3 | | 44 | | | 739 |
RS Investors Fund, Class Y3 | | 114 | | | 1,471 |
RS MidCap Opportunities Fund, Class Y3 | | 38 | | | 615 |
RS Partners Fund, Class Y3 | | 14 | | | 544 |
RS Smaller Company Growth Fund, Class Y3 | | 19 | | | 442 |
RS Value Fund, Class Y3 | | 14 | | | 418 |
| | | | | |
Total Other Investments
(Cost $7,005) | | | | | 7,480 |
| | | | | |
| | |
| | | Shares | | Value |
| Short-Term Investments — 0.8% | | | |
Federated Prime Obligations Fund, Class B4 | | 1,949,616 | | | 1,949,616 |
| | | | | |
Total Short-Term Investments
(Cost $1,949,616) | | | 1,949,616 |
| | | | | |
Total Investments — 99.3%
(Cost $211,370,834) | | | 238,490,600 |
| | | | | |
| Other Assets, Net — 0.7% | | | | | 1,675,412 |
| | | | | |
| Total Net Assets — 100.0% | | $ | 240,166,012 |
1 | Non income-producing security. |
2 | ADR — American Depositary Receipt. |
3 | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
4 | Money Market Fund registered under the Investment Company Act of 1940. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS SMALL CAP CORE EQUITY VIP SERIES | | 11 |
| | |
| | Financial Information — RS Small Cap Core Equity VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | |
| |
Assets | | | |
Investments, at value | | $ | 238,490,600 |
Cash and cash equivalents | | | 6,488 |
Receivable for investments sold | | | 1,776,873 |
Dividends/interest receivable | | | 380,715 |
Receivable for fund shares subscribed | | | 31,839 |
Prepaid expenses | | | 5,605 |
| | | |
Total Assets | | | 240,692,120 |
| | | |
Liabilities | | | |
Payable for fund shares redeemed | | | 200,990 |
Payable to adviser | | | 153,048 |
Payable for investments purchased | | | 124,471 |
Deferred trustees’ compensation | | | 7,480 |
Accrued expenses/other liabilities | | | 40,119 |
| | | |
Total Liabilities | | | 526,108 |
| | | |
Total Net Assets | | $ | 240,166,012 |
| | | |
Net Assets Consist of: | | | |
Paid-in capital | | | 175,364,317 |
Accumulated undistributed net investment income | | | 1,793,957 |
Accumulated net realized gain from investments | | | 35,887,972 |
Net unrealized appreciation on investments | | | 27,119,766 |
| | | |
Total Net Assets | | $ | 240,166,012 |
| | | |
Investments, at Cost | | $ | 211,370,834 |
| | | |
Pricing of Shares | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 14,295,755 |
| |
Net Asset Value Per Share | | | $16.80 |
| | |
| | Statement of Operations For the Six Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 89,676 | |
Dividends | | | 2,423,165 | |
| | | | |
Total Investment Income | | | 2,512,841 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 908,708 | |
Custodian fees | |
|
44,143 |
|
Professional fees | | | 23,675 | |
Shareholder reports | | | 15,841 | |
Trustees’ fees and expenses | | | 6,618 | |
Insurance expense | | | 6,027 | |
Administrative service fees | | | 3,683 | |
Registration fees | | | 122 | |
Other expense | | | 988 | |
| | | | |
Total Expenses | | | 1,009,805 | |
Less: Custody credits | | | (7,401 | ) |
| | | | |
Total Expenses, Net | | | 1,002,404 | |
| | | | |
Net Investment Income | | | 1,510,437 | |
| | | | |
| |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized gain from investments | | | 30,124,178 | |
Net change in unrealized depreciation on investments | | | (4,630,534 | ) |
| | | | |
Net Gain on Investments | | | 25,493,644 | |
| | | | |
Net Increase in Net Assets Resulting
from Operations | | $ | 27,004,081 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS SMALL CAP CORE EQUITY VIP SERIES |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the Six
Months Ended
6/30/07 | | | For the Year
Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 1,510,437 | | | $ | 283,520 | |
Net realized gain on investments | | | 30,124,178 | | | | 23,342,844 | |
Net change in unrealized appreciation/(depreciation) on investments | | | (4,630,534 | ) | | | 15,006,687 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 27,004,081 | | | | 38,633,051 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net realized gain on investments | | | — | | | | (21,654,308 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (21,654,308 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 6,886,236 | | | | 21,648,107 | |
Reinvestment of distributions | | | — | | | | 21,654,308 | |
Cost of shares redeemed | | | (26,733,997 | ) | | | (66,349,976 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Capital Share Transactions | | | (19,847,761 | ) | | | (23,047,561 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | 7,156,320 | | | | (6,068,818 | ) |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 233,009,692 | | | | 239,078,510 | |
| | | | | | | | |
End of period | | $ | 240,166,012 | | | $ | 233,009,692 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 1,793,957 | | | $ | 283,520 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
Shares | | | | | | | | |
Sold | | | 427,087 | | | | 1,416,254 | |
Reinvested | | | — | | | | 1,470,317 | |
Redeemed | | | (1,634,123 | ) | | | (4,299,080 | ) |
| | | | | | | | |
Net Decrease | | | (1,207,036 | ) | | | (1,412,509 | ) |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS SMALL CAP CORE EQUITY VIP SERIES | | 13 |
| | |
| | Financial Information — RS Small Cap Core Equity VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past five years and the six months ended June 30, 2007. 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 (assuming reinvestment of all dividends and distributions).
| | |
[GRAPHIC]
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income/(Loss) | | | Net Realized
and Unrealized
Gain/(Loss) | | | Total From
Investment
Operations | | | Distributions
From Net
Investment
Income | | | Distributions
From Net
Realized
Capital Gains | | | Total
Distributions | |
| | | | | | | | |
Six Months Ended 06/30/071 | | $ | 15.03 | | $ | 0.11 | | |
$ |
1.66 |
| |
$ |
1.77 |
| |
$ |
— |
| |
$ |
— |
| |
$ |
— |
|
| | | | | | | | |
Year Ended 12/31/06 | | | 14.13 | | | 0.02 | | | | 2.35 | | | | 2.37 | | | | — | | | | (1.47 | ) | | | (1.47 | ) |
| | | | | | | | |
Year Ended 12/31/05 | | | 17.22 | | | 0.04 | | | | (0.08 | ) | | | (0.04 | ) | | | (0.04 | ) | | | (3.01 | ) | | | (3.05 | ) |
| | | | | | | | |
Year Ended 12/31/04 | | | 17.83 | | | (0.05 | ) | | | 2.66 | | | | 2.61 | | | | — | | | | (3.22 | ) | | | (3.22 | ) |
| | | | | | | | |
Year Ended 12/31/03 | | | 12.43 | | | (0.04 | ) | | | 5.44 | | | | 5.40 | | | | — | | | | — | | | | — | |
| | | | | | | | |
Year Ended 12/31/02 | | | 14.71 | | | (0.01 | ) | | | (2.27 | ) | | | (2.28 | ) | | | (0.00 | )a | | | — | | | | (0.00 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
| 14 | | RS SMALL CAP CORE EQUITY VIP SERIES |
| | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total
Return* | | Net Assets, End
of Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets(2) | | Net Ratio of Net
Investment Income/
(Loss) to Average
Net Assets(2) | | Portfolio
Turnover Rate |
| | | | | |
| $16.80 | | 11.78% | | $ | 240,166 | | 0.83% | | 1.25% | | 73% |
| | | | | |
| 15.03 | | 17.17% | | | 233,010 | | 0.85% | | 0.12% | | 136% |
| | | | | |
| 14.13 | | 0.16% | | | 239,079 | | 0.84% | | 0.24% | | 133% |
| | | | | |
| 17.22 | | 15.17% | | | 304,309 | | 0.82% | | (0.28)% | | 125% |
| | | | | |
| 17.83 | | 43.44% | | | 303,927 | | 0.83% | | (0.24)% | | 107% |
| | | | | |
| 12.43 | | (15.50)% | | | 228,953 | | 0.84% | | (0.05)% | | 109% |
| | (1) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | (2) | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income/(Loss) to Average Net Assets include the effect of custody credits. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | (a) | Rounds to less than $0.01. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS SMALL CAP CORE EQUITY VIP SERIES | | 15 |
| | |
| | Notes to Financial Statements — RS Small Cap Core Equity VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS Small Cap Core Equity VIP Series (the “Fund” or “SCV”) is a series of the Trust. SCV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of SCV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost which approximates market value (see Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
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.
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $7,401. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
| | |
| 16 | | RS SMALL CAP CORE EQUITY VIP SERIES |
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 translated into U.S. dollars at the exchange rates quoted at the close of the New York Stock Exchange on each business day. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rate 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 with the net realized and unrealized gain or loss from investments.
Forward Foreign Currency Contracts
SCV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the values of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by SCV. When forward contracts are closed, SCV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. SCV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for SCV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of SCV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Fund.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was as follows:
| | | | | | | | | |
| | | Ordinary
Income | | Long-Term
Capital Gain | | Total |
2006 | | $ | 3,086,381 | | $ | 18,567,927 | | $ | 21,654,308 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
| | |
| RS SMALL CAP CORE EQUITY VIP SERIES | | 17 |
| | |
| | Notes to Financial Statements — RS Small Cap Core Equity VIP Series (continued) |
June 30, 2007 (unaudited)
As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:
| | | | |
Undistributed
Ordinary
Income | | Long-Term
Capital Gain |
| $ | 3,794,425 | | $ | 3,071,242 |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually. The Fund had no capital loss carryforwards.
Under the current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund had no such losses.
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co. LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 0.75% of the average daily net assets of the Fund.
Pursuant to a Sub-Administration and Accounting Services Agreement, Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments, receives fees at an annual rate of 0.078% of the Fund’s average daily net assets from RS Investments.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 0.85% of the average daily net assets of SCV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $175,015,463 and 194,603,141, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2007 aggregated $33,267,583 and $6,479,380, respectively, resulting in net unrealized appreciation of $26,788,203. The cost of investments owned at June 30, 2007 for federal income tax purposes was $211,702,397.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, SCV 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, SCV maintains the right to sell the collateral and may claim any resulting loss against the seller.
| | |
| 18 | | RS SMALL CAP CORE EQUITY VIP SERIES |
| Note E. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for SCV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 427,087 | | | 1,416,254 | | | $ | 6,886,192 | | | $ | 21,648,107 | |
Shares issued in reinvestment of
dividends and distributions | | — | | | 1,470,317 | | | | — | | | | 21,654,308 | |
Shares repurchased | | (1,634,123 | ) | | (4,299,080 | ) | | | (26,733,997 | ) | | | (66,349,976 | ) |
| | |
Net decrease | | (1,207,036 | ) | | (1,412,509 | ) | | $ | (19,847,805 | ) | | $ | (23,047,561 | ) |
| | |
| Note F. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund had $15,315 in average borrowings at an average interest rate of 5.75%. No borrowings were outstanding at June 30, 2007.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note H. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adaptation of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoptation of SFAS 157 will have no material impact on the Fund’s financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of
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| RS SMALL CAP CORE EQUITY VIP SERIES | | 19 |
| | |
| �� | Notes to Financial Statements — RS Small Cap Core Equity VIP Series (continued) |
June 30, 2007 (unaudited)
Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of under- takings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that
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| 20 | | RS SMALL CAP CORE EQUITY VIP SERIES |
fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution
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| 22 | | RS SMALL CAP CORE EQUITY VIP SERIES |
capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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| RS SMALL CAP CORE EQUITY VIP SERIES | | 23 |
RS Variable Products Trust
RS Large Cap Value VIP Series
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| 6.30.07 | |  |
| | |
 [GRAPHIC]
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or UBS Global Asset Management (Americas) Inc. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
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| | RS Large Cap Value VIP Series |
John Leonard, Thomas M. Cole, Thomas Digenan and Scott Hazen are the members of the North American Equities investment management team primarily responsible for the day-to-day management of RS Large Cap Value VIP Series. Mr. Leonard, as the head of the investment management team, oversees the other members of the team, leads the portfolio construction process and reviews the overall composition of the Fund’s portfolio to ensure compliance with its stated investment objectives and strategies. Mr. Cole, as the director of research for the investment management team, oversees the analyst team that provides the investment research on the large cap markets that is used in making the security selections for the Fund’s portfolio. Mr. Digenan and Mr. Hazen, as the primary strategists for the investment management team, provide cross-industry assessments and risk management assessments for portfolio construction for the Fund.
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 | | John Leonard (UBS Global Asset Management (Americas) Inc.) is the Head of North American Equities and Deputy Global Head of Equities at UBS Global Asset Management. Mr. Leonard is also a Managing Director of UBS Global Asset Management and has been an investment professional with UBS Global Asset Management since 1991. |
 | | Thomas M. Cole (UBS Global Asset Management (Americas) Inc.) is the Head of Research — North American Equities and a Managing Director of UBS Global Asset Management. Mr. Cole has been an investment professional with UBS Global Asset Management since 1995. |
 | | Thomas Digenan (UBS Global Asset Management (Americas) Inc.) has been a North American Equity Strategist at UBS Global Asset Management since 2001 and is an Executive Director of UBS Global Asset Management. Mr. Digenan was President of The UBS Funds from 1993 to 2001. |
 | | Scott Hazen (UBS Global Asset Management (Americas) Inc.) has been a North American Equity Strategist at UBS Global Asset Management since 2004 and is an Executive Director of UBS Global Asset Management. From 1992 to 2004, Mr. Hazen was a Client Service and Relationship Management professional with UBS Global Asset Management. |
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| RS LARGE CAP VALUE VIP SERIES | | 3 |
| | |
| | RS Large Cap Value VIP Series (continued) |
Fund Philosophy
RS Large Cap Value VIP Series seeks to maximize total return, consisting of capital appreciation and current income by investing principally in large capitalization companies.
Investment Process
Under normal market conditions, the Fund invests at least 80% of its net assets (plus borrowings for investment purposes, if any) in equity securities of large capitalization companies. The Fund defines such companies as those with a capitalization of at least $3 billion at the time of initial purchase.
The Fund normally invests in companies whose stock prices, in the opinion of UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment subadviser, do not reflect the company’s full value. These expectations are based on UBS Global AM’s assessment of a company’s ability to generate profit and grow the business in the future.
Performance
The U.S. economy has slowed from the pace of the past few years, with a first-quarter annualized gross domestic product (GDP) growth rate of 0.7%. Overall 2006 real GDP growth was 3.3%, and medium-term expectations are in the 3% range. GDP growth is expected to be 2.1% for 2007 and 2.9% for 2008. Housing data has been relatively weak, and the scope and the depth of the growing subprime credit crunch in the United States remains to be seen. There has, however, been some stronger data indicating, we believe, a possible recovery from the slow pace of the first quarter. Survey data, such as the Institute for Supply Management’s manufacturing report, for example, indicates a bit of a rebound from this slow-growth period. We believe monthly observed inflation data remain relatively tame, as do the quarterly unit labor cost and personal consumption deflator measures. Federal Reserve Board funds futures now have priced in only a small chance of a 25-basis-point cut by the end of 2007. The federal budget deficit is shrinking slowly, but the current account deficit remains large, and the household savings rate is low.
The U.S. equity market made a strong showing in the second quarter of 2007, with very positive returns in April and May being partially offset by negative returns in June. Investors re-established their appetite for risk after a rocky period in the middle of the first quarter. During the second quarter and year-to-date ended June 30, 2007, RS Large Cap Value VIP Series generated returns of 5.62% and 6.85%, respectively. During the second quarter, the benchmark Russell 1000® Value Index3 was up 4.93%, bringing the year-to-date returns for the Index to 6.23%.
Portfolio Review
While most sectors have generated positive absolute returns during the first six months of the year, there was fairly wide dispersion among the market leaders — such as energy, materials, and telecom — and the laggards — such as financials, consumer discretionary, and consumer staples. Commodity prices surged after hitting a rough patch to start the year, and many companies profiting from that type of environment saw the positive impact on their stock prices. Financial stocks in general came under fire as subprime mortgage problems made headlines, although the actual impact on the companies themselves varied tremendously. Consumer-oriented sectors struggled as the market continues to evaluate the impact of soft real estate markets and higher energy costs on overall spending.
During the six months ended June 30, the Fund was positively impacted by stock selection, industry positioning, and risk factors. Positive stock selection contributed most as strong performance by holdings such as pharmaceutical benefits manager MedcoHealth Solutions, utility company Exelon, and diversified auto parts manufacturer Johnson Controls more than offset the negative impact of such underperforming holdings as managed care company UnitedHealth Group, freight carrier FedEx, and beverage company Constellation Brands.
MedcoHealth Solutions added to performance during the quarter as the stock has experienced recent price strength. We retain a strong belief in Medco’s ability to perform well as the company looks to benefit from several favorable trends affecting the pharmacy benefit management industry.
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| 4 | | RS LARGE CAP VALUE VIP SERIES |
Exelon’s earnings have risen more than 70% year-over-year as a result of higher power output and rising wholesale prices. Limited capacity and increasing demand have led to increased interest in power generators as electricity prices are expected to rise over time.
Johnson Controls has performed well as rising energy costs have increased demand for the company’s building efficiency products. Building products growth is also being driven by the company’s exposure to emerging markets. We believe that the diversification Johnson Controls retains in terms of customer, geography, product and business line will enable it to continue to produce solid results.
UnitedHealth Group underperformed, particularly in June, as margin pressures in the industry continue to present themselves. Investors expressed concern by moving away from the space in general, with UnitedHealth being one company in particular that bore the brunt of that selloff. We continue to factor relatively low margin levels into our forward-looking estimates and are comfortable that over time those targets will be met.
FedEx has generated positive absolute returns during the first half of the year, but has lagged other opportunities in the freight transportation industry. The company has communicated to the market its intentions to increase capital expenditures in Asia over the next couple of years, and it expects the positive impact of these projects to positively impact earnings in year three and beyond. Investors reacted to the news with caution as they evaluate the impact of these expenditures on earnings in the short term.
Constellation Brands underperformed, particularly during the first quarter, as the beverage producer and marketer dramatically reduced its profit and revenue targets for fiscal 2008, citing challenges in the United Kingdom; these include the oversupply of Australian wine that has driven down prices and a U.S. operating plan to reduce distributor wine inventory levels. We remain confident in Constellation Brands and feel that the market is underestimating the company’s organic growth opportunities. We also project solid wine consumption growth, especially in the United States and the United Kingdom, which will benefit the company.
Industry selection has been positively affected by our overweight positions in oil service companies, motor vehicles, and parts and our underweightings in real estate investment trusts (REITs) and financial services companies. Partially offsetting these positives was the negative impact of being overweighted in large diversified banks and underweighted in oil refining, energy reserves, and mining and metal companies. From a risk factor perspective, the Fund’s modest underweighting to value-style characteristics relative to that of its deep value index benefited results as growth tended to outperform value this year for the first time in a number of years.
Outlook
There are many factors driving investor behavior in today’s U.S. equity market. Only one really matters in the long run — valuation. We find the current U.S. equity market at or near fair value, although we continue to find plenty of price-to-intrinsic value discrepancies within the U.S. equity market.
Fed Watching
One area of perpetual concern to U.S. equity investors is the next move of the Federal Reserve Board. What is the direction of the next move? When will the next move occur? What will drive the Fed’s decision-making process? The Fund is not levered one way or another to the Fed’s next move.
Subprime Lending
The implosion of subprime lenders is at the forefront of investors’ minds. The real issue with subprime is not the direct economic impact or the direct effect on earnings (we believe that is small), but whether there were too many leveraged investors on the other side. The conventional banks do not have these on their books, so they continue to make other types of loans. But the question remains with funds that are exposed in a leveraged fashion through collateralized debt obligations (CDOs) and other structured products. How much of a hit do they take, and does that cause some kind of financial crisis?
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| RS LARGE CAP VALUE VIP SERIES | | 5 |
| | |
| | RS Large Cap Value VIP Series (continued) |
Liquidity
Liquidity has also been a topic of discussion this year. The liquidity currently being provided to the market from private equity investors can lead some investors to believe that current prices have some type of support because the private equity market is flush with cash. This can drive deal activity in the short run; but, as we said earlier, this too is dependent on valuation. With the large cash balances on corporate balance sheets, we expect the trend of increased share buybacks to continue. This trend is also supported by the fact that many corporate CEOs do not want to make their company too attractive to private equity or leveraged-buyout (LBO) type opportunities.
Underlying Economic Outlook
Although we did get a series of stronger-than-expected data from early May to early June that induced the 10-year yield to rise from 4.65% to 5.3%, it is now back at 5.1%. Estimates for second quarter real GDP growth have risen, and even the pessimists have been forced into this by the data. The debate amongst the forecasters is whether housing will continue to drag in the second half of the year, so that real GDP is 2.0%, or if not and we get a trend-like 3.0%. Our strategies really do not depend on either outcome; we just need to avoid recession.
Risk
One aspect of the current market is the unusually low level of risk generated by the market over the past few years. Market volatility has been unusually low. This could change as investors react to tighter credit markets, falling home prices, and rising oil prices. The concern is that all of these factors cause a drag on the consumer. Our positioning in consumer stocks continues to favor specialty retailers, and we are cautious regarding companies that are overexposed to the low- end consumer, those most likely to be impacted by the current drags on consumer spending. To the extent that risk does get re-priced by the market, we expect the number of deals to slow down. Sectors that have priced in acquisition premiums (like materials) could face downward pressures as they struggle to generate earnings growth high enough to justify current valuations.
Strategy
While the market is currently very apprehensive about financials given credit exposures and the subprime lending fallout, we are finding very attractive valuations in this space and find the underlying balance sheets very strong. We maintain underweightings in the materials sector; and within banks and financials, we have underweightings in regional banks and overweightings in diversified financials, which we currently find very attractive. We continue to find opportunities in rails and utilities — two areas that have performed very well during the past few years. These are probably the two segments of the U.S. equity market displaying the greatest pricing power. We continue to underweight the integrated oil companies given our bearish view on long-run oil prices, but we are finding opportunities within oil services.
Thank you for your continued support.
Sincerely,
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| John Leonard | | Thomas M. Cole |
| Co-Portfolio Manager | | Co-Portfolio Manager |
| |
| Thomas Digenan | | Scott Hazen |
| Co-Portfolio Manager | | Co-Portfolio Manager |
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.
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| 6 | | RS LARGE CAP VALUE VIP SERIES |
| | |
| Assets Under Management: $73,813,391 | | Data as of June 30, 2007 |
| | |
 | | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| | |
| Company | | Percentage of Total Net Assets |
Citigroup, Inc. | | 4.71% |
Morgan Stanley | | 4.65% |
Wells Fargo & Co. | | 4.18% |
S&P Depositary Receipts Trust Series I | | 3.91% |
General Electric Co. | | 3.75% |
J.P. Morgan Chase & Co. | | 3.62% |
Exxon Mobil Corp. | | 3.56% |
Chevron Corp. | | 3.37% |
Exelon Corp. | | 2.68% |
Wyeth | | 2.52% |
Total | | 36.95% |
1 | The sector allocation represents the Global Industry Classification Standard (GICS), which was developed by Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P). The Fund’s holdings are allocated to each sector based on their GICS classification. Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
3 | The Russell 1000® Value Index offers investors access to the large-cap value segment of the U.S. equity universe. The Russell 1000 Value Index® is constructed to provide a comprehensive and unbiased barometer of the large-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine growth probability approximates the aggregate large-cap value manager’s opportunity set. The index is unmanaged and cannot be invested in directly. |
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| RS LARGE CAP VALUE VIP SERIES | | 7 |
| | |
| | RS Large Cap Value VIP Series (continued) |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | |
| | | | | | |
| | | Inception Date | | Year-to-Date | | 1-Year | | 3-Year | | Since Inception |
RS Large Cap Value VIP Series | | 02/03/03 | | 6.85% | |
21.18% | |
15.20% | |
18.10% |
Russell 1000® Value Index3 | | | | 6.23% | |
21.87% | |
15.93% | |
18.93% |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 02/03/03 |
The chart above shows the performance of a hypothetical $10,000 investment made in RS Large Cap Value VIP Series and the Russell 1000® Value Index upon the Fund’s commencement of operations. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian UBS VC Large Cap Value Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.97%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
| 8 | | RS LARGE CAP VALUE VIP SERIES |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,068.50 | | $4.91 | | 0.96% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,020.05 | | $4.79 | | 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). |
| | |
| RS LARGE CAP VALUE VIP SERIES | | 9 |
| | |
| | Schedule of Investments – RS Large Cap Value VIP Series |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Common Stocks — 95.0% |
| Aerospace & Defense — 1.9% |
Lockheed Martin Corp. | | 5,100 | | $ | 480,063 |
Northrop Grumman Corp. | | 12,200 | | | 950,014 |
| | | | | |
| | | | | 1,430,077 |
| Air Freight & Logistics — 1.7% | | | | | |
FedEx Corp. | | 11,400 | | | 1,265,058 |
| | | | | |
| | | | | 1,265,058 |
| Auto Components — 4.0% |
BorgWarner, Inc. | | 12,800 | | | 1,101,312 |
Johnson Controls, Inc. | | 15,800 | | | 1,829,166 |
| | | | | |
| | | | | 2,930,478 |
| Automobiles — 0.7% |
Harley-Davidson, Inc. | | 9,000 | | | 536,490 |
| | | | | |
| | | | | 536,490 |
| Beverages — 1.9% |
Anheuser-Busch Companies, Inc. | | 16,200 | | | 844,992 |
Constellation Brands, Inc., Class A(1) | | 22,200 | | | 539,016 |
| | | | | |
| | | | | 1,384,008 |
| Biotechnology — 0.6% |
Cephalon, Inc.(1) | | 5,200 | | | 418,028 |
| | | | | |
| | | | | 418,028 |
| Building Products — 1.5% |
Masco Corp. | | 39,300 | | | 1,118,871 |
| | | | | |
| | | | | 1,118,871 |
| Capital Markets — 8.3% |
Bank of New York, Inc. | | 3,200 | | | 132,608 |
Mellon Financial Corp. | | 37,000 | | | 1,628,000 |
Morgan Stanley | | 40,900 | | | 3,430,692 |
Northern Trust Corp. | | 14,400 | | | 925,056 |
| | | | | |
| | | | | 6,116,356 |
| Commercial Banks — 8.7% | | | | | |
City National Corp. | | 5,600 | | | 426,104 |
Fifth Third Bancorp | | 40,000 | | | 1,590,800 |
PNC Financial Services Group, Inc. | | 18,200 | | | 1,302,756 |
Wells Fargo & Co. | | 87,800 | | | 3,087,926 |
| | | | | |
| | | | | 6,407,586 |
| Diversified Financial Services — 9.8% |
Bank of America Corp. | | 22,258 | | | 1,088,194 |
Citigroup, Inc. | | 67,800 | | | 3,477,462 |
JPMorgan Chase & Co. | | 55,200 | | | 2,674,440 |
| | | | | |
| | | | | 7,240,096 |
| Diversified Telecommunication Services — 2.5% |
AT&T, Inc. | | 43,900 | | | 1,821,850 |
| | | | | |
| | | | | 1,821,850 |
| Electric Utilities — 7.2% |
American Electric Power, Inc. | | 30,100 | | | 1,355,704 |
Exelon Corp. | | 27,300 | | | 1,981,980 |
NiSource, Inc. | | 22,900 | | | 474,259 |
Northeast Utilities | | 30,400 | | | 862,144 |
Pepco Holdings, Inc. | | 23,900 | | | 673,980 |
| | | | | |
| | | | | 5,348,067 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Energy Equipment & Services — 4.0% |
ENSCO International, Inc. | | 15,000 | | $ | 915,150 |
GlobalSantaFe Corp. | | 13,700 | | | 989,825 |
Halliburton Co. | | 29,600 | | | 1,021,200 |
| | | | | |
| | | | | 2,926,175 |
| Food & Staples Retailing — 1.7% |
Costco Wholesale Corp. | | 21,300 | | | 1,246,476 |
| | | | | |
| | | | | 1,246,476 |
| | | | | |
| Gas Utilities — 1.0% |
Sempra Energy | | 12,900 | | | 764,067 |
| | | | | |
| | | | | 764,067 |
| Health Care Providers & Services — 2.1% |
Medco Health Solutions, Inc.(1) | | 13,500 | | | 1,052,865 |
UnitedHealth Group, Inc. | | 10,400 | | | 531,856 |
| | | | | |
| | | | | 1,584,721 |
| Household Durables — 0.9% | | | | | |
Fortune Brands, Inc. | | 8,300 | | | 683,671 |
| | | | | |
| | | | | 683,671 |
| Industrial Conglomerates — 3.8% |
General Electric Co. | | 72,300 | | | 2,767,644 |
| | | | | |
| | | | | 2,767,644 |
| Insurance — 3.0% | | | | | |
Allstate Corp. | | 16,000 | | | 984,160 |
The Hartford Financial Services Group, Inc. | | 12,500 | | | 1,231,375 |
| | | | | |
| | | | | 2,215,535 |
| Machinery — 3.2% | | | | | |
Illinois Tool Works, Inc. | | 28,700 | | | 1,555,253 |
PACCAR, Inc. | | 9,200 | | | 800,768 |
| | | | | |
| | | | | 2,356,021 |
| Media — 3.3% | | | | | |
News Corp., Class A | | 36,200 | | | 767,802 |
Omnicom Group, Inc. | | 20,000 | | | 1,058,400 |
R.H. Donnelley Corp.(1) | | 8,300 | | | 628,974 |
| | | | | |
| | | | | 2,455,176 |
| Oil, Gas & Consumable Fuels — 6.9% |
Chevron Corp. | | 29,500 | | | 2,485,080 |
Exxon Mobil Corp. | | 31,300 | | | 2,625,444 |
| | | | | |
| | | | | 5,110,524 |
| Pharmaceuticals — 6.8% | | | | | |
Bristol-Myers Squibb Co. | | 33,200 | | | 1,047,792 |
Johnson & Johnson | | 7,800 | | | 480,636 |
Merck & Co., Inc. | | 32,500 | | | 1,618,500 |
Wyeth | | 32,400 | | | 1,857,816 |
| | | | | |
| | | | | 5,004,744 |
| Road & Rail — 2.0% | | | | | |
Burlington Northern Santa Fe Corp. | | 17,400 | | | 1,481,436 |
| | | | | |
| | | | | 1,481,436 |
| Software — 3.4% | | | | | |
McAfee, Inc.(1) | | 1,400 | | | 49,280 |
Microsoft Corp. | | 44,200 | | | 1,302,574 |
Symantec Corp.(1) | | 57,800 | | | 1,167,560 |
| | | | | |
| | | | | 2,519,414 |
The accompanying notes are an integral part of these financial statements.
| | |
| 10 | | RS LARGE CAP VALUE VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Specialty Retail — 1.0% | | | | | |
The Home Depot, Inc. | | 18,600 | | $ | 731,910 |
| | | | | |
| | | | | 731,910 |
| Thrifts & Mortgage Finance — 1.0% |
Federal Home Loan Mortgage Corp. | | 12,100 | | | 734,470 |
| | | | | |
| | | | | 734,470 |
| Wireless Telecommunication Services — 2.1% |
Sprint Nextel Corp. | | 74,274 | | | 1,538,214 |
| | | | | |
| | | | | 1,538,214 |
| | | | | |
Total Common Stocks
(Cost $49,927,204) | | | 70,137,163 |
| | |
| | | Shares | | Value |
| Exchange-Traded Fund — 3.9% | | | |
S&P Depositary Receipts Trust Series I | | 19,200 | | | 2,888,256 |
| | | | | |
Total Exchange-Traded Fund
(Cost $2,674,221) | | | | | 2,888,256 |
| | |
| | | Shares | | Value |
Other Investments — For Trustee Deferred
Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(2) | | 1 | | | 59 |
RS Emerging Growth Fund,
Class Y(2) | | 6 | | | 224 |
RS Emerging Markets Fund,
Class A(2) | | 2 | | | 40 |
RS Global Natural Resources Fund, Class Y(2) | | 17 | | | 631 |
RS Growth Fund, Class Y(2) | | 13 | | | 217 |
RS Investors Fund, Class Y(2) | | 33 | | | 432 |
RS MidCap Opportunities Fund, Class Y(2) | | 11 | | | 180 |
RS Partners Fund, Class Y(2) | | 4 | | | 160 |
RS Smaller Company Growth Fund, Class Y(2) | | 6 | | | 130 |
RS Value Fund, Class Y(2) | | 4 | | | 123 |
| | | | | |
Total Other Investments
(Cost $2,056) | | | | | 2,196 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal Amount | | Value |
| | | | | | |
| Repurchase Agreements — 1.0% | | | |
State Street Bank and Trust Co.
Repurchase Agreement,
5.13% dated 6/29/07, maturity
value of $719,307, due 7/2/07, collateralized by $770,000 in FNMA, 5.55%, due 7/10/28,
with a value of $734,388 | | $ | 719,000 | | $ | 719,000 |
| | | | | | |
| Total Repurchase Agreements (Cost $719,000) | | | | | | 719,000 |
| | | | | | |
Total Investments — 99.9%
(Cost $53,322,481) | | | | | | 73,746,615 |
| | | | | | |
| Other Assets, Net — 0.1% | | | | | | 66,776 |
| | | | | | |
| Total Net Assets — 100.0% | | | | | $ | 73,813,391 |
(1) | Non income-producing security. |
(2) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See note B in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS LARGE CAP VALUE VIP SERIES | | 11 |
| | |
| | Financial Information — RS Large Cap Value VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | |
Assets | | | |
Investments, at value | | $ | 73,746,615 |
Cash and cash equivalents | | | 424 |
Dividends/interest receivable | | | 98,407 |
Receivable for investments sold | | | 24,539 |
Receivable for fund shares subscribed | | | 8,888 |
Prepaid expenses | | | 1,688 |
| | | |
Total Assets | | | 73,880,561 |
| | | |
Liabilities | | | |
Payable to adviser | | | 50,693 |
Deferred trustees’ compensation | | | 2,196 |
Payable for investments purchased | | | 732 |
Payable for fund shares redeemed | | | 376 |
Accrued expenses/other liabilities | | | 13,173 |
| | | |
Total Liabilities | | | 67,170 |
| | | |
Total Net Assets | | $ | 73,813,391 |
| | | |
Net Assets Consist of: | | | |
Paid-in capital | | | 49,490,800 |
Accumulated undistributed net investment income | | | 485,144 |
Accumulated net realized gain from investments | | | 3,413,313 |
Net unrealized appreciation on investments | | | 20,424,134 |
| | | |
Total Net Assets | | $ | 73,813,391 |
| | | |
Investments, at Cost | | $ | 53,322,481 |
| | | |
Pricing of Shares | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 5,035,921 |
| |
Net Asset Value Per Share | | | $14.66 |
| | |
| | Statement of Operations For the Six Month Period Ended June 30, 2007 (unaudited) |
| | | | |
Investment Income | | | | |
Interest | | $ | 29,507 | |
Dividends | | | 749,377 | |
| | | | |
Total Investment Income | | | 778,884 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 295,275 | |
Custodian fees | |
|
25,941 |
|
Professional fees | | | 9,704 | |
Shareholder reports | | | 5,582 | |
Trustees’ fees and expenses | | | 1,826 | |
Insurance expense | | | 1,479 | |
Administrative service fees | | | 1,080 | |
Registration fees | | | 16 | |
Other expenses | | | 162 | |
| | | | |
Total Expenses | |
|
341,065 |
|
Less: Custody Credits | | | (746 | ) |
| | | | |
Total Expenses, net | | | 340,319 | |
| | | | |
Net Investment Income | | | 438,565 | |
| | | | |
Realized Gain and Change in Unrealized Appreciation on Investments | | | | |
Net realized gain from investments | | | 2,383,853 | |
Net change in unrealized appreciation on investments | | | 1,889,966 | |
| | | | |
Net Gain on Investments | | | 4,273,819 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 4,712,384 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS LARGE CAP VALUE VIP SERIES |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | | For the Six Months
Ended 6/30/07 | | | For the Year Ended 12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 438,565 | | | $ | 750,221 | |
Net realized gain on investments | | | 2,383,853 | | | | 4,145,632 | |
Net change in unrealized appreciation on investments | | | 1,889,966 | | | | 5,758,542 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 4,712,384 | | | | 10,654,395 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (707,156 | ) |
Net realized gain on investments | | | — | | | | (3,959,097 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (4,666,253 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 4,604,106 | | | | 12,972,894 | |
Reinvestment of distributions | | | — | | | | 4,666,253 | |
Cost of shares redeemed | | | (6,135,347 | ) | | | (11,099,273 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (1,531,241 | ) | | | 6,539,874 | |
| | | | | | | | |
Net Increase in Net Assets | | | 3,181,143 | | | | 12,528,016 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of Period | | | 70,632,248 | | | | 58,104,232 | |
| | | | | | | | |
End of Period | | $ | 73,813,391 | | | $ | 70,632,248 | |
| | | | | | | | |
| | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | | $485,144 | | | | $46,579 | |
| | | | | | | | |
Other Information: | | | | | | | | |
Shares | | | | | | | | |
Sold | | | 324,177 | | | | 978,699 | |
Reinvested | | | — | | | | 351,103 | |
Redeemed | | | (437,596 | ) | | | (838,190 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (113,419 | ) | | | 491,612 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS LARGE CAP VALUE VIP SERIES | | 13 |
| | |
| | Financial Information — RS Large Cap Value VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past five years (or, if shorter, the period of the Fund’s operations) and the six months ended June 30, 2007. 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain | | Total From
Investment
Operations | | Distributions
From Net
Investment
Income | | | Distributions
From Net
Realized
Capital Gains | | | Total
Distributions | |
| | | | | | | | |
Six months ended 6/30/071 | | $ | 13.72 | | $ | 0.09 | | $ | 0.85 | | $ | 0.94 | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
Year ended 12/31/06 | | | 12.47 | | | 0.16 | | | 2.07 | | | 2.23 | | | (0.15 | ) | | | (0.83 | ) | | | (0.98 | ) |
| | | | | | | | |
Year ended 12/31/05 | | | 13.35 | | | 0.19 | | | 1.09 | | | 1.28 | | | (0.19 | ) | | | (1.97 | ) | | | (2.16 | ) |
| | | | | | | | |
Year ended 12/31/04 | | | 12.82 | | | 0.14 | | | 1.57 | | | 1.71 | | | (0.14 | ) | | | (1.04 | ) | | | (1.18 | ) |
| | | | | | | | |
Period from 2/13/20032 to 12/31/20031 | | | 10.00 | | | 0.14 | | | 3.06 | | | 3.20 | | | (0.14 | ) | | | (0.24 | ) | |
|
(0.38 |
) |
The accompanying notes are an integral part of these financial statements.
| | |
| 14 | | RS LARGE CAP VALUE VIP SERIES |
| | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total
Return3 | | Net Assets, End
of Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | | Net Ratio of Net
Investment Income
to Average
Net Assets | | | Portfolio
Turnover Rate |
| | | | | |
| $14.66 | | 6.85% | | $ | 73,813 | | 0.96% | 5 | | 1.23% | 5 | | 19% |
| | | | | |
| 13.72 | | 18.29% | | | 70,632 | | 0.98% | 4 | | 1.23% | 4 | | 41% |
| | | | | |
| 12.47 | | 9.63% | | | 58,104 | | 1.02% | | | 1.21% | | | 40% |
| | | | | |
| 13.35 | | 13.74% | | | 73,895 | | 0.97% | | | 1.12% | | | 41% |
| | | | | |
12.82 | |
32.07% | |
|
58,493 | |
1.08% |
| |
1.27% |
| |
48% |
| | 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | 2 | Commencement of operations. |
| | 3 | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | 4 | Includes the effect of expenses waived by GIS. |
| | 5 | Includes the effect of custody credits. |
| | |
| RS LARGE CAP VALUE VIP SERIES | | 15 |
| | |
| | Notes to Financial Statements — RS Large Cap Value VIP Series |
June 30, 2007 (unaudited)
Note A. Organization and Accounting Policies
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers 17 series. RS Large Cap Value VIP Series (the “Fund” or “LCV”) is a series of the Trust. LCV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of LCV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost which approximates market value (see Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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. Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets. The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $746. The Fund could have employed the uninvested assets to produce income in
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| 16 | | RS LARGE CAP VALUE VIP SERIES |
the Fund if the Fund had not entered into such an arrangement.
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 translated into U.S. dollars at the exchange rates quoted at the close of the New York Stock Exchange on each business day. 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 with the net realized and unrealized gain or loss from investments.
Forward Foreign Currency Contracts
LCV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the values of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by LCV. When forward contracts are closed, LCV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. LCV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.
Futures Contracts
LCV may enter into financial futures contracts. In entering into such contracts, LCV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by LCV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins paid or received by LCV. The daily changes in the variation margin are recognized as unrealized gains or losses by LCV. LCV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for LCV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of LCV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Fund.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as a regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 were as follows:
| | | | | | | | | |
| | | Ordinary
Income | | Long-Term
Capital Gain | | Total |
2006 | | $ | 741,050 | | $ | 3,925,203 | | $ | 4,666,253 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles.
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| RS LARGE CAP VALUE VIP SERIES | | 17 |
| | |
| | Notes to Financial Statements — RS Large Cap Value VIP Series (continued) |
June 30, 2007 (unaudited)
These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:
| | | | |
Undistributed
Ordinary
Income | | Long-Term
Gain |
| $ | 229,618 | | $ | 973,454 |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund had no such losses.
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co. LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 0.83% of the average daily net assets of the Fund.
Pursuant to a Sub-Administration and Accounting Services Agreement, Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments, receives fees at an annual rate of 0.042% of the Fund’s average daily net assets from RS Investments.
RS Investments has entered into a Sub-Advisory Agreement with UBS Global Asset Management (Americas), Inc. (“UBS Global AM”). As compensation for UBS Global AM’s services, RS Investments pays fees to UBS Global AM at an annual rate of 0.43% of LCV’s average daily net assets. Payment of the sub-advisory fees does not represent a separate or additional expense to LCV.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 0.98% of the average daily net assets of LCV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $13,115,817 and $13,857,981, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June
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| 18 | | RS LARGE CAP VALUE VIP SERIES |
30, 2007 aggregated $20,587,299 and $317,713, respectively, resulting in net unrealized appreciation of $20,269,586. The cost of investments owned at June 30, 2007 for federal income tax purposes was $53,477,029.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, LCV 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, LCV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, all repurchase agreements held by the Fund had been entered into on June 29, 2007.
| Note E. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for LCV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31,2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 324,177 | | | 978,699 | | | $ | 4,604,106 | | | $ | 12,972,894 | |
Shares issued in reinvestment of dividends and distributions | | — | | | 351,103 | | | | — | | | | 4,666,253 | |
Shares repurchased | | (437,596 | ) | | (838,190 | ) | | | (6,135,347 | ) | | | (11,099,273 | ) |
| | |
Net increase/(decrease) | | (113,419 | ) | | 491,612 | | | $ | (1,531,241 | ) | | $ | 6,539,874 | |
| | |
| Note F. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note H. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adop-
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| RS LARGE CAP VALUE VIP SERIES | | 19 |
| | |
| | Notes to Financial Statements — RS Large Cap Value VIP Series (continued) |
June 30, 2007 (unaudited)
tion of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on the Fund’s financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of under-takings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were
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| 20 | | RS LARGE CAP VALUE VIP SERIES |
consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD-15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
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| RS LARGE CAP VALUE VIP SERIES | | 21 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution
| | |
| | Supplemental Information — unaudited (continued) |
capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then-upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
RS Variable Products Trust
RS Partners VIP Series
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| 6.30.07 | |  |
| | |
 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS Partners VIP Series |
| | |
 | | Andrew Pilara (RS Investments) has managed RS Partners VIP Series since October 2006. Prior to joining the firm in 1993, he was president of Pilara Associates, an investment management firm he established in 1974. He has been involved in the securities business for over thirty years, with experience in portfolio management, research, trading, and sales. Mr. Pilara holds a B.A. in economics from Saint Mary’s College. |
| |
 | | MacKenzie Davis (RS Investments) has been a co-portfolio manager of RS Partners VIP Series since October 2006. Prior to joining RS Investments in March 2004 as an analyst in the RS Value Group, Mr. Davis spent four years as a high yield analyst at Fidelity Management & Research Company. Previously, he was a vice president at Fidelity Capital Markets. He was also an analyst at Goldman Sachs & Company. Mr. Davis holds an A.B. from Brown University in mathematical economics and modern American history. He is a Chartered Financial Analyst. |
| |
 | | David Kelley (RS Investments) has been a co-portfolio manager of RS Partners VIP Series since October 2006. Prior to joining RS Investments in 2002 as an analyst in the RS Value Group, Mr. Kelley was a small-cap analyst at Pequot Capital Management from 2001 to 2002. Previously, he had served as an analyst for three years with Crestwood Capital, an ING-affiliated hedge fund group, and spent three years at Goldman Sachs & Company in the mergers and acquisitions department. Mr. Kelley earned a B.A. in history from Yale University and an M.B.A. from Harvard Business School. |
| |
 | | Joe Wolf (RS Investments) has been a co-portfolio manager of RS Partners VIP Series since October 2006. Prior to joining RS Investments in 2001 as an analyst in the RS Value Group, Mr. Wolf was the founder, director, and vice president of corporate development for zUniversity, an affinity marketing company focused on university students and alumni. Previously, he had worked as a senior financial analyst at Goldman Sachs & Company for four years in both the equities division and the strategic consulting group. Mr. Wolf holds a B.A. in medicine and psychology from Vanderbilt University and an M.B.A. from Harvard Business School. |
| | |
| | RS Partners VIP Series (continued) |
Fund Philosophy
RS Partners VIP Series seeks long-term growth. The Fund seeks to increase shareholder capital over the long term by investing in equity securities — principally of companies with market capitalizations of up to $3 billion — using a value methodology combining balance sheet analysis with cash flow analysis.
Investment Process
Cash flow return analysis drives our investment process. We invest in companies that manage capital, not earnings, and we look for businesses that we believe have sustainable, long-term returns in excess of their cost of capital. We seek managers who are thoughtful capital allocators within a strong corporate culture. We invest when our calculated warranted value substantially exceeds the current market price.
We intend to use these letters as a means not simply to review quarterly or annual performance, but to help our shareholders better understand our process and philosophy. We strive to employ a highly consistent, repeatable process when evaluating every investment opportunity, with the singular goal of generating superior long-term investment results. With that in mind, we thought it instructive to review a key rule of thumb that we employ, the “15% rule.”
In The Intelligent Investor, Benjamin Graham tells readers to:
Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it — even though others may hesitate or differ. (You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.) Similarly, in the world of securities, courage becomes the supreme virtue AFTER adequate knowledge and tested judgment are at hand.
Recognizing that we are not as eloquent as the founding father of value investing, we have come up with our own vernacular, the aforementioned “15% rule” — any investment, down 15% from cost, is generally either added to or eliminated from the portfolio. If we have done our work and the fundamentals haven’t changed we generally believe we should be buying more of the business. Value investors should be pleased to see the stock price decline as they begin to establish a position, as this will result in a lower aggregate cost basis. This is an obvious mathematical point, but runs contrary to the mindset of the typical investor who seeks validation from the short-term positive movement of stocks trading in the market. Our mandate is to identify investment opportunities where the chance to deploy additional capital at lower prices leaves us more excited, not less.
Perhaps an even more important aspect of this rule of thumb is the case where we are down 15% from cost, but have lost conviction in our thesis. Perhaps the fundamentals have changed. Perhaps we were simply wrong in analysis and our efforts to be contrarian. Regardless of the reason, if we don’t have the conviction to buy more, we generally believe we should sell. Investments that lose 15% of their value are clearly not a positive development, but are manageable within the context of a portfolio. Down 15% investments that balloon into down 40% positions undermine the long-term performance of the Fund. We pride ourselves on our downside protection statistics, and this framework helps us to minimize the impact of inevitable mistakes in a portfolio.
Over time, we also have learned to apply the 15% rule before the first dollar of capital is committed. We force ourselves to envision the scenario(s) where we are down 15% from cost and ask ourselves how enthusiastic we are to commit more capital to the idea. It is amazing how many potential opportunities fail to hold up to this simple test. In portfolio management, some of the best investments are the ones you don’t make.
Performance
The RS Partners VIP Series generated returns of 6.65% for the quarter and 10.93% year-to-date ended June 30, 2007 vs. 2.30% and 3.80%, respectively, for the benchmark Russell 2000® Value Index3. Since inception, the VIP Series has been up 17.42% vs.
22.84% for the index. As is often the case, the performance during the quarter was less a function of our outperforming when the market was up and more a function of doing a better job of protecting capital on days when the market did poorly. Avoiding mistakes, protecting the downside, and preserving capital are primary tenets of our investment philosophy. Each of our investment professionals works to identify structural changes in businesses that will lead to improving returns on invested capital (ROIC). If we overlay improvements in returns with a strict valuation discipline requiring $3 to $5 of upside for every dollar of downside, we believe that we can successfully protect and compound our shareholders’ capital.
Portfolio Review
Financials
In the financials area, it continues to be a selective market. From a market perspective, the financials broadly underperformed, while the banks and real estate investment trusts (REITs) specifically did poorly. Our cautious stance on the group continued to play out in the quarter as the adverse impact of loose underwriting standards, an inverted yield curve, higher costs on liabilities, and a challenging mortgage market pressured returns for many financials. Although the weakness in the group has brought valuations to a more reasonable level, we continue to believe that returns for many companies will continue to deteriorate and that valuations do not fully reflect the fundamentals. Despite the difficult macro environment for financials, we have identified a select number of investment opportunities that we believe are attractive due to significant structural change leading to improving returns alongside asymmetric risk/return profiles. Below we highlight two such names: Assured Guaranty and Annaly Capital Management.
Assured Guaranty is a Bermuda-based financial guarantor that was spun off from Ace Limited in 2004. Financial guaranty companies provide insurance on municipal bonds, asset-backed securities, and other forms of debt, which allows for a lower interest rate for an issuer than would otherwise be received. Because of the initial capital investment and the stringent require-ments for obtaining the appropriate ratings, barriers to entry in the financial guaranty space are extremely high. Additionally, Assured, as well as its peers, writes to a “no loss” underwriting standard, which makes it important that each transaction be stress tested with draconian assumptions to protect its ratings. We believe that the highly consolidated and organized structure of the financial guaranty industry leads to consistent and predictable returns and cash flows.
Since Assured’s initial public offering, the company, led by Dominic Frederico, has taken steps to improve the risk profile of the organization as well as capital levels, which we think have dramatically improved its competitive position and should lead to better returns over time. The company has eliminated its exposure to individual corporate credits, which the ratings agencies viewed as being much riskier, and has focused on improving underwriting standards, which we think will lead to a significant capital build. The improved risk profile and capital levels have allowed the company to receive AAA ratings from two of the three major ratings agencies, and we expect a third upgrade to occur at some point. We believe the AAA rating will allow the company to write business at higher ROIC over time. With the shares trading at a very modest premium to book value and an embedded cash flow stream that we think is yet to be recognized, we remain comfortable that our downside is limited.
Annaly Capital is a mortgage real estate investment trust (REIT). The company invests exclusively in AAA agency mortgage securities issued by Fannie Mae and Freddie Mac. Because of its corporate structure, Annaly pays out essentially all of its cash flows to shareholders in the form of dividends. With a solid management team and an improving return profile not yet fully appreciated by the market, we believe that Annaly has the attributes of a solid investment.
Management shares our view of the importance of ROIC and has a proven track record of prudently managing capital. In the past, management has demonstrated its willingness to shrink the investment portfolio when risk-adjusted returns were unattractive and did not meet hurdle rates. Even though this does
| | |
| | RS Partners VIP Series (continued) |
not maximize near-term earnings and may be unpopular with the “Street,” we believe that this is the correct course of action because it protects shareholder capital.
Annaly is currently deploying capital at good and improving spreads (return on funds vs. cost of funds); and as more capital is recycled, we expect overall ROIC to improve over the next several years. In turn, we believe that better overall returns for the company will lead to improving distributable cash flow and higher dividend payouts. Most important, we believe that a solid, tangible book alongside a modest price-to-book valuation provides good downside protection.
Consumer, Business Services, Health Care, and Technology
During the quarter the Fund’s performance was helped by acquisitions of some of its positions in the consumer, business service, and technology areas. Announcements were made by third parties that intended to buy Coinmach, Equity Inns, and eFunds.
When studying a business for its investment merits, we do not rely on the possibility that the business may be purchased during our investment horizon. We focus on the franchise value of an asset base and look to understand the durability of its business model and the consistency and the visibility of its cash flows. We often say that we are private equity investors of public securities, meaning that we seek to train our sights on businesses with compelling and unique assets that can be defended and compounded over time. Oftentimes, strategic and financial acquirers look for similar attributes.
In the case of Coinmach, we saw a plain-vanilla business with what we believed was very good management and steady returns. Coinmach provides access to laundry facilities for apartment complexes. In the regional markets in which the company chooses to compete, Coinmach dominates its distinct niche. By entering into long-term contracts with the best apartment operators, efficiently purchasing machines and supplies in bulk, and driving the utilization of its dense route network, Coinmach’s team has built a nice, defensible business. We were pleased that an outside suitor saw value in Coinmach’s assets and will pay a material control premium to purchase the company.
Another position being acquired is Equity Inns, a hotel REIT with a diversified portfolio of 132 limited-service hotels located primarily in secondary markets across 35 states. We believe Equity Inns’ lean corporate overhead, well-branded portfolio of young assets (97% Hilton, Marriott, or Hyatt), and attractive margin structure due to the low operating costs of running a limited-service hotel have enabled Equity Inns to be successful at generating relatively stable cash flows over the years despite being exposed to the ups and downs of the hotel cycle. At the time of our investment, Equity Inns’ hotel portfolio was trading at a significant discount to our peer, replacement cost, and private-market valuation analysis. Moreover, we were attracted to the high quality of Equity Inns’ management team (Howard Silver, Mitch Collins, Rich Mitchell, and Ed Ansbro) and saw substantial value in the company’s proprietary acquisition platform.
Over the past 13 years, we think management’s ability to forge strong and lasting relationships with a number of regional hotel developers has allowed the company to deploy more than $500 million of capital at very favorable cap rates (approximately 9% to 10% trailing) via non-competitive hotel acquisitions. We also liked the fact that we would be rewarded with a 6.4% annual dividend yield as we waited for the market to recognize Equity Inns’ true franchise value. Although we never base an investment decision on the hopes of a takeout, we were pleased when the company agreed to be acquired.
eFunds was another position that announced it will be acquired during the quarter. When we invested in eFunds, our sum-of-the-parts investment thesis caused us to expect that one of the company’s three segments was as valuable as the enterprise value of the entire company. We believed at the time that the difference between the available market price and the value of the unrecognized two segments was a very solid margin of safety. As it turned out, Fidelity National, a company that participates broadly in eFunds’ markets, also saw value in eFunds’ collection of assets, agreeing to buy the company at a meaningful premium to our cost basis.
One of our recent purchases, Lions Gate Entertainment, a pure-play movie studio and distribution company, had a slightly negative impact on recent performance. We were attracted to its unique, low-risk business model, which enables it to generate consistently high returns from individual film projects (a true rarity for a Hollywood studio). The key for Lions Gate is its ability to minimize risk by focusing on low-cost projects (Lions Gate films typically cost less than $30 million to produce vs. an industry average of well over $100 million) and by pre-selling international distribution rights to help fund upfront costs. We believe this discipline, along with its focus on niche film categories such as horror, has permitted Lions Gate to produce very consistent results in a challenging industry. Furthermore, Lions Gate has a very valuable film library of more than 10,000 titles that generates approximately $75 million in annual cash flow. This is a very durable cash flow stream that requires no incremental investment and therefore warrants a premium valuation.
Lions Gate recently entered into a new film-financing relationship that we expect will further reduce its risk while allowing it to produce larger films with greater upside potential. Under this relationship, Lions Gate will put up significantly less of the upfront capital and will receive a guaranteed distribution fee in exchange for giving up some of the back-end profits. So while Lions Gate will share in less of the upside in the event of a blockbuster movie, we believe the lower required investment and the guaranteed distribution fee will result in lower volatility and significantly higher returns. This is a major structural change in the Lions Gate business model that we feel is unappreciated by investors.
We expect to see volatility in this stock in the short term based on weekly box-office numbers, as it did recently with weaker-than-expected results from Hostel 2, but we are confident that the outstanding economics and growth potential of this company will be reflected in the stock price over the long term.
Natural Resources, Energy, Industrials, and Staples
For the past several years, investors in the natural resources space have benefited from broad, and occasionally rapid, increases in commodity prices. As we have discussed in previous letters, it was and is our contention that the resulting supply response will lead to lower commodity prices in the intermediate term (two to four years). Importantly, however, we believe that deteriorating capital efficiencies will result in higher midcycle prices in the future, which will have a positive impact on the valuations of natural resources-related stocks. We continue to believe that while sector returns are highly correlated to fluctuations in commodity prices (i.e. the “average” producer creates no value across a price cycle), resource companies with high-quality assets, purchased at a discount to warranted value and run by management teams who are attuned to and motivated by ROIC, will generate superior risk-adjusted returns for the long-term investor vs. both passive commodity investments and resource-related stock indexes. Our estimates of warranted value are derived using our forward midcycle price assumptions, and we view the occasional commodity price spikes simply as “the cherry on top.” We are constructive about the long-term prospects in the natural resources space — our time horizon is years, not months or quarters.
Peabody Energy, the largest privately held coal company in the world, contributed positive returns. Peabody has a dominant position in the Powder River Basin and the Illinois Basin, and it substantially increased its presence in the metallurgical and thermal seaborne market via its acquisition of Excel in Australia. Despite increasing concern regarding coal as a fuel source and the need for continued development of efficacious carbon dioxide capture and sequestration technologies, we think it is very difficult to imagine a coherent U.S. energy policy in which coal is not a significant contributor. Due to a number of historical and logistical reasons, Powder River Basin coal is currently priced at a discount to other coals and at a significant discount to natural gas, which is its main substitute as a fuel source for electric utilities.
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| | RS Partners VIP Series (continued) |
Standing in an above-ground mine, staring at 70-foot coal seams, after having tunneled underground to view 4- to 6-foot seams in Appalachia, we believe it is clear that Powder River Basin coal is a much-higher-return proposition than the alternatives. We think Peabody’s management has a long track record of value creation as evidenced by the Excel acquisition just prior to China’s announcement that it has returned to a net importer status and Peabody’s decision to spin off the Appalachian operations into a stand-alone entity.
Finally, we believe that Peabody’s investment in mine mouth utilities as well as coal-to-liquid technologies represents a free option on efforts to monetize this country’s multi-century coal reserves. We always seek to differentiate between a stock’s value and the value of the business — the former fluctuates, often dramatically, over short periods of time; in Peabody’s case, we believe that the value of the underlying assets continues to compound at very attractive rates.
Specialty materials company Allegheny Technologies suffered a rather lackluster quarter. Investors continue to associate the company with both the carbon steel and the commodity stainless steel markets, yet Allegheny has experienced a structural transformation over the past several years under the stewardship of CEO Pat Hassey. We remain constructive on the outlook for its specialty alloy and titanium businesses and believe that we will benefit from the extended cycle in a number of its end markets.
Investment Team Update
We are pleased to announce that Martin Engel joins us as an analyst on the Value Team in San Francisco. Mr. Engel has worked in financial services for the past 10 years as an analyst in the private equity industry as well as at Phinity Capital, a New York-based hedge fund. Mr. Engel graduated with a B.S. in commerce from the University of Virginia and a M.B.A. from the Wharton School of the University of Pennsylvania.
We will continue to use these letters as an opportunity to communicate our investment objectives and business principles. Our long-term goal is to be considered one of the top value investment teams, which means striving to achieve superior long-term investment results. Our hope is that our investment philosophy, work ethic, and commitment to improvement are the foundation blocks to help us reach our goal. For us, being among the best involves not only achieving our investment objectives but also living by our principles:
| • | | Alignment with shareholders |
| • | | Uncompromising integrity |
We appreciate your support.
Sincerely,
| | |
 | |  |
Andrew Pilara Portfolio Manager | | MacKenzie Davis
Co-Portfolio Manager |
| | |
| |  |
David Kelley Co-Portfolio Manager | | Joe Wolf
Co-Portfolio Manager |
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
Small cap investing entails special risks, as small cap stocks have tended to be more volatile and to drop more in down markets than large cap stocks. This may happen because small companies may be limited in terms of product lines, financial resources and management.
Assets Under Management: $23,857,647 Data as of June 30, 2007
| | |
 | | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| | |
| Company | | Percentage of Total Net Assets |
Corrections Corp. of America | | 5.21% |
Key Energy Services, Inc. | | 4.63% |
Liberty Global, Inc. | | 3.89% |
Triarc Cos., Inc., | | 3.65% |
Corinthian Colleges, Inc. | | 3.61% |
MI Developments, Inc., | | 3.18% |
Hanover Insurance Group, Inc. | | 3.17% |
Peabody Energy Corp. | | 3.10% |
Allegheny Technologies, Inc. | | 3.08% |
Scientific Games Corp. | | 3.03% |
Total | | 36.55% |
1 | The Fund’s holdings are allocated to each sector based on their Russell classification. If a holding is not classified by Russell, it is assigned a Russell designation by RS Investments. Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
3 | The Russell 2000® Value Index is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russell 2000® Index with lower price-to-book ratios and lower forecasted growth values. (The Russell 2000® Value Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which consists of the 3,000 largest U.S. companies based on total market capitalization.) Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees and expenses. |
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| | RS Partners VIP Series (continued) |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | |
| | | | | | |
| | | Inception
Date | | Year-to-Date | | 1-Year | | 3-Year | | Since
Inception |
RS Partners VIP Series | | 02/03/03 | |
10.93% | |
19.09% | |
12.41% | |
17.42% |
Russell 2000® Value Index3 | | | |
3.80% | |
16.05% | |
15.02% | |
22.84% |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 02/03/03 |
The chart above shows the performance of a hypothetical $10,000 investment made in RS Partners VIP Series and the Russell 2000® Value Index upon the Fund’s commencement of operations. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian UBS VC Small Cap Value Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. The predecessor fund, a diversified mutual fund with generally similar investment objective, strategies, and policies, was advised by Guardian Investor Services LLC. The Fund’s adviser since October 9, 2006 is RS Investments, and the Fund is managed by a different portfolio management team than the predecessor fund. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 1.32%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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| 10 | | RS PARTNERS VIP SERIES |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost 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 indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,109.30 | | $7.11 | | 1.36% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,018.05 | | $6.80 | | 1.36% |
| * | 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). |
| | |
| RS PARTNERS VIP SERIES | | 11 |
| | |
| | Schedule of Investments – RS Partners VIP Series |
| | | | | |
June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Common Stocks — 95.3% |
| Air Transport — 3.8% |
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., ADR(1),(2) | | 10,980 | | $ | 301,621 |
Grupo Aeroportuario del Pacifico S.A. de C.V., ADR(1) | | 6,400 | | | 315,648 |
Grupo Aeroportuario del Sureste S.A.B. de. C.V., ADR(1) | | 5,400 | | | 284,526 |
| | | | | |
| | | | | 901,795 |
| Aluminum — 2.1% |
Century Aluminum Co.(2) | | 9,300 | | | 508,059 |
| | | | | |
| | | | | 508,059 |
| Auto Parts – After Market — 1.5% |
Commercial Vehicle Group, Inc.(2) | | 18,900 | | | 352,107 |
| | | | | |
| | | | | 352,107 |
| Banks – Outside New York City — 3.1% |
Hancock Holding Co. | | 9,300 | | | 349,215 |
UMB Financial Corp. | | 4,600 | | | 169,602 |
Whitney Holding Corp. | | 7,200 | | | 216,720 |
| | | | | |
| | | | | 735,537 |
| Cable Television Services — 3.9% |
Liberty Global, Inc., Class A(2) | | 11,500 | | | 471,960 |
Liberty Global, Inc., Series C(2) | | 11,600 | | | 455,880 |
| | | | | |
| | | | | 927,840 |
| Casinos & Gambling — 3.0% |
Scientific Games Corp., Class A(2) | | 20,700 | | | 723,465 |
| | | | | |
| | | | | 723,465 |
| Coal — 3.1% |
Peabody Energy Corp. | | 15,300 | | | 740,214 |
| | | | | |
| | | | | 740,214 |
| Computer Services, Software & Systems — 5.4% |
Ariba, Inc.(2) | | 8,500 | | | 84,235 |
Lawson Software, Inc.(2) | | 30,400 | | | 300,656 |
Quest Software, Inc.(2) | | 16,300 | | | 263,897 |
Solera Holdings, Inc.(2) | | 13,180 | | | 255,429 |
SRA International, Inc., Class A(2) | | 1,790 | | | 45,215 |
Websense, Inc.(2) | | 16,500 | | | 350,625 |
| | | | | |
| | | | | 1,300,057 |
| Drugs & Pharmaceuticals — 1.1% |
Valeant Pharmaceuticals International | | 15,400 | | | 257,026 |
| | | | | |
| | | | | 257,026 |
| Education Services — 3.6% |
Corinthian Colleges, Inc.(2) | | 52,900 | | | 861,741 |
| | | | | |
| | | | | 861,741 |
| Electronics – Medical Systems — 1.1% |
Advanced Medical Optics, Inc.(2) | | 3,000 | | | 104,640 |
eResearch Technology, Inc.(2) | | 15,500 | | | 147,405 |
| | | | | |
| | | | | 252,045 |
| Entertainment — 1.9% |
Lions Gate Entertainment Corp.(2) | | 40,900 | | | 451,127 |
| | | | | |
| | | | | 451,127 |
| | | | | | | | |
| June 30, 2007 (unaudited) | | Foreign
Currency | | Shares | | Value |
| | | | | | | | |
| Financial Data Processing Services & Systems — 1.5% |
eFunds Corp.(2) | | | | | 10,200 | | $ | 359,958 |
| | | | | | | | |
| | | | | | | | 359,958 |
| Financial Information Services — 0.8% |
Interactive Data Corp. | | | | | 7,300 | | | 195,494 |
| | | | | | | | |
| | | | | | | | 195,494 |
| Health Care Facilities — 3.9% |
Kindred Healthcare, Inc.(2) | | | | | 13,700 | | | 420,864 |
LCA-Vision, Inc. | | | | | 10,800 | | | 510,408 |
| | | | | | | | |
| | | | | | | | 931,272 |
| Health Care Management Services — 0.5% |
Sierra Health Services, Inc.(2) | | | | | 2,900 | | | 120,582 |
| | | | | | | | |
| | | | | | | | 120,582 |
| Insurance – Multi-Line — 5.2% |
Assured Guaranty Ltd. | | | | | 16,300 | | | 481,828 |
Hanover Insurance Group, Inc. | | | | | 15,500 | | | 756,245 |
| | | | | | | | |
| | | | | | | | 1,238,073 |
| Insurance – Property & Casualty — 4.6% |
Employers Holdings, Inc. | | | | | 19,710 | | | 418,640 |
Fremont General Corp. | | | | | 19,300 | | | 207,668 |
OneBeacon Insurance Group Ltd., Class A | | | | | 18,690 | | | 473,418 |
| | | | | | | | |
| | | | | | | | 1,099,726 |
| Investment Management Companies — 0.8% |
NexCen Brands, Inc.(2) | | | | | 16,200 | | | 180,468 |
| | | | | | | | |
| | | | | | | | 180,468 |
| Machinery – Oil/Well Equipment & Services — 4.6% |
Key Energy Services, Inc.(2) | | | | | 59,600 | | | 1,104,388 |
| | | | | | | | |
| | | | | | | | 1,104,388 |
| Medical Services — 2.6% | | | |
Magellan Health Services, Inc.(2) | | | | | 13,600 | | | 631,992 |
| | | | | | | | |
| | | | | | | | 631,992 |
| Metal Fabricating — 0.5% | | | | | | | | |
Mueller Water Products, Inc. | | | | | 6,400 | | | 109,184 |
| | | | | | | | |
| | | | | | | | 109,184 |
| Metals & Minerals – Miscellaneous — 1.0% |
A.M. Castle & Co. | | | | | 6,460 | | | 231,979 |
| | | | | | | | |
| | | | | | | | 231,979 |
| Oil – Integrated International — 0.3% |
Paramount Resources Ltd.,
Class A(2) | | CAD | | | 3,600 | | | 69,786 |
| | | | | | | | |
| | | | | | | | 69,786 |
| Publishing – Miscellaneous — 0.1% |
Scholastic Corp.(2) | | | | | 600 | | | 21,564 |
| | | | | | | | |
| | | | | | | | 21,564 |
| Real Estate — 3.6% | | | | | | | | |
MI Developments, Inc., Class A | | | | | 20,800 | | | 757,952 |
Quadra Realty Trust, Inc.(2) | | | | | 9,110 | | | 113,966 |
| | | | | | | | |
| | | | | | | | 871,918 |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS PARTNERS VIP SERIES |
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | | |
| Real Estate Investment Trusts — 7.2% |
Annaly Capital Management, Inc. | | | 36,000 | | $ | 519,120 |
BioMed Realty Trust, Inc. | | | 17,300 | | | 434,576 |
Capital Lease Funding, Inc. | | | 11,210 | | | 120,507 |
Care Investment Trust, Inc.(2) | | | 4,400 | | | 60,500 |
FelCor Lodging Trust, Inc. | | | 3,400 | | | 88,502 |
Meruelo Maddux Properties, Inc.(2) | | | 26,780 | | | 218,525 |
Post Properties, Inc. | | | 5,100 | | | 265,863 |
| | | | | | |
| | | | | | 1,707,593 |
| Rental & Leasing Services – Consumer — 2.6% |
Aaron Rents, Inc. | | | 21,200 | | | 619,040 |
| | | | | | |
| | | | | | 619,040 |
| Restaurants — 3.6% |
Triarc Cos., Inc., Class B | | | 55,500 | | | 871,350 |
| | | | | | |
| | | | | | 871,350 |
| Savings & Loan — 1.0% |
FirstFed Financial Corp.(2) | | | 4,400 | | | 249,612 |
| | | | | | |
| | | | | | 249,612 |
| Services – Commercial — 10.4% |
Coinmach Service Corp., Class A | | | 14,100 | | | 186,543 |
Coinstar, Inc.(2) | | | 22,700 | | | 714,596 |
Copart, Inc.(2) | | | 11,000 | | | 336,490 |
Corrections Corp. of America(2) | | | 19,700 | | | 1,243,267 |
| | | | | | |
| | | | | | 2,480,896 |
| Steel — 3.1% |
Allegheny Technologies, Inc. | | | 7,000 | | | 734,160 |
| | | | | | |
| | | | | | 734,160 |
| Textile – Apparel Manufacturers — 3.0% |
Carter’s, Inc.(2) | | | 27,300 | | | 708,162 |
| | | | | | |
| | | | | | 708,162 |
| Utilities – Electrical — 0.8% |
NorthWestern Corp. | | | 6,200 | | | 197,222 |
| | | | | | |
| | | | | | 197,222 |
| | | | | | |
Total Common Stocks
(Cost $20,132,792) | | | 22,745,432 |
| | | | | | |
| | | Principal
Amount | | Value |
| Corporate Bonds — 0.4% |
| Services – Commercial — 0.4% |
Coinmach Service Corp. 11.00% due 12/1/2024(4) | | $ | 15,400 | | | 102,256 |
| | | | | | |
| | | | | | 102,256 |
| | | | | | |
Total Corporate Bonds
(Cost $123,324) | | | 102,256 |
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | | |
Other Investments – For Trustee Deferred
Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3) | | | 1 | | $ | 19 |
RS Emerging Growth Fund, Class Y(3) | | | 2 | | | 71 |
RS Emerging Markets Fund, Class A(3) | | | 1 | | | 13 |
RS Global Natural Resources Fund, Class Y(3) | | | 5 | | | 199 |
RS Growth Fund, Class Y(3) | | | 4 | | | 69 |
RS Investors Fund, Class Y(3) | | | 11 | | | 136 |
RS MidCap Opportunities Fund, Class Y(3) | | | 4 | | | 57 |
RS Partners Fund, Class Y(3) | | | 1 | | | 50 |
RS Smaller Company Growth Fund, Class Y(3) | | | 2 | | | 41 |
RS Value Fund, Class Y(3) | | | 1 | | | 39 |
| | | | | | |
Total Other Investments
(Cost $651) | | | 694 |
| | |
| | | Principal
Amount | | Value |
| Repurchase Agreements — 3.8% |
State Street Bank and Trust Co. Repurchase Agreement,
5.13%, dated 6/29/07, maturity value of $895,382 due 7/2/07, collateralized by $960,000 in FNMA, 5.55%, due 7/10/28, with a value of $915,600 | | $ | 895,000 | | $ | 895,000 |
| | | | | | |
Total Repurchase Agreements
(Cost $895,000) | | | 895,000 |
| | | | | | |
Total Investments — 99.5%
(Cost $21,151,767) | | | 23,743,382 |
| | | | | | |
| Other Assets, Net — 0.5% | | | 114,265 |
| | | | | | |
| Total Net Assets — 100.0% | | $ | 23,857,647 |
(1) | ADR — American Depositary Receipt. |
(2) | Non income-producing security. |
(3) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
(4) | Fair value security. See Note A in Notes to Financial Statements. |
Foreign Denominated Security
Canadian Dollar — CAD
The accompanying notes are an integral part of these financial statements.
| | |
| RS PARTNERS VIP SERIES | | 13 |
| | |
| | Financial Information — RS Partners VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | |
| |
Assets | | | |
Investments, at value | | $ | 23,743,382 |
Cash and cash equivalents | | | 707 |
Foreign currency, at value | | | 186 |
Receivable for investments sold | | | 237,018 |
Dividends/interest receivable | | | 23,312 |
Receivable for fund shares subscribed | | | 3,484 |
Prepaid expenses | | | 517 |
| | | |
Total Assets | | | 24,008,606 |
| | | |
Liabilities | | | |
Payable for investments purchased | | | 122,187 |
Payable to adviser | | | 20,233 |
Deferred trustees’ compensation | | | 694 |
Payable for fund shares redeemed | | | 190 |
Accrued expenses/other liabilities | | | 7,655 |
| | | |
Total Liabilities | | | 150,959 |
| | | |
Total Net Assets | | $ | 23,857,647 |
| | | |
Net Assets Consist of: | | | |
Paid-in capital | | | 20,075,781 |
Accumulated undistributed net investment income | | | 20,102 |
Accumulated net realized gain from investments and foreign currency transactions | | | 1,170,149 |
Net unrealized appreciation on investments and foreign currency transactions | | | 2,591,615 |
| | | |
Total Net Assets | | $ | 23,857,647 |
| | | |
Investments, at Cost | | $ | 21,151,767 |
| | | |
Foreign Currency, at Cost | | $ | 187 |
| | | |
Pricing of Shares | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 1,836,223 |
| |
Net Asset Value Per Share | | | $12.99 |
| | |
| | Statement of Operations For the Six Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 45,826 | |
Dividends | | | 116,405 | |
Withholding taxes on foreign dividends | | | (964 | ) |
| | | | |
Total Investment Income | | | 161,267 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 112,998 | |
Custodian fees | | | 31,362 | |
Professional fees | | | 6,016 | |
Shareholder reports | | | 4,787 | |
Trustees’ fees and expenses | | | 611 | |
Insurance expense | | | 552 | |
Administrative service fees | | | 342 | |
Registration fees | | | 13 | |
Other expenses | | | 49 | |
| | | | |
Total Expenses | | | 156,730 | |
Less: Expense waiver by adviser | | | (2,979 | ) |
Custody credits | | | (100 | ) |
| | | | |
Total Expenses, Net | | | 153,651 | |
| | | | |
Net Investment Income | | | 7,616 | |
| | | | |
Realized Gain and Change in Unrealized Appreciation on Investments and Foreign Currency Transactions | | | | |
Net realized gain from investments | | | 924,911 | |
Net realized gain from foreign currency transactions | | | 711 | |
Net change in unrealized appreciation on investments | | | 1,427,595 | |
Net change in unrealized appreciation on translation of assets and liabilities in foreign currency | | | 2 | |
| | | | |
Net Gain on Investments and Foreign
Currency Transactions | | | 2,353,219 | |
| | | | |
Net Increase in Net Assets
Resulting from Operations | | $ | 2,360,835 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 14 | | RS PARTNERS VIP SERIES |
| | |
[GRAPHIC]
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the Six
Months Ended
6/30/07 | | | For the
Year Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 7,616 | | | $ | 57,965 | |
Net realized gain on investments and foreign currency related transactions | | | 925,622 | | | | 3,718,315 | |
Net change in unrealized appreciation/(depreciation) on investments and foreign currency related transactions | | | 1,427,597 | | | | (1,705,566 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 2,360,835 | | | | 2,070,714 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (48,181 | ) |
Net realized gain on investments and foreign currency related transactions | | | — | | | | (3,930,666 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (3,978,847 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 2,143,522 | | | | 5,153,609 | |
Reinvestment of distributions | | | — | | | | 3,978,847 | |
Cost of shares redeemed | | | (2,984,517 | ) | | | (9,289,169 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Capital Share Transactions | | | (840,995 | ) | | | (156,713 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | 1,519,840 | | | | (2,064,846 | ) |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of Period | | | 22,337,807 | | | | 24,402,653 | |
| | | | | | | | |
End of Period | | $ | 23,857,647 | | | $ | 22,337,807 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 20,102 | | | $ | 12,486 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
Sold | | | 172,424 | | | | 390,612 | |
Reinvested | | | — | | | | 333,885 | |
Redeemed | | | (244,163 | ) | | | (692,456 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (71,739 | ) | | | 32,041 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS PARTNERS VIP SERIES | | 15 |
| | |
| | Financial Information — RS Partners VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past five years (or, if shorter, the period of the Fund’s operations) and the six months ended June 30, 2007. 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 (assuming reinvestment of all dividends and distributions).
| | | | | | | | | | | | | | | | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | | Net Realized
and Unrealized
Gain | | Total From
Investment
Operations | | Distributions
From Net
Investment
Income | | | Distributions
From Net
Realized
Capital Gains | | | Total
Distributions | |
| | | | | | | | |
Six Months Ended 06/30/071 | | $ | 11.71 | | $ | 0.00 | 4 | | $ | 1.28 | | $ | 1.28 | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
Year Ended 12/31/06 | | | 13.01 | | | 0.04 | | | | 1.15 | | | 1.19 | | | (0.03 | ) | | | (2.46 | ) | | | (2.49 | ) |
| | | | | | | | |
Year Ended 12/31/05 | | | 13.97 | | | 0.02 | | | | 0.57 | | | 0.59 | | | (0.02 | ) | | | (1.53 | ) | | | (1.55 | ) |
| | | | | | | | |
Year Ended 12/31/04 | | | 12.94 | | | 0.04 | | | | 2.32 | | | 2.36 | | | (0.04 | ) | | | (1.29 | ) | | | (1.33 | ) |
| | | | | | | | |
Period From
2/3/20032 to 12/31/20031 | | | 10.00 | | | 0.04 | | | | 3.50 | | | 3.54 | | | (0.04 | ) | | | (0.56 | ) | | | (0.60 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
| 16 | | RS PARTNERS VIP SERIES |
| | | | | | | | | | | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total
Return3 | | | Net Assets, End
of Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | | Gross Ratio of
Expenses to
Average Net
Assets | | Net Ratio of Net
Investment Income
to Average
Net Assets | | | Gross Ratio of Net
Investment Income
to Average
Net Assets | | Portfolio
Turnover Rate | | | | |
| | | | | | | | | |
$12.99 | | 10.93% | | | $ | 23,858 | | 1.36% | 5,6 | | 1.39% | | 0.07% | 5,6 | | 0.04% | | 25% | | | | |
| | | | | | | | | |
| 11.71 | | 9.35% | | | | 22,338 | | 1.36% | 5 | | 1.43% | | 0.28% | 5 | | 0.21% | | 172% | | | | |
| | | | | | | | | |
| 13.01 | | 4.22% | | | | 24,403 | | 1.41% | | | 1.41% | | 0.10% | | | 0.10% | | 97% | | | | |
| | | | | | | | | |
| 13.97 | | 18.52% | | | | 25,310 | | 1.36% | | | 1.36% | | 0.33% | | | 0.33% | | 71% | | | | |
| | | | | | | | | |
12.94 | | 35.39% | | | | 16,884 | | 1.68% | | | 1.68% | | 0.42% | | | 0.42% | | 75% | | | | |
| | 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | 2 | Commencement of operations. |
| | 3 | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | 4 | Rounds to less than $0.01. |
| | 5 | Includes the effect of expenses waived by GIS. |
| | 6 | Includes the effect of custody credits. |
| | |
| RS PARTNERS VIP SERIES | | 17 |
| | |
| | Notes to Financial Statements — RS Partners VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers 17 series. RS Partners VIP Series (the “Fund” or “PV”) is a series of the Trust. PV is a non-diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of PV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost which approximates market value (see Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
The percentage of the Fund’s net assets valued using these guidelines and procedures at June 30, 2007 was 0.43%.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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. Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets. The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were
| | |
| 18 | | RS PARTNERS VIP SERIES |
reduced in the amount of $100. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
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 translated into U.S. dollars at the exchange rates quoted at the close of the New York Stock Exchange on each business day. 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 with the net realized and unrealized gain or loss from investments.
Forward Foreign Currency Contracts
PV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the values of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by PV. When forward contracts are closed, PV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. PV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.
Futures Contracts
PV may enter into financial futures contracts. In entering into such contracts, PV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by PV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins paid or received by PV. The daily changes in the variation margin are recognized as unrealized gains or losses by PV. PV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for PV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of PV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Funds.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends and distributions paid to shareholders during the year ended December 31, 2006 was as follows:
| | | | | | | | | |
| | | Ordinary
Income | | Long-Term
Capital Gain | | Total |
2006 | | $ | 419,473 | | $ | 3,559,374 | | $ | 3,978,847 |
| | |
| RS PARTNERS VIP SERIES | | 19 |
| | |
| | Notes to Financial Statements — RS Partners VIP Series (continued) |
June 30, 2007 (unaudited)
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:
| | | | |
Undistributed
Ordinary
Income | | Long-Term
Gain |
| $ | 174,211 | | $ | 88,049 |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under the current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund had no such losses.
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co. LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 1.00% of the average daily net assets of the Fund for the first $50 million and an annual note of 0.95% of PV’s net assets in excess of $50 million.
Pursuant to a Sub-Administration and Accounting Services Agreement, Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments, receives fees at an annual rate of 0.042% of the Fund’s average daily net assets from RS Investments.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 1.36% of the average daily net assets of PV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $7,227,684 and $5,335,273, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June 30, 2007 aggregated $3,119,445 and $538,553,
| | |
| 20 | | RS PARTNERS VIP SERIES |
respectively, resulting in net unrealized appreciation of $2,580,892. The cost of investments owned at June 30, 2007 for federal income tax purposes was $21,162,490.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, PV 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, PV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, all repurchase agreements held by the Fund had been entered into on June 29, 2007.
| Note E. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for PV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 172,424 | | | 390,612 | | | $ | 2,143,522 | | | $ | 5,153,609 | |
Shares issued in reinvestment of dividends
and distributions | |
— |
| | 333,885 | | |
|
— |
| | | 3,978,847 | |
Shares repurchased | | (244,163 | ) | | (692,456 | ) | | | (2,984,517 | ) | | | (9,289,169 | ) |
| | |
Net increase/(decrease) | | (71,739 | ) | | 32,041 | | | $ | (840,995 | ) | | $ | (156,713 | ) |
| | |
| Note F. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note H. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements,
| | |
| RS PARTNERS VIP SERIES | | 21 |
| | |
| | Notes to Financial Statements — RS Partners VIP Series (continued) |
June 30, 2007 (unaudited)
as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of under- takings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit
nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District
| | |
| 22 | | RS PARTNERS VIP SERIES |
Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the
Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| RS PARTNERS VIP SERIES | | 23 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their
| | |
| | Supplemental Information — unaudited (continued) |
clients at improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
RS Variable Products Trust
RS Asset Allocation VIP Series
| | |
| 6.30.07 | |  |
| | |
 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or Guardian Investor Services LLC. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
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| | RS Asset Allocation VIP Series |
| | |
 | | Jonathan C. Jankus (Guardian Investor Services) has been a co-portfolio manager of RS Asset Allocation VIP Series since 1999*. Mr. Jankus joined Guardian Life in 1995, and has been a managing director of Guardian Life since March 1998. He received a B.A. in mathematics from Queens College, an M.S. in investment management from Pace University, an M.S. in computer science from Polytechnic Institute of New York, and an M.A. in mathematics from Columbia University. Mr. Jankus is a Chartered Financial Analyst. |
| |
 | | Stewart M. Johnson (Guardian Investor Services) has been a co-portfolio manager of RS Asset Allocation VIP Series since 2004*. Mr. Johnson has been a senior director of Guardian Life since January 2002. Mr. Johnson was second vice president, investment information systems at Guardian Life, from December 2000 to January 2002. Mr. Johnson received a B.A. in mathematics from City College of New York. |
| * | Includes service as a co-portfolio manager of the Fund’s Predecessor Fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
Fund Philosophy
RS Asset Allocation VIP Series seeks long-term total investment return consistent with moderate investment risk. Total investment return consists of income and changes in the market value of the Fund’s investments.
Investment Process
The Fund currently operates primarily as a “fund of funds” by investing in other series of RS Variable Products Trust. The Fund allocates its assets among three broad asset classes: U.S. common stocks and convertible securities; investment-grade bonds and other debt securities; and cash and money market instruments. Guardian Investor Services LLC uses its own theoretical models to evaluate information about the economy and the markets to provide “signals” for portfolio allocations. Distribution by asset classes fluctuates from a “neutral position” of 60% allocated to equity and 40% allocated to debt; however, there are no percentage limitations on the amount to be allocated to any asset class.
Performance
For the quarter ended June 30, 2007, RS Asset Allocation VIP Series returned 5.27%, placing it ahead of the 3.55% return of its composite benchmark (60% S&P 500® Index2 and 40% Lehman Brothers Aggregate Bond Index3 rebalanced monthly without expenses or trading costs). Year-to-date through June 30, 2007, the Fund’s return of 5.98% also bested the benchmark’s return of 4.58%.
Stock market returns were positive, with the S&P 500® Index earning a total return of 6.28% during the quarter in spite of a 1.66% decline in June.
Portfolio Review
The Federal Reserve Board (the “Fed”) held monetary conditions steady, keeping the federal funds rate at 5.25%, ever mindful of the continuing threat of inflation in spite of an economy slowed by residential construction. Although growth expectations for the U.S. economy have declined modestly, those of other developed economies (especially in Europe) have increased, creating a consensus of gross domestic product growth estimates from 2.0% to 2.5% for 2007.
Domestically, continuing weakness in the subprime mortgage loan market has created concern that a tightening of credit requirements may exacerbate an already weakened housing market. News of some large hedge fund losses has not helped matters.
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| RS ASSET ALLOCATION VIP SERIES | | 3 |
| | |
| | RS Asset Allocation VIP Series (continued) |
The Fund’s returns relative to the benchmark were the result of being overweighted in stocks and cash and underweighted in bonds, which returned –0.52% for the quarter ended June 30, 2007, as measured by the Lehman Brothers Aggregate Bond Index. We began the year invested 80% in stocks, with the balance held in cash equivalents; we held no bonds. In mid-May, we reduced our stock weighting to 70%, increased the Fund’s cash position, and still held no bonds.
Outlook
Our investing will, of course, continue to be guided by our quantitative model which, as of quarter-end, still has us invested 70% in stocks, 0% in bonds and 30% in cash. This compares with our “neutral” position of 60% stocks and 40% bonds.
We believe that most signs indicate continuing modest economic growth, which we hope will continue to sustain corporate profits. A risk on the horizon is the extent to which interest rates will rise in the near term due to concerns about inflation and credit quality. Crude oil prices are back above $70 per barrel, some $20 higher than they were in mid-January. We think that the Fed rate reductions seem unlikely this year given the recent strength of the job market and the worrisome inflation reports, and rate increases seem unlikely in the face of a weak housing market.
On balance, we remain optimistic, but cautiously so.
We thank you for your continued support.
| | |
| |  |
Jonathan C. Jankus Co-Portfolio Manager | | Stewart M. Johnson Co-Portfolio Manager |
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.
Bond funds are subject to interest rate risk, credit risk, and prepayment risk. When interest rates rise, bond prices generally fall, and when interest rates fall, bond prices generally rise. Currently, interest rates are at relatively low levels. Please keep in mind that in this kind of environment, the risk that bond prices may fall when interest rates rise is potentially greater. The values of mortgage-backed securities depend on the credit quality and adequacy of the underlying assets or collateral and may be highly volatile.
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| 4 | | RS ASSET ALLOCATION VIP SERIES |
Assets Under Management: $51,559,096 | Data as of June 30, 2007 |
| | |
 | | Portfolio Composition by Asset Class1 |
1 | The investment allocation in the pie chart reflects the true economic impact of the portfolio composition, rather than its accounting treatment, which is shown in the Fund’s Schedule of investments. |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | | | |
| | | | | | | |
| | | Inception Date | | Year-to-Date | | 1 Year | | 3 Year | | 5 Year | | Since Inception |
RS Asset Allocation VIP Series | | 09/15/99 | | 5.98% | | 16.93% | | 10.28% | | 9.78% | | 4.80% |
Custom Index: 60% S&P 500® Index2, 40% Lehman Brothers Aggregate Bond Index3 | | | | 4.58% | | 14.66% | | 8.62% | | 8.39% | | 4.69% |
2 | The S&P 500® Index of 500 primarily large-cap U.S. stocks is generally considered to be representative of U.S. stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses. |
3 | The Lehman Brothers Aggregate Bond Index is generally considered to be representative of U.S. bond market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the indexes do not incur fees or expenses. |
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian VC Asset Allocation Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.90%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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| RS ASSET ALLOCATION VIP SERIES | | 5 |
| | |
| | RS Asset Allocation VIP Series (continued) |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 09/15/99 |
The chart above shows the performance of a hypothetical $10,000 investment made in RS Asset Allocation VIP Series, the S&P 500 Index®, and the Lehman Brothers Aggregate Bond Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian VC Asset Allocation Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.90%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
| 6 | | RS ASSET ALLOCATION VIP SERIES |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,059.80 | | $1.41 | | 0.28% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,023.43 | | $1.38 | | 0.28% |
| * | 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). |
| | |
| RS ASSET ALLOCATION VIP SERIES | | 7 |
| | |
| | Schedule of Investments – RS Asset Allocation VIP Series |
| | | | | | |
| | | | | | |
| June 30, 2007 (unaudited) | |
Shares | | Value |
| | | | | | |
| Mutual Fund — 74.9% |
Equity — 74.9% |
RS S&P 500 Index VIP Series(1),(2) | | | 3,489,950 | | $ | 38,633,749 |
| | | | | | |
Total Mutual Fund
(Cost $31,660,260) | | | 38,633,749 |
| | | | | | |
| | |
| | | Principal
Amount | | Value |
| U.S. Government Securities — 0.8% |
| U.S. Treasury Bills — 0.8% |
United States Treasury Bill: | | | | | | |
4.56% due 9/20/2007(3) | | $ | 230,000 | | | 227,640 |
4.82% due 8/2/2007(3) | | | 205,000 | | | 204,122 |
| | | | | | |
| | | | | | 431,762 |
| | | | | | |
Total U.S. Government Securities
(Cost $431,762) | | | 431,762 |
| | |
| | | Shares | | Value |
| Other Investments — For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(4) | | | 1 | | | 43 |
RS Emerging Growth Fund, Class Y(4) | | | 4 | | | 161 |
RS Emerging Markets Fund, Class A(4) | | | 1 | | | 29 |
RS Global Natural Resources Fund, Class Y(4) | | | 13 | | | 454 |
RS Growth Fund, Class Y(4) | | | 9 | | | 156 |
RS Investors Fund, Class Y(4) | | | 24 | | | 311 |
RS MidCap Opportunities Fund, Class Y(4) | | | 8 | | | 130 |
RS Partners Fund, Class Y(4) | | | 3 | | | 114 |
RS Smaller Company Growth Fund, Class Y(4) | | | 4 | | | 93 |
RS Value Fund, Class Y(4) | | | 3 | | | 88 |
| | | | | | |
Total Other Investments
(Cost $1,478) | | | 1,579 |
| | | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value | |
| Repurchase Agreements — 24.3% | |
Lehman Brothers
Repurchase Agreement,
5.287%, dated 6/29/2007,
maturity value of $6,002,640
due 7/2/2007, collateralized by
$6,115,000 in FHLB,
5.70%, due 5/17/12,
with a value of $6,120,000. | | $ | 6,000,000 | | $ | 6,000,000 | |
State Street Bank and Trust Co.
Repurchase Agreement,
5.13%, dated 6/29/2007,
maturity value of $6,508,781
due 7/2/2007, collateralized by
$6,630,000 in FNMA,
6.125%, due 6/27/17,
with a value of $6,638,288. | | | 6,506,000 | | | 6,506,000 | |
| | | | | | | |
Total Repurchase Agreements
(Cost $12,506,000) | | | 12,506,000 | |
| | | | | | | |
Total Investments — 100.0%
(Cost $44,599,500) | | | 51,573,090 | |
| | | | | | | |
| Other Liabilities, Net — 0.0% | | | (13,994 | ) |
| | | | | | | |
| Total Net Assets — 100.0% | | $ | 51,559,096 | |
(1) | The RS S&P 500 Index VIP Series financial statements and financial highlights are included herein. |
(2) | Affiliated issuer. See Note I in Notes to Financial Statements |
(3) | The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts. |
(4) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
| | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration | | Face Value
(Thousands) | | | Unrealized
Appreciation |
| Written Futures Contracts |
| S & P 500 Index | | (7 | ) | | 9/2007 | | $ | (2,652 | ) | | $ | 35,077 |
The accompanying notes are an integral part of these financial statements.
| | |
| 8 | | RS ASSET ALLOCATION VIP SERIES |
| | |
| | Financial Information — RS Asset Allocation VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 433,341 | |
Investments in affiliated issuer, at value | | | 38,633,749 | |
Repurchase agreements, at value | | | 12,506,000 | |
Cash and cash equivalents | | | 446 | |
Interest receivable | | | 3,614 | |
Receivable for variation margin | | | 3,150 | |
Prepaid expenses | | | 1,083 | |
Receivable for fund shares subscribed | | | 974 | |
| | | | |
Total Assets | | | 51,582,357 | |
| | | | |
Liabilities | | | | |
Payable to adviser | | | 5,433 | |
Payable for fund shares redeemed | | | 2,307 | |
Deferred trustees’ compensation | | | 1,579 | |
Payable for investments purchased | | | 518 | |
Accrued expenses/other liabilities | | | 13,424 | |
| | | | |
Total Liabilities | | | 23,261 | |
| | | | |
Total Net Assets | | $ | 51,559,096 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 46,611,755 | |
Accumulated undistributed net investment income | | | 302,681 | |
Accumulated net realized loss from futures contracts | | | (2,364,007 | ) |
Net unrealized appreciation on investments and futures contracts | | | 7,008,667 | |
| | | | |
Total Net Assets | | $ | 51,559,096 | |
| | | | |
Investments, at Cost, includes $31,660,260 of investments in affiliated issuer | | $ | 44,599,500 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 4,696,687 | |
| |
Net Asset Value Per Share | | | $10.98 | |
| | |
| | Statement of Operations For the Six Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 360,262 | |
| | | | |
Total Investment Income | | | 360,262 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 127,296 | |
Custodian fees | | | 17,302 | |
Audit fees | | | 6,350 | |
Shareholder reports | | | 5,583 | |
Legal fees | | | 1,810 | |
Trustees’ fees and expenses | | | 1,355 | |
Insurance expense | | | 1,159 | |
Administrative service fees | | | 767 | |
Registration fees | | | 16 | |
Other expense | | | 1,374 | |
| | | | |
Total Expenses | | | 163,012 | |
Less: Fee waiver by adviser | | | (92,689 | ) |
Custody credits | | | (59 | ) |
| | | | |
Total Expenses, Net | | | 70,264 | |
| | | | |
Net Investment Income | | | 289,998 | |
| | | | |
Realized Gain and Change in Unrealized Appreciation on Investments and Futures Contracts | | | | |
Net realized gain from futures contracts | | | 188,249 | |
Net change in unrealized appreciation on investments | | | 2,477,966 | |
Net change in unrealized appreciation on futures contracts | | | 30,487 | |
| | | | |
Net Gain on Investments and Futures Contracts | | | 2,696,702 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 2,986,700 | |
| | | | |
| | |
| RS ASSET ALLOCATION VIP SERIES | | 9 |
The accompanying notes are an integral part of these financial statements.
| | |
| | Financial Information — RS Asset Allocation VIP Series (continued) |
| | |
[GRAPHIC]
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the Six Months
Ended
06/30/07 | | | For the Year
Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 289,998 | | | $ | 1,091,227 | |
Net realized gain on investments | | | 188,249 | | | | 491,346 | |
Net change in unrealized appreciation on investments | | | 2,508,453 | | | | 4,389,204 | |
| | | | | | | | |
Net increase in net assets resulting from operations | | | 2,986,700 | | | | 5,971,777 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (1,766,357 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 2,275,989 | | | | 4,771,257 | |
Reinvestment of distributions | | | — | | | | 1,772,453 | |
Cost of shares redeemed | | | (3,661,830 | ) | | | (7,079,744 | ) |
| | | | | | | | |
Net decrease in net assets resulting from capital share transactions | | | (1,385,841 | ) | | | (536,034 | ) |
| | | | | | | | |
Net Increase in Net Assets | | | 1,600,859 | | | | 3,669,386 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 49,958,237 | | | | 46,288,851 | |
| | | | | | | | |
| | |
End of period | | $ | 51,559,096 | | | $ | 49,958,237 | |
| | | | | | | | |
Accumulated undistributed net investment income included in net assets | | $ | 302,681 | | | $ | 12,683 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
Shares | | | | | | | | |
Sold | | | 214,863 | | | | 479,546 | |
Reinvested | | | — | | | | 180,790 | |
Redeemed | | | (341,511 | ) | | | (716,879 | ) |
| | | | | | | | |
Net Decrease | | | (126,648 | ) | | | (56,543 | ) |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 10 | | RS ASSET ALLOCATION VIP SERIES |
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| | |
| RS ASSET ALLOCATION VIP SERIES | | 11 |
| | |
| | Financial Information — RS Asset Allocation VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past five years and the six months ended June 30, 2007. 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value, Beginning of
Period | | Net Investment Income | | Net Realized and Unrealized Gain/(Loss) | | | Total From Investment Operations | | | Distributions From Net Investment Income | | | Net Asset
Value, End of
Period |
Six Months Ended 06/30/07(1) | | $ | 10.36 | | $ | 0.06 | | $ | 0.56 | | | $ | 0.62 | | | $ | — | | | $ | 10.98 |
| | | | | | | |
Year Ended 12/31/06 | | | 9.49 | | | 0.23 | | | 1.01 | | | | 1.24 | | | | (0.37 | ) | | | 10.36 |
| | | | | | | |
Year Ended 12/31/05 | | | 9.16 | | | 0.19 | | | 0.21 | | | | 0.40 | | | | (0.07 | ) | | | 9.49 |
| | | | | | | |
Year Ended 12/31/04 | | | 8.40 | | | 0.13 | | | 0.74 | | | | 0.87 | | | | (0.11 | ) | | | 9.16 |
| | | | | | | |
Year Ended 12/31/03 | | | 6.78 | | | 0.10 | | | 1.76 | | | | 1.86 | | | | (0.24 | ) | | | 8.40 |
| | | | | | | |
Year Ended 12/31/02 | | | 8.62 | | | 0.14 | | | (1.83 | ) | | | (1.69 | ) | | | (0.15 | ) | | | 6.78 |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS ASSET ALLOCATION VIP SERIES |
| | | | | | | | | | | | | | | | |
| Total Return* | | Net Assets, End of Period
(000s) | | Net Ratio of Expenses to Average Net Assets | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Income to Average Net Assets | | | Gross Ratio of Net
Investment Income
to Average
Net Assets | | Portfolio Turnover Rate |
| 5.98% | | $ | 51,559 | | 0.28% | (a)(c)(d) | | 0.64% | | | 1.14% | (c)(d) | | 0.78% | | 0% |
| | | | | | |
| 13.37% | | | 49,958 | | 0.31% | (a)(c) | | 0.68% | (b) | | 2.32% | (c) | | 1.95% | | 0% |
| | | | | | |
| 4.36% | | | 46,289 | | 0.38% | (a) | | 0.51% | (b) | | 1.75% | | | 1.62% | | 2% |
| | | | | | |
| 10.31% | | | 55,927 | | 0.31% | (a) | | 0.53% | (b) | | 1.52% | | | 1.30% | | 0% |
| | | | | | |
| 27.70% | | | 48,980 | | 0.29% | (a) | | 0.54% | (b) | | 1.51% | | | 1.26% | | 0% |
| | | | | | |
| (19.88)% | | | 34,572 | | 0.31% | (a) | | 0.56% | (b) | | 1.89% | | | 1.64% | | 0% |
| | (1) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | (a) | Amounts do not include expenses of the underlying fund. |
| | (b) | Amounts include expenses of the underlying fund, except for investment advisory and distribution fees. |
| | (c) | Includes the effect of expenses waived by investment adviser. |
| | (d) | Includes the effect of custody credits. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 13 |
| | |
| | Notes to Financial Statements — RS Asset Allocation VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS Asset Allocation VIP Series (the “Fund” or “AAV”) is a series of the Trust. AAV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of AAV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost which approximates market value (see Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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. Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets. The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were
| | |
| 14 | | RS ASSET ALLOCATION VIP SERIES |
reduced in the amount of $59. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
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 translated into U.S. dollars at the exchange rates quoted at the close of the New York Stock Exchange on each business day. 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 with the net realized and unrealized gain or loss from investments.
Forward Foreign Currency Contracts
AAV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the values of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by AAV. When forward contracts are closed, AAV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. AAV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.
Futures Contracts
AAV may enter into financial futures contracts. In entering into such contracts, AAV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by AAV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins paid or received by AAV. The daily changes in the variation margin are recognized as unrealized gains or losses by AAV. AAV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for AAV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of AAV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Fund.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 15 |
| | |
| | Notes to Financial Statements — RS Asset Allocation VIP Series (continued) |
June 30, 2007 (unaudited)
The tax character of dividends paid to shareholders during the year ended December 31, 2006 were as follows:
| | | |
| | | Ordinary Income |
2006 | | $ | 1,766,357 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:
| | | | | |
Undistributed
Ordinary
Income | | Capital Loss Carryforward | |
| $ | 13,031 | | $ | (2,547,672 | ) |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
As of December 31, 2006, for federal income tax purposes, the Fund had a capital loss carryforward as follows:
| | | | |
Capital Loss
Carryforward | | | Expiration
Date |
| $ | (2,547,672 | ) | | 2010 |
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, Fund had no such losses.
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co. LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 0.50% of the average daily net assets of the Fund.
RS Investments has agreed to waive the advisory fee with regard to the portion of AAV’s assets that are invested in other series of the Trust. In addition RS Investments has agreed, through December 31, 2009, that it will not receive, with regard to the portion of AAV’s portfolio that is invested directly in securities, annual advisory fees in excess of 0.50%.
RS Investment has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments. As compensation for GIS’s services, RS Investments pays fees to GIS at an annual rate of 0.475% of the average daily net assets of AAV that are invested directly in securities. Payment of the sub-investment advisory fees does not represent a separate or additional expense to AAV.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with reverse repurchase agreements and securities lending) from exceeding 0.68% of the average daily net assets of AAV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) received compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of
| | |
| 16 | | RS ASSET ALLOCATION VIP SERIES |
one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $0 and $0, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June 30, 2007 aggregated $6,973,590 and $0, respectively, resulting in net unrealized appreciation of $6,973,590. The cost of investments owned at June 30, 2007 for federal income tax purposes was $44,599,500.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, AAV 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, AAV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, all repurchase agreements held by the Fund had been entered into on June 29, 2007.
| Note E. | | Reverse Repurchase Agreements |
AAV may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short-term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time AAV enters into a reverse repurchase agreement, AAV segregates on their books cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by AAV may be unable to deliver the securities when AAV seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in AAV’s net asset value and may be viewed as a form of leverage.
| Note F. | | Dollar Roll Transactions |
AAV may enter into dollar rolls (principally using TBAs) in which AAV sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an agreed-upon price on a fixed date in the future month. The securities repurchased will bear the same interest rate as those sold, but generally will be collateralized at the time of delivery by different pools of mortgages with different prepayment histories than those securities sold. During the period between the sale and repurchase, the Fund will not be entitled to receive principal and interest payments on the securities sold. AAV is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the “drop”), as well as by the interest earned on the cash proceeds of the initial sale. Dollar roll transactions involve the risk that the buyer of the replacement securities sold by AAV may be unable to deliver the securities when it is required to do so. Dollar rolls may increase fluctuations in AAV’s net asset value and may be viewed as a form of leverage.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 17 |
| | |
| | Notes to Financial Statements — RS Asset Allocation VIP Series (continued) |
June 30, 2007 (unaudited)
| Note G. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for AAV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 214,863 | | | 479,546 | | | $ | 2,275,989 | | | $ | 4,771,257 | |
Shares issued in reinvestment of dividends | | — | | | 180,790 | | | | — | | | | 1,772,453 | |
Shares repurchased | | (341,511 | ) | | (716,879 | ) | | | (3,661,830 | ) | | | (7,079,744 | ) |
| | |
Net decrease | | (126,648 | ) | | (56,543 | ) | | $ | (1,385,841 | ) | | $ | (536,034 | ) |
| | |
| Note H. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Note I. | | Investments in Affiliates1 |
A summary of AAV transactions in affiliated issuers during the period ended June 30, 2007 is set forth below:
| | | | | | | | | | | | | | | | | | | | |
Name of Issuer | | Balance of Shares Held December 31, 2006 | | Gross Purchases and Additions | | Gross Sales and Reductions | | Balance of Shares Held
June 30,
2007 | | Value
June 30,
2007 | | Dividends Included in Dividend Income | | Net Realized Gains from Underlying Funds | | Net Realized Gain/(Loss) on Sales |
| | | | | | | |
Non-Controlled Affiliates | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
RS S&P 500 Index VIP Series | |
3,489,950 | |
— | | — | | 3,489,950 | |
$ |
38,633,749 | | $ | — | | $ | — | | $ | — |
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note K. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust
1 | | Affiliated issuers, as defined in the 1940 Act, includes issuers in which the Fund held 5% or more of the outstanding voting securities. |
| | |
| 18 | | RS ASSET ALLOCATION VIP SERIES |
has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of undertakings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 19 |
| | |
| | Notes to Financial Statements — RS Asset Allocation VIP Series (continued) |
June 30, 2007 (unaudited)
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD-15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| 20 | | RS ASSET ALLOCATION VIP SERIES |
| | |
| | Financial Information for RS S&P 500 Index VIP Series |
RS Asset Allocation VIP Series currently invests in RS S&P 500 Index VIP Series; therefore, the financial statements for RS S&P 500 Index VIP Series are included on the following pages.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 21 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Common Stocks — 98.2% |
| Aerospace & Defense — 2.6% |
General Dynamics Corp. | | 8,896 | | $ | 695,845 |
Goodrich Corp. | | 2,074 | | | 123,528 |
Honeywell International, Inc. | | 15,604 | | | 878,193 |
L-3 Communications Holdings, Inc. | | 2,900 | | | 282,431 |
Lockheed Martin Corp. | | 7,403 | | | 696,844 |
Northrop Grumman Corp. | | 8,930 | | | 695,379 |
Precision Castparts Corp. | | 2,900 | | | 351,944 |
Raytheon Co. | | 10,352 | | | 557,869 |
Rockwell Collins, Inc. | | 2,736 | | | 193,271 |
The Boeing Co. | | 15,941 | | | 1,532,887 |
United Technologies Corp. | | 20,200 | | | 1,432,786 |
| | | | | |
| | | | | 7,440,977 |
| Air Freight & Logistics — 0.9% | | | | | |
CH Robinson Worldwide, Inc. | | 3,400 | | | 178,568 |
FedEx Corp. | | 6,394 | | | 709,542 |
United Parcel Service, Inc., Class B | | 22,059 | | | 1,610,307 |
| | | | | |
| | | | | 2,498,417 |
| Airlines — 0.1% | | | | | |
Southwest Airlines Co. | | 18,199 | | | 271,347 |
| | | | | |
| | | | | 271,347 |
| Auto Components — 0.2% | | | | | |
Johnson Controls, Inc. | | 4,088 | | | 473,268 |
The Goodyear Tire & Rubber Co.(1) | | 4,322 | | | 150,232 |
| | | | | |
| | | | | 623,500 |
| Automobiles — 0.4% | | | | | |
Ford Motor Co. | | 36,944 | | | 348,012 |
General Motors Corp. | | 11,434 | | | 432,205 |
Harley-Davidson, Inc. | | 5,221 | | | 311,224 |
| | | | | |
| | | | | 1,091,441 |
| Beverages — 2.1% | | | | | |
Anheuser-Busch Companies, Inc. | | 15,462 | | | 806,498 |
Brown-Forman Corp., Class B | | 2,046 | | | 149,522 |
Coca-Cola Co. | | 42,764 | | | 2,236,985 |
Coca-Cola Enterprises, Inc. | | 8,124 | | | 194,976 |
Constellation Brands, Inc., Class A(1) | | 3,500 | | | 84,980 |
Molson Coors Brewing Co., Class B | | 1,841 | | | 170,219 |
Pepsi Bottling Group, Inc. | | 4,264 | | | 143,611 |
PepsiCo., Inc. | | 32,671 | | | 2,118,714 |
| | | | | |
| | | | | 5,905,505 |
| Biotechnology — 1.1% | | | | | |
Amgen, Inc.(1) | | 23,617 | | | 1,305,784 |
Biogen Idec, Inc.(1) | | 7,754 | | | 414,839 |
Celgene Corp.(1) | | 8,100 | | | 464,373 |
Genzyme Corp.(1) | | 5,005 | | | 322,322 |
Gilead Sciences, Inc.(1) | | 18,400 | | | 713,368 |
| | | | | |
| | | | | 3,220,686 |
| Building Products — 0.2% | | | | | |
American Standard Companies, Inc. | | 3,957 | | | 233,384 |
Masco Corp. | | 7,420 | | | 211,247 |
| | | | | |
| | | | | 444,631 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Capital Markets — 3.6% | | | | | |
Ameriprise Financial, Inc. | | 4,567 | | $ | 290,324 |
Bank of New York, Inc. | | 14,970 | | | 620,357 |
Bear Stearns Companies, Inc. | | 2,876 | | | 402,640 |
Charles Schwab Corp. | | 22,577 | | | 463,280 |
E*TRADE Financial Corp.(1) | | 10,100 | | | 223,109 |
Federated Investors, Inc., Class B | | 1,739 | | | 66,656 |
Franklin Resources, Inc. | | 3,987 | | | 528,158 |
Janus Capital Group, Inc. | | 6,726 | | | 187,252 |
Legg Mason, Inc. | | 2,500 | | | 245,950 |
Lehman Brothers Holdings, Inc. | | 10,848 | | | 808,393 |
Mellon Financial Corp. | | 8,485 | | | 373,340 |
Merrill Lynch & Co., Inc. | | 18,064 | | | 1,509,789 |
Morgan Stanley | | 21,983 | | | 1,843,934 |
Northern Trust Corp. | | 3,863 | | | 248,159 |
State Street Corp. | | 6,370 | | | 435,708 |
T. Rowe Price Group, Inc. | | 4,316 | | | 223,957 |
The Goldman Sachs Group, Inc. | | 8,902 | | | 1,929,509 |
| | | | | |
| | | | | 10,400,515 |
| Chemicals — 1.5% |
Air Products & Chemicals, Inc. | | 3,869 | | | 310,952 |
Ashland, Inc. | | 1,031 | | | 65,932 |
Dow Chemical Co. | | 19,542 | | | 864,147 |
E.I. Du Pont de Nemours & Co. | | 18,905 | | | 961,130 |
Eastman Chemical Co. | | 1,156 | | | 74,366 |
Ecolab, Inc. | | 4,704 | | | 200,861 |
Hercules, Inc.(1) | | 1,633 | | | 32,088 |
International Flavors & Fragrances, Inc. | | 1,417 | | | 73,882 |
Monsanto Co. | | 11,514 | | | 777,656 |
PPG Industries, Inc. | | 2,995 | | | 227,950 |
Praxair, Inc. | | 5,483 | | | 394,721 |
Rohm & Haas Company | | 3,888 | | | 212,596 |
Sigma-Aldrich Corp. | | 2,702 | | | 115,294 |
| | | | | |
| | | | | 4,311,575 |
| Commercial Banks — 3.7% |
BB&T Corp. | | 10,334 | | | 420,387 |
Comerica, Inc. | | 3,064 | | | 182,216 |
Commerce Bancorp, Inc. | | 3,500 | | | 129,465 |
Compass Bancshares, Inc. | | 2,100 | | | 144,858 |
Fifth Third Bancorp | | 11,754 | | | 467,457 |
First Horizon National Corp. | | 2,992 | | | 116,688 |
Huntington Bancshares, Inc. | | 7,298 | | | 165,956 |
KeyCorp | | 7,242 | | | 248,618 |
M & T Bank Corp. | | 2,000 | | | 213,800 |
Marshall & Ilsley Corp. | | 6,396 | | | 304,641 |
National City Corp. | | 13,347 | | | 444,722 |
PNC Financial Services Group, Inc. | | 6,805 | | | 487,102 |
Regions Financial Corp. | | 15,927 | | | 527,184 |
SunTrust Banks, Inc. | | 7,523 | | | 645,022 |
Synovus Financial Corp. | | 5,299 | | | 162,679 |
U.S. Bancorp | | 37,797 | | | 1,245,411 |
Wachovia Corp. | | 39,013 | | | 1,999,416 |
Wells Fargo & Co. | | 69,410 | | | 2,441,150 |
Zions Bancorporation | | 1,672 | | | 128,594 |
| | | | | |
| | | | | 10,475,366 |
| Commercial Services & Supplies — 0.6% |
Allied Waste Industries, Inc.(1) | | 4,913 | | | 66,129 |
Avery Dennison Corp. | | 2,079 | | | 138,212 |
Cintas Corp. | | 3,041 | | | 119,907 |
The accompanying notes are an integral part of these financial statements.
| | |
| 22 | | RS ASSET ALLOCATION VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Commercial Services & Supplies (continued) |
Equifax, Inc. | | 2,150 | | $ | 95,503 |
Monster Worldwide, Inc.(1) | | 2,470 | | | 101,517 |
Pitney Bowes, Inc. | | 8,465 | | | 396,331 |
R.R. Donnelley & Sons Co. | | 4,695 | | | 204,279 |
Robert Half International, Inc. | | 2,619 | | | 95,594 |
Waste Management, Inc. | | 11,422 | | | 446,029 |
| | | | | |
| | | | | 1,663,501 |
| Communications Equipment — 2.6% |
ADC Telecomm., Inc.(1) | | 1,701 | | | 31,179 |
Avaya, Inc.(1) | | 10,957 | | | 184,516 |
Ciena Corp.(1) | | 2,154 | | | 77,824 |
Cisco Systems, Inc.(1) | | 129,463 | | | 3,605,545 |
Corning, Inc.(1) | | 30,763 | | | 785,995 |
JDS Uniphase Corp.(1) | | 3,432 | | | 46,092 |
Juniper Networks, Inc.(1) | | 11,000 | | | 276,870 |
Motorola, Inc. | | 50,705 | | | 897,478 |
QUALCOMM, Inc. | | 34,668 | | | 1,504,244 |
Tellabs, Inc.(1) | | 8,953 | | | 96,334 |
| | | | | |
| | | | | 7,506,077 |
| Computers & Peripherals — 3.9% |
Apple, Inc.(1) | | 18,133 | | | 2,212,951 |
Dell, Inc.(1) | | 47,143 | | | 1,345,933 |
EMC Corp.(1) | | 45,971 | | | 832,075 |
Hewlett-Packard Co. | | 55,301 | | | 2,467,531 |
International Business Machines Corp. | | 30,222 | | | 3,180,866 |
Lexmark International Group, Inc., Class A(1) | | 2,204 | | | 108,679 |
NCR Corp.(1) | | 2,932 | | | 154,047 |
Network Appliance, Inc.(1) | | 8,633 | | | 252,084 |
QLogic Corp.(1) | | 2,794 | | | 46,520 |
SanDisk Corp.(1) | | 4,800 | | | 234,912 |
Sun Microsystems, Inc.(1) | | 76,632 | | | 403,084 |
| | | | | |
| | | | | 11,238,682 |
| Construction & Engineering — 0.1% |
Fluor Corp. | | 2,106 | | | 234,545 |
| | | | | |
| | | | | 234,545 |
| Construction Materials — 0.1% |
Vulcan Materials Co. | | 2,118 | | | 242,596 |
| | | | | |
| | | | | 242,596 |
| Consumer Finance — 1.0% |
American Express Co. | | 23,837 | | | 1,458,348 |
Capital One Financial Corp. | | 11,040 | | | 865,977 |
SLM Corp. | | 7,586 | | | 436,802 |
| | | | | |
| | | | | 2,761,127 |
| Containers & Packaging — 0.2% |
Ball Corp. | | 1,698 | | | 90,283 |
Bemis Co., Inc. | | 2,984 | | | 99,009 |
Pactiv Corp.(1) | | 2,370 | | | 75,579 |
Sealed Air Corp. | | 4,710 | | | 146,104 |
Temple-Inland, Inc. | | 1,604 | | | 98,694 |
| | | | | |
| | | | | 509,669 |
| Distributors — 0.1% |
Genuine Parts Co. | | 5,413 | | | 268,485 |
| | | | | |
| | | | | 268,485 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Diversified Consumer Services — 0.1% |
Apollo Group, Inc., Class A(1) | | 2,958 | | $ | 172,836 |
H & R Block, Inc. | | 6,318 | | | 147,652 |
| | | | | |
| | | | | 320,488 |
| Diversified Financial Services — 5.0% |
Bank of America Corp. | | 93,181 | | | 4,555,619 |
Chicago Mercantile Exchange Holdings, Inc. | | 700 | | | 374,052 |
CIT Group, Inc. | | 4,000 | | | 219,320 |
Citigroup, Inc. | | 101,338 | | | 5,197,626 |
JPMorgan Chase & Co. | | 72,408 | | | 3,508,167 |
Moody’s Corp. | | 4,648 | | | 289,106 |
| | | | | |
| | | | | 14,143,890 |
| Diversified Telecommunication Services — 3.1% |
AT&T, Inc. | | 131,088 | | | 5,440,152 |
CenturyTel, Inc. | | 2,122 | | | 104,084 |
Citizens Communications Co. | | 9,221 | | | 140,805 |
Embarq Corp. | | 2,740 | | | 173,634 |
Qwest Communications International, Inc. (1) | | 32,677 | | | 316,967 |
Verizon Communications | | 60,336 | | | 2,484,033 |
Windstream Corp. | | 10,529 | | | 155,408 |
| | | | | |
| | | | | 8,815,083 |
| Electric Utilities — 2.6% |
Allegheny Energy, Inc.(1) | | 3,880 | | | 200,751 |
Ameren Corp. | | 4,315 | | | 211,478 |
American Electric Power, Inc. | | 7,774 | | | 350,141 |
CenterPoint Energy, Inc. | | 7,948 | | | 138,295 |
CMS Energy Corp. | | 7,452 | | | 128,174 |
Consolidated Edison, Inc. | | 4,764 | | | 214,952 |
Dominion Resources, Inc. | | 6,657 | | | 574,566 |
DTE Energy Co. | | 4,105 | | | 197,943 |
Duke Energy Corp. | | 23,302 | | | 426,427 |
Edison International | | 6,073 | | | 340,817 |
Entergy Corp. | | 4,652 | | | 499,392 |
Exelon Corp. | | 14,956 | | | 1,085,806 |
FirstEnergy Corp. | | 7,451 | | | 482,303 |
FPL Group, Inc. | | 8,412 | | | 477,297 |
NiSource, Inc. | | 4,793 | | | 99,263 |
PG&E Corp. | | 6,780 | | | 307,134 |
Pinnacle West Capital Corp. | | 1,550 | | | 61,767 |
PPL Corp. | | 8,216 | | | 384,427 |
Progress Energy, Inc. | | 5,078 | | | 231,506 |
Public Service Enterprise Group, Inc. | | 5,184 | | | 455,051 |
Southern Co. | | 13,384 | | | 458,937 |
TECO Energy, Inc. | | 2,588 | | | 44,462 |
Xcel Energy, Inc. | | 9,253 | | | 189,409 |
| | | | | |
| | | | | 7,560,298 |
| Electrical Equipment — 0.4% |
Cooper Industries Ltd., Class A | | 4,188 | | | 239,093 |
Emerson Electric Co. | | 15,390 | | | 720,252 |
Rockwell Automation, Inc. | | 3,531 | | | 245,193 |
| | | | | |
| | | | | 1,204,538 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 23 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series (continued) |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Electronic Equipment & Instruments — 0.3% |
Agilent Technologies, Inc.(1) | | 9,869 | | $ | 379,365 |
Jabil Circuit, Inc. | | 5,356 | | | 118,207 |
Molex, Inc. | | 2,894 | | | 86,849 |
Sanmina-SCI Corp.(1) | | 9,102 | | | 28,489 |
Solectron Corp.(1) | | 24,921 | | | 91,709 |
Tektronix, Inc. | | 1,335 | | | 45,043 |
| | | | | |
| | | | | 749,662 |
| Energy Equipment & Services — 2.1% |
Baker Hughes, Inc. | | 6,815 | | | 573,346 |
BJ Services Co. | | 7,888 | | | 224,335 |
ENSCO International, Inc. | | 3,100 | | | 189,131 |
Halliburton Co. | | 20,590 | | | 710,355 |
Nabors Industries, Inc.(1) | | 6,320 | | | 210,962 |
National-Oilwell Varco, Inc.(1) | | 3,900 | | | 406,536 |
Noble Corp. | | 3,207 | | | 312,747 |
Rowan Companies, Inc. | | 2,114 | | | 86,632 |
Schlumberger Ltd. | | 24,058 | | | 2,043,486 |
Smith International, Inc. | | 4,000 | | | 234,560 |
Transocean, Inc.(1) | | 6,670 | | | 706,886 |
Weatherford International Ltd.(1) | | 7,700 | | | 425,348 |
| | | | | |
| | | | | 6,124,324 |
| Food & Staples Retailing — 2.3% |
Costco Wholesale Corp. | | 8,757 | | | 512,460 |
CVS Caremark Corp. | | 31,888 | | | 1,162,318 |
Kroger Co. | | 16,796 | | | 472,471 |
Safeway, Inc. | | 9,270 | | | 315,458 |
Supervalu, Inc. | | 4,307 | | | 199,500 |
Sysco Corp. | | 12,894 | | | 425,373 |
Wal-Mart Stores, Inc. | | 53,782 | | | 2,587,452 |
Walgreen Co. | | 19,380 | | | 843,805 |
Whole Foods Market, Inc. | | 2,600 | | | 99,580 |
| | | | | |
| | | | | 6,618,417 |
| Food Products — 1.5% |
Archer-Daniels-Midland Co. | | 14,488 | | | 479,408 |
Campbell Soup Co. | | 7,064 | | | 274,154 |
ConAgra Foods, Inc. | | 8,985 | | | 241,337 |
Dean Foods Co. | | 2,600 | | | 82,862 |
General Mills, Inc. | | 6,325 | | | 369,506 |
H.J. Heinz Co. | | 6,812 | | | 323,366 |
Hershey Co. | | 5,575 | | | 282,206 |
Kellogg Co. | | 6,792 | | | 351,758 |
Kraft Foods, Inc., Class A | | 31,645 | | | 1,115,486 |
McCormick & Co., Inc. | | 2,128 | | | 81,247 |
Sara Lee Corp. | | 12,896 | | | 224,390 |
Tyson Foods, Inc., Class A | | 4,500 | | | 103,680 |
W.M. Wrigley Jr. Co. | | 5,402 | | | 298,785 |
| | | | | |
| | | | | 4,228,185 |
| Gas Utilities — 0.3% |
Integrys Energy Group, Inc. | | 499 | | | 25,314 |
KeySpan Corp. | | 4,794 | | | 201,252 |
NICOR, Inc. | | 938 | | | 40,259 |
Questar Corp. | | 3,400 | | | 179,690 |
Sempra Energy | | 5,394 | | | 319,487 |
| | | | | |
| | | | | 766,002 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Health Care Equipment & Supplies — 1.6% |
Bausch & Lomb, Inc. | | 806 | | $ | 55,969 |
Baxter International, Inc. | | 13,886 | | | 782,337 |
Becton Dickinson & Co., Inc. | | 4,439 | | | 330,706 |
Biomet, Inc. | | 5,138 | | | 234,909 |
Boston Scientific Corp.(1) | | 26,319 | | | 403,734 |
C.R. Bard, Inc. | | 1,891 | | | 156,253 |
Hospira, Inc.(1) | | 2,597 | | | 101,387 |
Medtronic, Inc. | | 24,740 | | | 1,283,016 |
St. Jude Medical, Inc.(1) | | 8,090 | | | 335,654 |
Stryker Corp. | | 7,212 | | | 455,005 |
Varian Medical Systems, Inc.(1) | | 2,600 | | | 110,526 |
Zimmer Holdings, Inc.(1) | | 5,170 | | | 438,881 |
| | | | | |
| | | | | 4,688,377 |
| Health Care Providers & Services — 2.2% |
Aetna, Inc. | | 12,292 | | | 607,225 |
AmerisourceBergen Corp. | | 4,226 | | | 209,060 |
Cardinal Health, Inc. | | 8,368 | | | 591,115 |
Cigna Corp. | | 6,888 | | | 359,691 |
Coventry Health Care, Inc.(1) | | 3,150 | | | 181,597 |
Express Scripts, Inc.(1) | | 7,076 | | | 353,871 |
Humana, Inc.(1) | | 3,135 | | | 190,953 |
Laboratory Corp. of America(1) | | 2,400 | | | 187,824 |
Manor Care, Inc. | | 1,471 | | | 96,042 |
McKesson Corp. | | 5,759 | | | 343,467 |
Medco Health Solutions, Inc.(1) | | 6,534 | | | 509,587 |
Patterson Companies, Inc.(1) | | 2,100 | | | 78,267 |
Quest Diagnostics, Inc. | | 3,696 | | | 190,898 |
Tenet Healthcare Corp.(1) | | 7,310 | | | 47,588 |
UnitedHealth Group, Inc. | | 27,600 | | | 1,411,464 |
WellPoint, Inc.(1) | | 12,606 | | | 1,006,337 |
| | | | | |
| | | | | 6,364,986 |
| Health Care Technology — 0.0% |
IMS Health, Inc. | | 4,244 | | | 136,360 |
| | | | | |
| | | | | 136,360 |
| Hotels, Restaurants & Leisure — 1.5% |
Carnival Corp. | | 10,827 | | | 528,033 |
Darden Restaurants, Inc. | | 2,562 | | | 112,702 |
Harrah’s Entertainment, Inc. | | 3,771 | | | 321,516 |
Hilton Hotels Corp. | | 8,124 | | | 271,910 |
International Game Technology | | 7,684 | | | 305,055 |
Marriott International, Inc., Class A | | 7,232 | | | 312,712 |
McDonald’s Corp. | | 24,461 | | | 1,241,640 |
Starbucks Corp.(1) | | 15,064 | | | 395,279 |
Starwood Hotels & Resorts Worldwide, Inc. | | 4,298 | | | 288,267 |
Wendy’s International, Inc. | | 2,530 | | | 92,978 |
Wyndham Worldwide Corp.(1) | | 3,797 | | | 137,679 |
Yum! Brands, Inc. | | 10,346 | | | 338,521 |
| | | | | |
| | | | | 4,346,292 |
| Household Durables — 0.5% |
Black & Decker Corp. | | 1,205 | | | 106,414 |
Centex Corp. | | 2,442 | | | 97,924 |
D. R. Horton, Inc. | | 5,000 | | | 99,650 |
Fortune Brands, Inc. | | 2,245 | | | 184,921 |
Harman International Industries, Inc. | | 1,300 | | | 151,840 |
The accompanying notes are an integral part of these financial statements.
| | |
| 24 | | RS ASSET ALLOCATION VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Household Durables (continued) |
KB HOME | | 1,490 | | $ | 58,661 |
Leggett & Platt, Inc. | | 2,928 | | | 64,562 |
Lennar Corp., Class A | | 3,400 | | | 124,304 |
Newell Rubbermaid, Inc. | | 5,096 | | | 149,975 |
Pulte Homes, Inc. | | 4,860 | | | 109,107 |
Snap-On, Inc. | | 873 | | | 44,095 |
Stanley Works | | 1,281 | | | 77,757 |
Whirlpool Corp. | | 1,159 | | | 128,881 |
| | | | | |
| | | | | 1,398,091 |
| Household Products — 1.9% |
Clorox Co. | | 3,445 | | | 213,934 |
Colgate-Palmolive Co. | | 9,818 | | | 636,697 |
Kimberly-Clark Corp. | | 9,529 | | | 637,395 |
Procter & Gamble Co. | | 65,562 | | | 4,011,739 |
| | | | | |
| | | | | 5,499,765 |
| Independent Power Producers & Energy Traders — 0.5% |
Constellation Energy Group, Inc. | | 3,844 | | | 335,082 |
Dynegy, Inc., Class A(1) | | 5,736 | | | 54,148 |
The AES Corp.(1) | | 13,081 | | | 286,212 |
TXU Corp. | | 9,960 | | | 670,308 |
| | | | | |
| | | | | 1,345,750 |
| Industrial Conglomerates — 3.9% |
3M Co. | | 15,694 | | | 1,362,082 |
General Electric Co. | | 212,951 | | | 8,151,764 |
Textron, Inc. | | 2,366 | | | 260,520 |
Tyco International Ltd. | | 38,378 | | | 1,296,793 |
| | | | | |
| | | | | 11,071,159 |
| Information Technology Services — 1.0% |
Affiliated Computer Services, Inc., Class A(1) | | 2,300 | | | 130,456 |
Automatic Data Processing, Inc. | | 9,913 | | | 480,483 |
Cognizant Technology Solutions Corp., Class A(1) | | 2,600 | | | 195,234 |
Computer Sciences Corp.(1) | | 3,266 | | | 193,184 |
Convergys Corp.(1) | | 2,590 | | | 62,782 |
Electronic Data Systems Corp. | | 10,014 | | | 277,688 |
Fidelity National Information Services, Inc. | | 3,300 | | | 179,124 |
First Data Corp. | | 15,929 | | | 520,400 |
Fiserv, Inc.(1) | | 3,775 | | | 214,420 |
Paychex, Inc. | | 7,597 | | | 297,195 |
Unisys Corp.(1) | | 4,833 | | | 44,174 |
Western Union Co. | | 15,929 | | | 331,801 |
| | | | | |
| | | | | 2,926,941 |
| Insurance — 4.6% |
ACE Ltd. | | 6,224 | | | 389,124 |
AFLAC, Inc. | | 11,497 | | | 590,946 |
Allstate Corp. | | 13,399 | | | 824,172 |
Ambac Financial Group, Inc. | | 2,084 | | | 181,704 |
American International Group, Inc. | | 53,503 | | | 3,746,815 |
Aon Corp. | | 5,608 | | | 238,957 |
Assurant, Inc. | | 2,100 | | | 123,732 |
Chubb Corp. | | 7,936 | | | 429,655 |
Cincinnati Financial Corp. | | 4,875 | | | 211,575 |
Genworth Financial, Inc., Class A | | 8,000 | | | 275,200 |
Lincoln National Corp. | | 6,446 | | | 457,344 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Insurance (continued) |
Loews Corp. | | 9,663 | | $ | 492,620 |
Marsh & McLennan Cos., Inc. | | 11,451 | | | 353,607 |
MBIA, Inc. | | 2,700 | | | 167,994 |
MetLife, Inc. | | 15,772 | | | 1,016,979 |
Principal Financial Group, Inc. | | 5,188 | | | 302,409 |
Progressive Corp. | | 14,224 | | | 340,380 |
Prudential Financial, Inc. | | 9,477 | | | 921,449 |
SAFECO Corp. | | 2,047 | | | 127,446 |
The Hartford Financial Services Group, Inc. | | 5,690 | | | 560,522 |
The Travelers Companies, Inc. | | 13,898 | | | 743,543 |
Torchmark Corp. | | 1,782 | | | 119,394 |
UnumProvident Corp. | | 9,310 | | | 243,084 |
XL Capital Ltd., Class A | | 3,956 | | | 333,451 |
| | | | | |
| | | | | 13,192,102 |
| Internet & Catalog Retail — 0.2% |
Amazon.com, Inc.(1) | | 6,400 | | | 437,824 |
IAC/ InterActiveCorp(1) | | 4,000 | | | 138,440 |
| | | | | |
| | | | | 576,264 |
| Internet Software & Services — 1.4% |
eBay, Inc.(1) | | 25,334 | | | 815,248 |
Google, Inc., Class A(1) | | 4,400 | | | 2,302,872 |
VeriSign, Inc.(1) | | 4,100 | | | 130,093 |
Yahoo! Inc.(1) | | 25,976 | | | 704,729 |
| | | | | |
| | | | | 3,952,942 |
| Leisure Equipment & Products — 0.2% |
Brunswick Corp. | | 1,348 | | | 43,985 |
Eastman Kodak Co. | | 7,563 | | | 210,478 |
Hasbro, Inc. | | 2,589 | | | 81,321 |
Mattel, Inc. | | 9,333 | | | 236,032 |
| | | | | |
| | | | | 571,816 |
| Life Sciences Tools & Services — 0.3% |
Applera Corp. — Applied Biosystems Group | | 3,176 | | | 96,995 |
Millipore Corp.(1) | | 723 | | | 54,290 |
PerkinElmer, Inc. | | 1,870 | | | 48,732 |
Thermo Fisher Scientific, Inc.(1) | | 8,790 | | | 454,619 |
Waters Corp.(1) | | 1,962 | | | 116,464 |
| | | | | |
| | | | | 771,100 |
| Machinery — 1.8% |
Caterpillar, Inc. | | 13,694 | | | 1,072,240 |
Cummins, Inc. | | 2,036 | | | 206,064 |
Danaher Corp. | | 5,066 | | | 382,483 |
Deere & Company | | 4,466 | | | 539,225 |
Dover Corp. | | 7,032 | | | 359,687 |
Eaton Corp. | | 2,646 | | | 246,078 |
Illinois Tool Works, Inc. | | 11,408 | | | 618,199 |
Ingersoll-Rand Co. Ltd., Class A | | 5,794 | | | 317,627 |
ITT Industries, Inc. | | 4,742 | | | 323,784 |
PACCAR, Inc. | | 5,273 | | | 458,962 |
Pall Corp. | | 2,232 | | | 102,650 |
Parker-Hannifin Corp. | | 2,365 | | | 231,557 |
Terex Corp.(1) | | 1,900 | | | 154,470 |
| | | | | |
| | | | | 5,013,026 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 25 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series (continued) |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Media — 3.4% |
CBS Corp., Class B | | 15,737 | | $ | 524,357 |
Citadel Broadcasting Corp. | | 3,257 | | | 21,008 |
Clear Channel Communications, Inc. | | 9,954 | | | 376,460 |
Comcast Corp.(1) | | 64,632 | | | 1,817,452 |
Dow Jones & Co., Inc. | | 1,257 | | | 72,215 |
Gannett Co., Inc. | | 5,313 | | | 291,950 |
Interpublic Group Cos., Inc.(1) | | 7,803 | | | 88,954 |
McGraw-Hill Cos., Inc. | | 7,324 | | | 498,618 |
Meredith Corp. | | 742 | | | 45,707 |
New York Times Co., Class A | | 3,273 | | | 83,134 |
News Corp., Class A | | 47,300 | | | 1,003,233 |
Omnicom Group, Inc. | | 6,222 | | | 329,268 |
Scripps E.W. Co., Class A | | 1,600 | | | 73,104 |
The DIRECTV Group, Inc.(1) | | 15,600 | | | 360,516 |
Time Warner, Inc. | | 86,724 | | | 1,824,673 |
Tribune Co. | | 6,418 | | | 188,689 |
Viacom, Inc., Class B(1) | | 15,737 | | | 655,131 |
Walt Disney Co. | | 42,416 | | | 1,448,082 |
| | | | | |
| | | | | 9,702,551 |
| Metals & Mining — 0.9% |
Alcoa, Inc. | | 18,625 | | | 754,871 |
Allegheny Technologies, Inc. | | 2,406 | | | 252,341 |
Freeport-McMoran Copper & Gold, Inc., Class B | | 7,403 | | | 613,117 |
Newmont Mining Corp. | | 9,604 | | | 375,132 |
Nucor Corp. | | 6,822 | | | 400,111 |
United States Steel Corp. | | 2,788 | | | 303,195 |
| | | | | |
| | | | | 2,698,767 |
| Multiline Retail — 1.2% |
Big Lots, Inc.(1) | | 1,734 | | | 51,014 |
Dillards, Inc., Class A | | 1,262 | | | 45,344 |
Dollar General Corp. | | 6,584 | | | 144,321 |
Family Dollar Stores, Inc. | | 2,592 | | | 88,958 |
Federated Department Stores, Inc. | | 11,094 | | | 441,319 |
J.C. Penney Co., Inc. | | 5,398 | | | 390,707 |
Kohl’s Corp.(1) | | 6,913 | | | 491,030 |
Nordstrom, Inc. | | 5,040 | | | 257,645 |
Sears Holdings Corp.(1) | | 1,811 | | | 306,965 |
Target Corp. | | 17,546 | | | 1,115,926 |
| | | | | |
| | | | | 3,333,229 |
| Office Electronics — 0.1% |
Xerox Corp.(1) | | 20,891 | | | 386,066 |
| | | | | |
| | | | | 386,066 |
| Oil, Gas & Consumable Fuels — 8.5% |
Anadarko Petroleum Corp. | | 9,186 | | | 477,580 |
Apache Corp. | | 7,096 | | | 578,963 |
Chesapeake Energy Corp. | | 6,700 | | | 231,820 |
Chevron Corp. | | 45,419 | | | 3,826,097 |
ConocoPhillips | | 34,735 | | | 2,726,697 |
CONSOL Energy, Inc | | 3,600 | | | 165,996 |
Devon Energy Corp. | | 8,698 | | | 680,966 |
El Paso Corp. | | 13,790 | | | 237,602 |
EOG Resources, Inc. | | 4,845 | | | 353,976 |
Exxon Mobil Corp. | | 118,002 | | | 9,898,008 |
Hess Corp. | | 5,421 | | | 319,622 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Oil, Gas & Consumable Fuels (continued) |
Marathon Oil Corp. | | 14,496 | | $ | 869,180 |
Murphy Oil Corp. | | 3,000 | | | 178,320 |
Occidental Petroleum Corp. | | 17,458 | | | 1,010,469 |
Peabody Energy Corp. | | 5,300 | | | 256,414 |
Spectra Energy Corp. | | 11,651 | | | 302,460 |
Sunoco, Inc. | | 2,532 | | | 201,750 |
Valero Energy Corp. | | 12,700 | | | 938,022 |
Williams Companies, Inc. | | 10,715 | | | 338,808 |
XTO Energy, Inc. | | 9,233 | | | 554,903 |
| | | | | |
| | | | | 24,147,653 |
| Paper & Forest Products — 0.3% |
International Paper Co. | | 9,605 | | | 375,075 |
MeadWestvaco Corp. | | 2,990 | | | 105,607 |
Weyerhaeuser Co. | | 5,010 | | | 395,439 |
| | | | | |
| | | | | 876,121 |
| Personal Products — 0.2% |
Avon Products, Inc. | | 9,396 | | | 345,303 |
Estee Lauder Companies, Inc., Class A | | 2,300 | | | 104,673 |
| | | | | |
| | | | | 449,976 |
| Pharmaceuticals — 6.2% |
Abbott Laboratories | | 32,289 | | | 1,729,076 |
Allergan, Inc. | | 5,726 | | | 330,047 |
Barr Pharmaceuticals, Inc.(1) | | 2,000 | | | 100,460 |
Bristol-Myers Squibb Co. | | 41,437 | | | 1,307,752 |
Eli Lilly & Co. | | 22,839 | | | 1,276,243 |
Forest Laboratories, Inc.(1) | | 7,079 | | | 323,156 |
Johnson & Johnson | | 60,954 | | | 3,755,985 |
King Pharmaceuticals, Inc.(1) | | 3,645 | | | 74,577 |
Merck & Co., Inc. | | 45,858 | | | 2,283,728 |
Mylan Laboratories, Inc. | | 4,500 | | | 81,855 |
Pfizer, Inc. | | 150,003 | | | 3,835,577 |
Schering-Plough Corp. | | 31,420 | | | 956,425 |
Watson Pharmaceuticals, Inc.(1) | | 1,956 | | | 63,629 |
Wyeth | | 27,069 | | | 1,552,136 |
| | | | | |
| | | | | 17,670,646 |
| Real Estate Investment Trusts — 1.0% |
Apartment Investment & Management Co., Class A | | 3,463 | | | 174,604 |
Archstone-Smith Trust | | 4,200 | | | 248,262 |
AvalonBay Communities, Inc. | | 1,600 | | | 190,208 |
Boston Properties, Inc. | | 2,200 | | | 224,686 |
Developers Diversified Realty Corp. | | 2,600 | | | 137,046 |
Equity Residential | | 5,321 | | | 242,797 |
Host Hotels & Resorts, Inc. | | 10,800 | | | 249,696 |
Kimco Realty Corp. | | 4,200 | | | 159,894 |
Plum Creek Timber Co., Inc. | | 3,362 | | | 140,061 |
ProLogis | | 5,292 | | | 301,115 |
Public Storage, Inc. | | 2,900 | | | 222,778 |
Simon Property Group, Inc. | | 4,402 | | | 409,562 |
Vornado Realty Trust | | 2,700 | | | 296,568 |
| | | | | |
| | | | | 2,997,277 |
| Real Estate Management & Development — 0.0% |
CB Richard Ellis Group, Inc.,
Class A(1) | | 3,700 | | | 135,050 |
| | | | | |
| | | | | 135,050 |
The accompanying notes are an integral part of these financial statements.
| | |
| 26 | | RS ASSET ALLOCATION VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Road & Rail — 0.8% |
Burlington Northern Santa Fe Corp. | | 7,561 | | $ | 643,744 |
CSX Corp. | | 8,968 | | | 404,277 |
Norfolk Southern Corp. | | 8,129 | | | 427,342 |
Ryder System, Inc. | | 930 | | | 50,034 |
Union Pacific Corp. | | 5,442 | | | 626,646 |
| | | | | |
| | | | | 2,152,043 |
| Semiconductors & Semiconductor Equipment — 2.6% |
Advanced Micro Devices, Inc.(1) | | 11,902 | | | 170,199 |
Altera Corp. | | 6,790 | | | 150,263 |
Analog Devices, Inc. | | 6,027 | | | 226,856 |
Applied Materials, Inc. | | 29,509 | | | 586,344 |
Broadcom Corp., Class A(1) | | 9,144 | | | 267,462 |
Intel Corp. | | 118,353 | | | 2,812,067 |
KLA-Tencor Corp. | | 3,328 | | | 182,874 |
Linear Technology Corp. | | 5,347 | | | 193,454 |
LSI Logic Corp.(1) | | 14,361 | | | 107,851 |
Maxim Integrated Products, Inc. | | 7,129 | | | 238,180 |
MEMC Electronic Materials, Inc.(1) | | 4,600 | | | 281,152 |
Micron Technology, Inc.(1) | | 15,228 | | | 190,807 |
National Semiconductor Corp. | | 6,658 | | | 188,222 |
Novellus Systems, Inc.(1) | | 2,370 | | | 67,237 |
NVIDIA Corp.(1) | | 8,174 | | | 337,668 |
PMC-Sierra, Inc.(1) | | 3,328 | | | 25,725 |
Teradyne, Inc.(1) | | 3,377 | | | 59,368 |
Texas Instruments, Inc. | | 31,480 | | | 1,184,592 |
Xilinx, Inc. | | 5,730 | | | 153,392 |
| | | | | |
| | | | | 7,423,713 |
| Software — 3.2% |
Adobe Systems, Inc.(1) | | 11,654 | | | 467,908 |
Autodesk, Inc.(1) | | 4,116 | | | 193,781 |
BMC Software, Inc.(1) | | 3,606 | | | 109,262 |
CA, Inc. | | 9,555 | | | 246,806 |
Citrix Systems, Inc.(1) | | 4,616 | | | 155,421 |
Compuware Corp.(1) | | 5,622 | | | 66,677 |
Electronic Arts, Inc.(1) | | 6,400 | | | 302,848 |
Intuit, Inc.(1) | | 6,330 | | | 190,406 |
Microsoft Corp. | | 177,565 | | | 5,232,840 |
Novell, Inc.(1) | | 7,029 | | | 54,756 |
Oracle Corp.(1) | | 83,811 | | | 1,651,915 |
Symantec Corp.(1) | | 21,273 | | | 429,715 |
| | | | | |
| | | | | 9,102,335 |
| Specialty Retail — 1.9% |
Abercrombie & Fitch Co., Class A | | 1,500 | | | 109,470 |
AutoNation, Inc.(1) | | 4,700 | | | 105,468 |
AutoZone, Inc.(1) | | 1,474 | | | 201,378 |
Bed, Bath & Beyond, Inc.(1) | | 5,064 | | | 182,253 |
Best Buy Co., Inc. | | 8,740 | | | 407,896 |
Circuit City Stores, Inc. | | 3,140 | | | 47,351 |
Gap, Inc. | | 14,914 | | | 284,857 |
Limited Brands, Inc. | | 9,195 | | | 252,403 |
Lowe’s Companies, Inc. | | 30,368 | | | 931,994 |
Office Depot, Inc.(1) | | 6,624 | | | 200,707 |
OfficeMax, Inc. | | 2,141 | | | 84,141 |
RadioShack Corp. | | 2,565 | | | 85,004 |
Sherwin-Williams Co. | | 2,251 | | | 149,624 |
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | | |
| Specialty Retail (continued) |
Staples, Inc. | | | 13,890 | | $ | 329,610 |
The Home Depot, Inc. | | | 42,730 | | | 1,681,426 |
Tiffany & Co. | | | 3,379 | | | 179,290 |
TJX Cos., Inc. | | | 8,072 | | | 221,980 |
| | | | | | |
| | | | | | 5,454,852 |
| Textiles, Apparel & Luxury Goods — 0.4% |
Coach, Inc.(1) | | | 7,600 | | | 360,164 |
Jones Apparel Group, Inc. | | | 1,927 | | | 54,438 |
Liz Claiborne, Inc. | | | 1,595 | | | 59,493 |
NIKE, Inc., Class B | | | 8,816 | | | 513,885 |
Polo Ralph Lauren Corp. | | | 1,200 | | | 117,732 |
V.F. Corp. | | | 1,636 | | | 149,825 |
| | | | | | |
| | | | | | 1,255,537 |
| Thrifts & Mortgage Finance — 1.3% |
Countrywide Financial Corp. | | | 12,410 | | | 451,104 |
Federal Home Loan Mortgage Corp. | | | 13,787 | | | 836,871 |
Federal National Mortgage Association | | | 19,513 | | | 1,274,784 |
Hudson City Bancorp, Inc. | | | 10,500 | | | 128,310 |
MGIC Investment Corp. | | | 1,536 | | | 87,337 |
Sovereign Bancorp, Inc. | | | 9,765 | | | 206,432 |
Washington Mutual, Inc. | | | 18,321 | | | 781,207 |
| | | | | | |
| | | | | | 3,766,045 |
| Tobacco — 1.2% |
Altria Group, Inc. | | | 43,295 | | | 3,036,711 |
Reynolds American, Inc. | | | 4,678 | | | 305,006 |
UST, Inc. | | | 3,831 | | | 205,763 |
| | | | | | |
| | | | | | 3,547,480 |
| Trading Companies & Distributors — 0.1% |
W.W. Grainger, Inc. | | | 2,192 | | | 203,966 |
| �� | | | | | |
| | | | | | 203,966 |
| Wireless Telecommunication Services — 0.6% |
ALLTEL Corp. | | | 6,702 | | | 452,720 |
Sprint Nextel Corp. | | | 59,117 | | | 1,224,313 |
| | | | | | |
| | | | | | 1,677,033 |
| | | | | | |
Total Common Stocks
(Cost $204,340,485) | | | 280,474,840 |
| | | | | | |
| | |
| | | Principal
Amount | | Value |
| U.S. Government Securities — 0.1% |
| U.S. Treasury Bills — 0.1% |
United States Treasury Bill
4.602% due 9/20/2007(2) | | $ | 230,000 | | $ | 227,619 |
| | | | | | |
| | | | | | 227,619 |
| | | | | | |
Total U.S. Government Securities
(Cost $227,619) | | | 227,619 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 27 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series (continued) |
| | | | | |
| June 30, 2007 (unaudited) | |
Shares | | Value |
Other Investments — For Trustee Deferred
Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y (3) | | 5 | | $ | 228 |
RS Emerging Growth Fund, Class Y (3) | | 22 | | | 865 |
RS Emerging Markets Fund, Class A (3) | | 6 | | | 157 |
RS Global Natural Resources Fund,
Class Y (3) | | 67 | | | 2,436 |
RS Growth Fund, Class Y (3) | | 50 | | | 838 |
RS Investors Fund, Class Y (3) | | 129 | | | 1,667 |
RS MidCap Opportunities Fund, Class Y (3) | | 43 | | | 697 |
RS Partners Fund, Class Y (3) | | 16 | | | 617 |
RS Smaller Company Growth Fund,
Class Y (3) | | 22 | | | 501 |
RS Value Fund, Class Y (3) | | 15 | | | 474 |
| | | | | |
Total Other Investments
(Cost $7,942) | | | | | 8,480 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| Repurchase Agreements — 1.6% |
State Street Bank and Trust Co.
Repurchase Agreement,
5.13% dated 6/29/07, maturity
value of $4,489,919,
due 7/2/07, collateralized by $4,575,00 in FNMA, 6.125%, due 6/27/17, with a value
of $4,580,719 | | $ | 4,488,000 | | $ | 4,488,000 |
| | | | | | |
Total Repurchase Agreements
(Cost $4,488,000) | | | 4,488,000 |
| | | | | | |
Total Investments — 99.9%
(Cost $209,064,046) | | | 285,198,939 |
| | | | | | |
| Other Assets, Net — 0.1% | | | | | | 248,223 |
| | | | | | |
| Total Net Assets — 100.0% | | | | | $ | 285,447,162 |
(1) | Non income-producing security. |
(2) | The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts. |
(3) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
| | | | | | | | | | | |
| Description | | Number of
Contracts | | Expiration | | Face Value
(Thousands) | | Unrealized
Depreciation | |
| Purchased Futures Contracts — 1.6% | | | | |
| S&P 500 Index | | 12 | | 9/2007 | | $ | 4,546 | | $ | (47,010 | ) |
| | |
The accompanying notes are an integral part of these financial statements.
| | |
| 28 | | RS ASSET ALLOCATION VIP SERIES |
| | |
| | Financial Information — RS S&P 500 Index VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 285,198,939 | |
Cash and cash equivalents | | | 882 | |
Dividends/interest receivable | | | 303,618 | |
Receivable for fund shares subscribed | | | 48,852 | |
Prepaid expenses | | | 6,422 | |
| | | | |
Total Assets | | | 285,558,713 | |
| | | | |
Liabilities | | | | |
Payable to adviser | | | 47,584 | |
Deferred trustees’ compensation | | | 8,480 | |
Payable for variation margin | | | 5,400 | |
Payable for fund shares redeemed | | | 5,160 | |
Payable for investments purchased | | | 2,831 | |
Accrued expenses/other liabilities | | | 42,096 | |
| | | | |
Total Liabilities | | | 111,551 | |
| | | | |
Total Net Assets | | $ | 285,447,162 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 337,896,840 | |
Accumulated undistributed net investment income | | | 2,520,485 | |
Accumulated net realized loss from investments and futures contracts | | | (131,058,046 | ) |
Net unrealized appreciation on investments and futures contracts | | | 76,087,883 | |
| | | | |
Total Net Assets | | $ | 285,447,162 | |
| | | | |
Investments, at Cost | | $ | 209,064,046 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 25,796,484 | |
| |
Net Asset Value Per Share | | | $11.07 | |
| | |
| | Statement of Operations For the Six Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 141,414 | |
Dividends | | | 2,600,010 | |
| | | | |
Total Investment Income | | | 2,741,424 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 343,930 | |
Custodian fees | | | 50,037 | |
Professional fees | | | 25,867 | |
Shareholder reports | | | 12,761 | |
Registration fees | | | 11,556 | |
Trustees’ fees and expenses | | | 6,997 | |
Insurance expense | | | 5,802 | |
Administrative service fees | | | 4,181 | |
Other expense | | | 707 | |
| | | | |
Total Expenses | | | 461,838 | |
Less: Fee waiver by adviser | | | (76,740 | ) |
Custody credits | | | (137 | ) |
| | | | |
Total Expenses, net | | | 384,961 | |
| | | | |
Net Investment Income | | | 2,356,463 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Futures Contracts | | | | |
Net realized gain from investments | | | 742,753 | |
Net realized gain from futures contracts | | | 296,374 | |
Net change in unrealized appreciation on investments | | | 14,994,161 | |
Net change in unrealized (depreciation) on futures contracts | | | (53,130 | ) |
| | | | |
Net Gain on Investments and Futures Contracts | | | 15,980,158 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 18,336,621 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 29 |
| | |
| | Financial Information — RS S&P 500 Index VIP Series |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the Six
Months Ended
06/30/07 | | | For the Year
Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 2,356,463 | | | $ | 4,108,892 | |
Net realized gain on investments and futures contracts | | | 1,039,127 | | | | 201,503 | |
Net change in unrealized appreciation on investments and futures contracts | | | 14,941,031 | | | | 30,966,600 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 18,336,621 | | | | 35,276,995 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (4,039,774 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (4,039,774 | ) |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 10,836,191 | | | | 30,197,829 | |
Reinvestment of distributions | | | — | | | | 4,039,774 | |
Cost of shares redeemed | | | (12,116,428 | ) | | | (16,612,725 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (1,280,237 | ) | | | 17,624,878 | |
| | |
Net Increase in Net Assets | | | 17,056,384 | | | | 48,862,099 | |
| | |
Net Assets | | | | | | | | |
Beginning of period | | | 268,390,778 | | | | 219,528,679 | |
| | | | | | | | |
End of period | | $ | 285,447,162 | | | $ | 268,390,778 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 2,520,485 | | | $ | 164,022 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
Shares | | | | | | | | |
Sold | | | 1,018,664 | | | | 3,150,395 | |
Reinvested | | | — | | | | 411,347 | |
Redeemed | | | (1,127,156 | ) | | | (1,722,127 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (108,492 | ) | | | 1,839,615 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 30 | | RS ASSET ALLOCATION VIP SERIES |
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| | |
| | Financial Information — RS S&P 500 Index VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past five years and the six months ended June 30, 2007. 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | |
| | |
Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(Loss) | | | Total from
Investment
Operations | | | Distributions
From Net
Investment
Income | |
| | | | | | |
Six Months Ended 06/30/07(1) | | $ | 10.36 | | $ | 0.09 | | $ | 0.62 | | | $ | 0.71 | | | $ | — | |
| | | | | | |
Year Ended 12/31/06 | | | 9.12 | | | 0.16 | | | 1.24 | | | | 1.40 | | | | (0.16 | ) |
| | | | | | |
Year Ended 12/31/05 | | | 8.86 | | | 0.14 | | | 0.26 | | | | 0.40 | | | | (0.14 | ) |
| | | | | | |
Year Ended 12/31/04 | | | 8.14 | | | 0.14 | | | 0.72 | | | | 0.86 | | | | (0.14 | ) |
| | | | | | |
Year Ended 12/31/03 | | | 6.44 | | | 0.11 | | | 1.70 | | | | 1.81 | | | | (0.11 | ) |
| | | | | | |
Year Ended 12/31/02 | | | 8.47 | | | 0.14 | | | (2.03 | ) | | | (1.89 | ) | | | (0.14 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
| 32 | | RS ASSET ALLOCATION VIP SERIES |
| | | | | | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total Return* | | Net Assets, End of
Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | | Gross Ratio of
Expenses to
Average Net
Assets | | Net Ratio of Net
Investment Income
to Average Net
Assets | | | Gross Ratio of Net
Investment Income
to Average Net
Assets | | Portfolio
Turnover Rate |
| | | | | | | |
| $11.07 | | 6.85% | | $ | 285,447 | | 0.28% | (a) | | 0.34% | | 1.71% | (a) | | 1.65% | | 0% |
| | | | | | | |
| 10.36 | | 15.46% | | | 268,391 | | 0.28% | (a) | | 0.36% | | 1.72% | (a) | | 1.64% | | 2% |
| | | | | | | |
| 9.12 | | 4.54% | | | 219,529 | | 0.28% | | | 0.37% | | 1.61% | | | 1.52% | | 2% |
| | | | | | | |
| 8.86 | | 10.59% | | | 202,818 | | 0.28% | | | 0.36% | | 1.75% | | | 1.67% | | 1% |
| | | | | | | |
| 8.14 | | 28.25% | | | 170,825 | | 0.28% | | | 0.40% | | 1.51% | | | 1.39% | | 12% |
| | | | | | | |
| 6.44 | | (22.42)% | | | 127,984 | | 0.28% | | | 0.34% | | 1.29% | | | 1.23% | | 17% |
| | (1) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | (a) | Includes the effect of expenses waived by GIS. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 33 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series |
June 30, 2007 (unaudited)
Note A. Organization and Accounting Policies
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS S&P 500 Index VIP Series (the “Fund” or “SP500IV”) is a series of the Trust. SP500IV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of SP500IV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost which approximates market value (see Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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.
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily.
Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $137. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
| | |
| 34 | | RS ASSET ALLOCATION VIP SERIES |
Futures Contracts
SP500IV may enter into financial futures contracts. In entering into such contracts, SP500IV is required to
deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by SP500IV each day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded for financial statement purposes as variation margins paid or received by SP500IV. The daily changes in the variation margin are recognized as unrealized gains or losses by SP500IV. SP500IV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for SP500IV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of SP500IV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Fund.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was as follows:
| | | |
| | | Ordinary
Income |
| 2006 | | $ | 4,039,774 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:
| | | | | |
Undistributed Ordinary Income | | Capital Loss
Carryforward
(Including Post-
October Loss) | |
| $ | 165,876 | | $ | (127,236,087 | ) |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund elected to defer $504,522 net capital losses.
As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:
| | | | | | |
| | | Capital Loss
Carryforward | | | Expiration
Date |
| | $ | (114,242,796 | ) | | 2010 |
| | | (11,938,809 | ) | | 2011 |
| | | (549,960 | ) | | 2013 |
| | | | | | |
| Total | | $ | (126,731,565 | ) | | |
| | | | | | |
Note B. Advisory Fees and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 35 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series (continued) |
June 30, 2007 (unaudited)
LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 0.25% of the average daily net assets of the Fund.
Pursuant to a Sub-Administration and Accounting Services Agreement, Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments, receives fees at an annual rate of 0.2375% of the Fund’s average daily net assets from RS Investments.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 0.28% of the average daily net assets of SP500IV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $5,535,101 and $1,321,430, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June 30, 2007 aggregated $86,111,801 and $14,751,247, respectively, resulting in net unrealized appreciation of $71,360,554. The cost of investments owned at June 30, 2007 for federal income tax purposes was $213,838,385.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities.
Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, SP500IV 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, SP500IV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, all repurchase agreements held by the Fund had been entered into on June 29, 2007.
Note E. Shares of Beneficial Interest
There is an unlimited number of shares of beneficial interest authorized for SP500IV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 1,018,664 | | | 3,150,395 | | | $ | 10,836,191 | | | $ | 30,197,829 | |
Shares issued in reinvestment of dividends | | — | | | 411,347 | | | | — | | | | 4,039,774 | |
Shares repurchased | | (1,127,156 | ) | | (1,722,127 | ) | | | (12,116,428 | ) | | | (16,612,725 | ) |
| | |
Net increase/(decrease) | | (108,492 | ) | | 1,839,615 | | | ($ | 1,280,237 | ) | | $ | 17,624,878 | |
| | |
| | |
| 36 | | RS ASSET ALLOCATION VIP SERIES |
Note F. Temporary Borrowings
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Note G. Indemnifications
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
Note H. New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
Note I. Legal Matters
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of undertakings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of
| | |
| RS ASSET ALLOCATION VIP SERIES | | 37 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series (continued) |
June 30, 2007 (unaudited)
Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
| | |
| 38 | | RS ASSET ALLOCATION VIP SERIES |
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| RS ASSET ALLOCATION VIP SERIES | | 39 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at
| | |
| | Supplemental Information — unaudited (continued) |
improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
RS Variable Products Trust
RS S&P 500 Index VIP Series
| | |
| 6.30.07 | |  |
| | |
 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or Guardian Investor Services LLC. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS S&P 500 Index VIP Series |
| | |
| |
 | | Jonathan C. Jankus (Guardian Investor Services) has been a co-portfolio manager of RS S&P 500 Index VIP Series since 1999*. Mr. Jankus joined Guardian Life in 1995, and has been a managing director of Guardian Life since March 1998. He received a B.A. in mathematics from Queens College, an M.S. in investment management from Pace University, an M.S. in computer science from Polytechnic Institute of New York, and an M.A. in mathematics from Columbia University. Mr. Jankus is a Chartered Financial Analyst. |
| |
 | | Stewart M. Johnson (Guardian Investor Services) has been a co-portfolio manager of RS S&P 500 Index VIP Series since 2004*. Mr. Johnson has been a senior director of Guardian Life since January 2002. Mr. Johnson was second vice president, investment information systems at Guardian Life, from December 2000 to January 2002. Mr. Johnson received a B.A. in mathematics from City College of New York. |
| * | Includes service as a co-portfolio manager of the Fund’s Predecessor Fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
Fund Philosophy
RS S&P 500 Index VIP Series seeks to track the investment performance of the Standard & Poor’s 500 Composite Stock Price Index (“S&P 500®”), which emphasizes securities issued by large U.S. companies.
Investment Process
The Fund normally invests at least 95% of the Fund’s net assets (plus the amount, if any, of borrowings by the Fund for investment purposes) in the stocks of companies included in the S&P 500® Index. The S&P 500® Index is an unmanaged index of 500 common stocks selected by Standard & Poor’s as representative of a broad range of industries within the U.S. economy, including foreign securities. It is comprised primarily of stocks issued by large capitalization companies. The Index is often considered to be the performance benchmark for U.S. stock market performance in general. While the Fund seeks to replicate the performance of the Index, there is no assurance that the Fund will track the performance of the Index exactly.
Performance
For the quarter ended June 30, 2007, the RS S&P 500 Index VIP Series returned 6.24%. The Fund’s objective is to track the returns of the S&P 500® Index3, a theoretical portfolio of 500 blue-chip stocks, which returned 6.28% over the same period. The Fund outperformed the 6.18% average return achieved by the 56 variable subaccount funds in the Lipper universe with an S&P 500® Index objective. The performance of the S&P 500® Index is theoretical in the sense that it is computed as though each security in the Index were purchased and subsequently rebalanced without any trading costs or fund expenses. Year-to-date through June 30, 2007, the Fund’s return was 6.85% compared with 6.96% for the S&P 500® Index.
Portfolio Review
For the first quarter, stock market returns were positive, albeit barely so, with the S&P 500® Index earning a total return of 0.64% during that period. This fact masks considerable volatility, with the S&P 500® Index up 3.2% for the year at one point (February 20) and down by 2.8% for the year at another (March 5).
| | |
| RS S&P 500 INDEX VIP SERIES | | 3 |
| | |
| | RS S&P 500 Index VIP Series (continued) |
Stock market returns were positive during the second quarter, with the S&P 500® Index earning a total return of 6.28% during the period ended June 30 in spite of a 1.66% decline in June.
The Federal Reserve Board (the “Fed”) held monetary conditions steady, keeping the federal funds rate at 5.25%, ever mindful of the continuing threat of inflation in spite of an economy slowed by residential construction. Although growth expectations for the U.S. economy have declined modestly, those of other developed economies (especially in Europe) have increased, creating a consensus of gross domestic product growth estimates from 2.0% to 2.5% for 2007.
Domestically, continuing weakness in the subprime mortgage loan market has created concern that a tightening of credit requirements may exacerbate an already weakened housing market. News of some large hedge fund losses has not helped matters.
Outlook
We will continue to manage the Fund to be substantially fully invested in stocks, attempt to match the S&P 500® Index and keep trading costs to a minimum.
We believe that most signs indicate modest ongoing economic growth, which we hope will continue to sustain corporate profits. A risk on the horizon is the extent to which interest rates will rise in the near term due to concerns about inflation and credit quality. Crude oil prices are back above $70 per barrel, some $20 higher than they were in mid-January. We think rate reductions by the Fed seem unlikely this year given the recent strength of the job market and the worrisome inflation reports; and rate increases seem unlikely in the face of a weak housing market.
On balance, we remain optimistic, but cautiously so.
We thank you for your continued support.
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 | |  |
Jonathan C. Jankus Co-Portfolio Manager | | Stewart M. Johnson Co-Portfolio Manager |
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| 4 | | RS S&P 500 INDEX VIP SERIES |
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.
Assets Under Management: $285,447,162 | Data as of June 30, 2007 |
| | |
 | | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
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| | |
| Company | | Percentage of Total Net Assets |
Exxon Mobil Corp. | | 3.47% |
General Electric Co. | | 2.85% |
AT&T, Inc. | | 1.91% |
Microsoft Corp. | | 1.83% |
Citigroup, Inc. | | 1.82% |
Bank of America Corp. | | 1.60% |
Procter & Gamble Co. | | 1.40% |
Pfizer, Inc. | | 1.34% |
Chevron Corp. | | 1.34% |
Johnson & Johnson | | 1.32% |
Total | | 18.88% |
1 | The sector allocation represents the Global Industry Classification Standard (GICS), which was developed by Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P). The Fund’s holdings are allocated to each sector based on their GICS classification. Cash includes short-term investments and net other assets and liabilities. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
3 | The S&P 500® Index of 500 primarily large-cap U.S. stocks is generally considered to be representative of U.S. stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses. |
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| RS S&P 500 INDEX VIP SERIES | | 5 |
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| | RS S&P 500 Index VIP Series (continued) |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | | | |
| | | | | | | |
| | | Inception
Date | | Year
to
Date | | 1 Year | | 3 Year | | 5 Year | | Since
Inception |
RS S&P 500 Index VIP Series | | 08/25/99 | | 6.85% | | 20.17% | | 11.37% | | 10.37% | | 2.51% |
S&P 500® Index3 | | | | 6.96% | | 20.59% | | 11.67% | | 10.71% | | 2.73% |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 08/25/99 |
The chart above shows the performance of a hypothetical $10,000 investment made in RS S&P 500 Index VIP Series and in the S&P 500® Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian VC 500 Index Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.35%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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| 6 | | RS S&P 500 INDEX VIP SERIES |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first section under the heading entitled “Expenses Paid During Period” for your Fund 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,068.50 | | $1.44 | | 0.28% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,023.41 | | $1.40 | | 0.28% |
| * | 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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| RS S&P 500 INDEX VIP SERIES | | 7 |
| | |
| | Schedule of Investments — RS S&P 500 Index VIP Series |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Common Stocks — 98.2% |
| Aerospace & Defense — 2.6% |
General Dynamics Corp. | | 8,896 | | $ | 695,845 |
Goodrich Corp. | | 2,074 | | | 123,528 |
Honeywell International, Inc. | | 15,604 | | | 878,193 |
L-3 Communications Holdings, Inc. | | 2,900 | | | 282,431 |
Lockheed Martin Corp. | | 7,403 | | | 696,844 |
Northrop Grumman Corp. | | 8,930 | | | 695,379 |
Precision Castparts Corp. | | 2,900 | | | 351,944 |
Raytheon Co. | | 10,352 | | | 557,869 |
Rockwell Collins, Inc. | | 2,736 | | | 193,271 |
The Boeing Co. | | 15,941 | | | 1,532,887 |
United Technologies Corp. | | 20,200 | | | 1,432,786 |
| | | | | |
| | | | | 7,440,977 |
| Air Freight & Logistics — 0.9% | | | | | |
CH Robinson Worldwide, Inc. | | 3,400 | | | 178,568 |
FedEx Corp. | | 6,394 | | | 709,542 |
United Parcel Service, Inc., Class B | | 22,059 | | | 1,610,307 |
| | | | | |
| | | | | 2,498,417 |
| Airlines — 0.1% | | | | | |
Southwest Airlines Co. | | 18,199 | | | 271,347 |
| | | | | |
| | | | | 271,347 |
| Auto Components — 0.2% | | | | | |
Johnson Controls, Inc. | | 4,088 | | | 473,268 |
The Goodyear Tire & Rubber Co.(1) | | 4,322 | | | 150,232 |
| | | | | |
| | | | | 623,500 |
| Automobiles — 0.4% | | | | | |
Ford Motor Co. | | 36,944 | | | 348,012 |
General Motors Corp. | | 11,434 | | | 432,205 |
Harley-Davidson, Inc. | | 5,221 | | | 311,224 |
| | | | | |
| | | | | 1,091,441 |
| Beverages — 2.1% | | | | | |
Anheuser-Busch Companies, Inc. | | 15,462 | | | 806,498 |
Brown-Forman Corp., Class B | | 2,046 | | | 149,522 |
Coca-Cola Co. | | 42,764 | | | 2,236,985 |
Coca-Cola Enterprises, Inc. | | 8,124 | | | 194,976 |
Constellation Brands, Inc., Class A(1) | | 3,500 | | | 84,980 |
Molson Coors Brewing Co., Class B | | 1,841 | | | 170,219 |
Pepsi Bottling Group, Inc. | | 4,264 | | | 143,611 |
PepsiCo., Inc. | | 32,671 | | | 2,118,714 |
| | | | | |
| | | | | 5,905,505 |
| Biotechnology — 1.1% | | | | | |
Amgen, Inc.(1) | | 23,617 | | | 1,305,784 |
Biogen Idec, Inc.(1) | | 7,754 | | | 414,839 |
Celgene Corp.(1) | | 8,100 | | | 464,373 |
Genzyme Corp.(1) | | 5,005 | | | 322,322 |
Gilead Sciences, Inc.(1) | | 18,400 | | | 713,368 |
| | | | | |
| | | | | 3,220,686 |
| Building Products — 0.2% | | | | | |
American Standard Companies, Inc. | | 3,957 | | | 233,384 |
Masco Corp. | | 7,420 | | | 211,247 |
| | | | | |
| | | | | 444,631 |
| Capital Markets — 3.6% | | | | | |
Ameriprise Financial, Inc. | | 4,567 | | | 290,324 |
Bank of New York, Inc. | | 14,970 | | | 620,357 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Capital Markets (continued) | | | | | |
Bear Stearns Companies, Inc. | | 2,876 | | $ | 402,640 |
Charles Schwab Corp. | | 22,577 | | | 463,280 |
E*TRADE Financial Corp.(1) | | 10,100 | | | 223,109 |
Federated Investors, Inc., Class B | | 1,739 | | | 66,656 |
Franklin Resources, Inc. | | 3,987 | | | 528,158 |
Janus Capital Group, Inc. | | 6,726 | | | 187,252 |
Legg Mason, Inc. | | 2,500 | | | 245,950 |
Lehman Brothers Holdings, Inc. | | 10,848 | | | 808,393 |
Mellon Financial Corp. | | 8,485 | | | 373,340 |
Merrill Lynch & Co., Inc. | | 18,064 | | | 1,509,789 |
Morgan Stanley | | 21,983 | | | 1,843,934 |
Northern Trust Corp. | | 3,863 | | | 248,159 |
State Street Corp. | | 6,370 | | | 435,708 |
T. Rowe Price Group, Inc. | | 4,316 | | | 223,957 |
The Goldman Sachs Group, Inc. | | 8,902 | | | 1,929,509 |
| | | | | |
| | | | | 10,400,515 |
| Chemicals — 1.5% |
Air Products & Chemicals, Inc. | | 3,869 | | | 310,952 |
Ashland, Inc. | | 1,031 | | | 65,932 |
Dow Chemical Co. | | 19,542 | | | 864,147 |
E.I. Du Pont de Nemours & Co. | | 18,905 | | | 961,130 |
Eastman Chemical Co. | | 1,156 | | | 74,366 |
Ecolab, Inc. | | 4,704 | | | 200,861 |
Hercules, Inc.(1) | | 1,633 | | | 32,088 |
International Flavors & Fragrances, Inc. | | 1,417 | | | 73,882 |
Monsanto Co. | | 11,514 | | | 777,656 |
PPG Industries, Inc. | | 2,995 | | | 227,950 |
Praxair, Inc. | | 5,483 | | | 394,721 |
Rohm & Haas Company | | 3,888 | | | 212,596 |
Sigma-Aldrich Corp. | | 2,702 | | | 115,294 |
| | | | | |
| | | | | 4,311,575 |
| Commercial Banks — 3.7% |
BB&T Corp. | | 10,334 | | | 420,387 |
Comerica, Inc. | | 3,064 | | | 182,216 |
Commerce Bancorp, Inc. | | 3,500 | | | 129,465 |
Compass Bancshares, Inc. | | 2,100 | | | 144,858 |
Fifth Third Bancorp | | 11,754 | | | 467,457 |
First Horizon National Corp. | | 2,992 | | | 116,688 |
Huntington Bancshares, Inc. | | 7,298 | | | 165,956 |
KeyCorp | | 7,242 | | | 248,618 |
M & T Bank Corp. | | 2,000 | | | 213,800 |
Marshall & Ilsley Corp. | | 6,396 | | | 304,641 |
National City Corp. | | 13,347 | | | 444,722 |
PNC Financial Services Group, Inc. | | 6,805 | | | 487,102 |
Regions Financial Corp. | | 15,927 | | | 527,184 |
SunTrust Banks, Inc. | | 7,523 | | | 645,022 |
Synovus Financial Corp. | | 5,299 | | | 162,679 |
U.S. Bancorp | | 37,797 | | | 1,245,411 |
Wachovia Corp. | | 39,013 | | | 1,999,416 |
Wells Fargo & Co. | | 69,410 | | | 2,441,150 |
Zions Bancorporation | | 1,672 | | | 128,594 |
| | | | | |
| | | | | 10,475,366 |
| Commercial Services & Supplies — 0.6% |
Allied Waste Industries, Inc.(1) | | 4,913 | | | 66,129 |
Avery Dennison Corp. | | 2,079 | | | 138,212 |
Cintas Corp. | | 3,041 | | | 119,907 |
The accompanying notes are an integral part of these financial statements.
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| 8 | | RS S&P 500 INDEX VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Commercial Services & Supplies (continued) |
Equifax, Inc. | | 2,150 | | $ | 95,503 |
Monster Worldwide, Inc.(1) | | 2,470 | | | 101,517 |
Pitney Bowes, Inc. | | 8,465 | | | 396,331 |
R.R. Donnelley & Sons Co. | | 4,695 | | | 204,279 |
Robert Half International, Inc. | | 2,619 | | | 95,594 |
Waste Management, Inc. | | 11,422 | | | 446,029 |
| | | | | |
| | | | | 1,663,501 |
| Communications Equipment — 2.6% |
ADC Telecomm., Inc.(1) | | 1,701 | | | 31,179 |
Avaya, Inc.(1) | | 10,957 | | | 184,516 |
Ciena Corp.(1) | | 2,154 | | | 77,824 |
Cisco Systems, Inc.(1) | | 129,463 | | | 3,605,545 |
Corning, Inc.(1) | | 30,763 | | | 785,995 |
JDS Uniphase Corp.(1) | | 3,432 | | | 46,092 |
Juniper Networks, Inc.(1) | | 11,000 | | | 276,870 |
Motorola, Inc. | | 50,705 | | | 897,478 |
QUALCOMM, Inc. | | 34,668 | | | 1,504,244 |
Tellabs, Inc.(1) | | 8,953 | | | 96,334 |
| | | | | |
| | | | | 7,506,077 |
| Computers & Peripherals — 3.9% |
Apple, Inc.(1) | | 18,133 | | | 2,212,951 |
Dell, Inc.(1) | | 47,143 | | | 1,345,933 |
EMC Corp.(1) | | 45,971 | | | 832,075 |
Hewlett-Packard Co. | | 55,301 | | | 2,467,531 |
International Business Machines Corp. | | 30,222 | | | 3,180,866 |
Lexmark International Group, Inc., Class A(1) | | 2,204 | | | 108,679 |
NCR Corp.(1) | | 2,932 | | | 154,047 |
Network Appliance, Inc.(1) | | 8,633 | | | 252,084 |
QLogic Corp.(1) | | 2,794 | | | 46,520 |
SanDisk Corp.(1) | | 4,800 | | | 234,912 |
Sun Microsystems, Inc.(1) | | 76,632 | | | 403,084 |
| | | | | |
| | | | | 11,238,682 |
| Construction & Engineering — 0.1% |
Fluor Corp. | | 2,106 | | | 234,545 |
| | | | | |
| | | | | 234,545 |
| Construction Materials — 0.1% |
Vulcan Materials Co. | | 2,118 | | | 242,596 |
| | | | | |
| | | | | 242,596 |
| Consumer Finance — 1.0% |
American Express Co. | | 23,837 | | | 1,458,348 |
Capital One Financial Corp. | | 11,040 | | | 865,977 |
SLM Corp. | | 7,586 | | | 436,802 |
| | | | | |
| | | | | 2,761,127 |
| Containers & Packaging — 0.2% |
Ball Corp. | | 1,698 | | | 90,283 |
Bemis Co., Inc. | | 2,984 | | | 99,009 |
Pactiv Corp.(1) | | 2,370 | | | 75,579 |
Sealed Air Corp. | | 4,710 | | | 146,104 |
Temple-Inland, Inc. | | 1,604 | | | 98,694 |
| | | | | |
| | | | | 509,669 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Distributors — 0.1% |
Genuine Parts Co. | | 5,413 | | $ | 268,485 |
| | | | | |
| | | | | 268,485 |
| Diversified Consumer Services — 0.1% |
Apollo Group, Inc., Class A(1) | | 2,958 | | | 172,836 |
H & R Block, Inc. | | 6,318 | | | 147,652 |
| | | | | |
| | | | | 320,488 |
| Diversified Financial Services — 5.0% |
Bank of America Corp. | | 93,181 | | | 4,555,619 |
Chicago Mercantile Exchange Holdings, Inc. | | 700 | | | 374,052 |
CIT Group, Inc. | | 4,000 | | | 219,320 |
Citigroup, Inc. | | 101,338 | | | 5,197,626 |
JPMorgan Chase & Co. | | 72,408 | | | 3,508,167 |
Moody’s Corp. | | 4,648 | | | 289,106 |
| | | | | |
| | | | | 14,143,890 |
| Diversified Telecommunication Services — 3.1% |
AT&T, Inc. | | 131,088 | | | 5,440,152 |
CenturyTel, Inc. | | 2,122 | | | 104,084 |
Citizens Communications Co. | | 9,221 | | | 140,805 |
Embarq Corp. | | 2,740 | | | 173,634 |
Qwest Communications International, Inc. (1) | | 32,677 | | | 316,967 |
Verizon Communications | | 60,336 | | | 2,484,033 |
Windstream Corp. | | 10,529 | | | 155,408 |
| | | | | |
| | | | | 8,815,083 |
| Electric Utilities — 2.6% |
Allegheny Energy, Inc.(1) | | 3,880 | | | 200,751 |
Ameren Corp. | | 4,315 | | | 211,478 |
American Electric Power, Inc. | | 7,774 | | | 350,141 |
CenterPoint Energy, Inc. | | 7,948 | | | 138,295 |
CMS Energy Corp. | | 7,452 | | | 128,174 |
Consolidated Edison, Inc. | | 4,764 | | | 214,952 |
Dominion Resources, Inc. | | 6,657 | | | 574,566 |
DTE Energy Co. | | 4,105 | | | 197,943 |
Duke Energy Corp. | | 23,302 | | | 426,427 |
Edison International | | 6,073 | | | 340,817 |
Entergy Corp. | | 4,652 | | | 499,392 |
Exelon Corp. | | 14,956 | | | 1,085,806 |
FirstEnergy Corp. | | 7,451 | | | 482,303 |
FPL Group, Inc. | | 8,412 | | | 477,297 |
NiSource, Inc. | | 4,793 | | | 99,263 |
PG&E Corp. | | 6,780 | | | 307,134 |
Pinnacle West Capital Corp. | | 1,550 | | | 61,767 |
PPL Corp. | | 8,216 | | | 384,427 |
Progress Energy, Inc. | | 5,078 | | | 231,506 |
Public Service Enterprise Group, Inc. | | 5,184 | | | 455,051 |
Southern Co. | | 13,384 | | | 458,937 |
TECO Energy, Inc. | | 2,588 | | | 44,462 |
Xcel Energy, Inc. | | 9,253 | | | 189,409 |
| | | | | |
| | | | | 7,560,298 |
| Electrical Equipment — 0.4% |
Cooper Industries Ltd., Class A | | 4,188 | | | 239,093 |
Emerson Electric Co. | | 15,390 | | | 720,252 |
Rockwell Automation, Inc. | | 3,531 | | | 245,193 |
| | | | | |
| | | | | 1,204,538 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS S&P 500 INDEX VIP SERIES | | 9 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series (continued) |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Electronic Equipment & Instruments — 0.3% |
Agilent Technologies, Inc.(1) | | 9,869 | | $ | 379,365 |
Jabil Circuit, Inc. | | 5,356 | | | 118,207 |
Molex, Inc. | | 2,894 | | | 86,849 |
Sanmina-SCI Corp.(1) | | 9,102 | | | 28,489 |
Solectron Corp.(1) | | 24,921 | | | 91,709 |
Tektronix, Inc. | | 1,335 | | | 45,043 |
| | | | | |
| | | | | 749,662 |
| Energy Equipment & Services — 2.1% |
Baker Hughes, Inc. | | 6,815 | | | 573,346 |
BJ Services Co. | | 7,888 | | | 224,335 |
ENSCO International, Inc. | | 3,100 | | | 189,131 |
Halliburton Co. | | 20,590 | | | 710,355 |
Nabors Industries, Inc.(1) | | 6,320 | | | 210,962 |
National-Oilwell Varco, Inc.(1) | | 3,900 | | | 406,536 |
Noble Corp. | | 3,207 | | | 312,747 |
Rowan Companies, Inc. | | 2,114 | | | 86,632 |
Schlumberger Ltd. | | 24,058 | | | 2,043,486 |
Smith International, Inc. | | 4,000 | | | 234,560 |
Transocean, Inc.(1) | | 6,670 | | | 706,886 |
Weatherford International Ltd.(1) | | 7,700 | | | 425,348 |
| | | | | |
| | | | | 6,124,324 |
| Food & Staples Retailing — 2.3% |
Costco Wholesale Corp. | | 8,757 | | | 512,460 |
CVS Caremark Corp. | | 31,888 | | | 1,162,318 |
Kroger Co. | | 16,796 | | | 472,471 |
Safeway, Inc. | | 9,270 | | | 315,458 |
Supervalu, Inc. | | 4,307 | | | 199,500 |
Sysco Corp. | | 12,894 | | | 425,373 |
Wal-Mart Stores, Inc. | | 53,782 | | | 2,587,452 |
Walgreen Co. | | 19,380 | | | 843,805 |
Whole Foods Market, Inc. | | 2,600 | | | 99,580 |
| | | | | |
| | | | | 6,618,417 |
| Food Products — 1.5% |
Archer-Daniels-Midland Co. | | 14,488 | | | 479,408 |
Campbell Soup Co. | | 7,064 | | | 274,154 |
ConAgra Foods, Inc. | | 8,985 | | | 241,337 |
Dean Foods Co. | | 2,600 | | | 82,862 |
General Mills, Inc. | | 6,325 | | | 369,506 |
H.J. Heinz Co. | | 6,812 | | | 323,366 |
Hershey Co. | | 5,575 | | | 282,206 |
Kellogg Co. | | 6,792 | | | 351,758 |
Kraft Foods, Inc., Class A | | 31,645 | | | 1,115,486 |
McCormick & Co., Inc. | | 2,128 | | | 81,247 |
Sara Lee Corp. | | 12,896 | | | 224,390 |
Tyson Foods, Inc., Class A | | 4,500 | | | 103,680 |
W.M. Wrigley Jr. Co. | | 5,402 | | | 298,785 |
| | | | | |
| | | | | 4,228,185 |
| Gas Utilities — 0.3% |
Integrys Energy Group, Inc. | | 499 | | | 25,314 |
KeySpan Corp. | | 4,794 | | | 201,252 |
NICOR, Inc. | | 938 | | | 40,259 |
Questar Corp. | | 3,400 | | | 179,690 |
Sempra Energy | | 5,394 | | | 319,487 |
| | | | | |
| | | | | 766,002 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Health Care Equipment & Supplies — 1.6% |
Bausch & Lomb, Inc. | | 806 | | $ | 55,969 |
Baxter International, Inc. | | 13,886 | | | 782,337 |
Becton Dickinson & Co., Inc. | | 4,439 | | | 330,706 |
Biomet, Inc. | | 5,138 | | | 234,909 |
Boston Scientific Corp.(1) | | 26,319 | | | 403,734 |
C.R. Bard, Inc. | | 1,891 | | | 156,253 |
Hospira, Inc.(1) | | 2,597 | | | 101,387 |
Medtronic, Inc. | | 24,740 | | | 1,283,016 |
St. Jude Medical, Inc.(1) | | 8,090 | | | 335,654 |
Stryker Corp. | | 7,212 | | | 455,005 |
Varian Medical Systems, Inc.(1) | | 2,600 | | | 110,526 |
Zimmer Holdings, Inc.(1) | | 5,170 | | | 438,881 |
| | | | | |
| | | | | 4,688,377 |
| Health Care Providers & Services — 2.2% |
Aetna, Inc. | | 12,292 | | | 607,225 |
AmerisourceBergen Corp. | | 4,226 | | | 209,060 |
Cardinal Health, Inc. | | 8,368 | | | 591,115 |
Cigna Corp. | | 6,888 | | | 359,691 |
Coventry Health Care, Inc.(1) | | 3,150 | | | 181,597 |
Express Scripts, Inc.(1) | | 7,076 | | | 353,871 |
Humana, Inc.(1) | | 3,135 | | | 190,953 |
Laboratory Corp. of America(1) | | 2,400 | | | 187,824 |
Manor Care, Inc. | | 1,471 | | | 96,042 |
McKesson Corp. | | 5,759 | | | 343,467 |
Medco Health Solutions, Inc.(1) | | 6,534 | | | 509,587 |
Patterson Companies, Inc.(1) | | 2,100 | | | 78,267 |
Quest Diagnostics, Inc. | | 3,696 | | | 190,898 |
Tenet Healthcare Corp.(1) | | 7,310 | | | 47,588 |
UnitedHealth Group, Inc. | | 27,600 | | | 1,411,464 |
WellPoint, Inc.(1) | | 12,606 | | | 1,006,337 |
| | | | | |
| | | | | 6,364,986 |
| Health Care Technology — 0.0% |
IMS Health, Inc. | | 4,244 | | | 136,360 |
| | | | | |
| | | | | 136,360 |
| Hotels, Restaurants & Leisure — 1.5% |
Carnival Corp. | | 10,827 | | | 528,033 |
Darden Restaurants, Inc. | | 2,562 | | | 112,702 |
Harrah’s Entertainment, Inc. | | 3,771 | | | 321,516 |
Hilton Hotels Corp. | | 8,124 | | | 271,910 |
International Game Technology | | 7,684 | | | 305,055 |
Marriott International, Inc., Class A | | 7,232 | | | 312,712 |
McDonald’s Corp. | | 24,461 | | | 1,241,640 |
Starbucks Corp.(1) | | 15,064 | | | 395,279 |
Starwood Hotels & Resorts Worldwide, Inc. | | 4,298 | | | 288,267 |
Wendy’s International, Inc. | | 2,530 | | | 92,978 |
Wyndham Worldwide Corp.(1) | | 3,797 | | | 137,679 |
Yum! Brands, Inc. | | 10,346 | | | 338,521 |
| | | | | |
| | | | | 4,346,292 |
| Household Durables — 0.5% |
Black & Decker Corp. | | 1,205 | | | 106,414 |
Centex Corp. | | 2,442 | | | 97,924 |
D. R. Horton, Inc. | | 5,000 | | | 99,650 |
Fortune Brands, Inc. | | 2,245 | | | 184,921 |
Harman International Industries, Inc. | | 1,300 | | | 151,840 |
The accompanying notes are an integral part of these financial statements.
| | |
| 10 | | RS S&P 500 INDEX VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Household Durables (continued) |
KB HOME | | 1,490 | | $ | 58,661 |
Leggett & Platt, Inc. | | 2,928 | | | 64,562 |
Lennar Corp., Class A | | 3,400 | | | 124,304 |
Newell Rubbermaid, Inc. | | 5,096 | | | 149,975 |
Pulte Homes, Inc. | | 4,860 | | | 109,107 |
Snap-On, Inc. | | 873 | | | 44,095 |
Stanley Works | | 1,281 | | | 77,757 |
Whirlpool Corp. | | 1,159 | | | 128,881 |
| | | | | |
| | | | | 1,398,091 |
| Household Products — 1.9% |
Clorox Co. | | 3,445 | | | 213,934 |
Colgate-Palmolive Co. | | 9,818 | | | 636,697 |
Kimberly-Clark Corp. | | 9,529 | | | 637,395 |
Procter & Gamble Co. | | 65,562 | | | 4,011,739 |
| | | | | |
| | | | | 5,499,765 |
| Independent Power Producers & Energy Traders — 0.5% |
Constellation Energy Group, Inc. | | 3,844 | | | 335,082 |
Dynegy, Inc., Class A(1) | | 5,736 | | | 54,148 |
The AES Corp.(1) | | 13,081 | | | 286,212 |
TXU Corp. | | 9,960 | | | 670,308 |
| | | | | |
| | | | | 1,345,750 |
| Industrial Conglomerates — 3.9% |
3M Co. | | 15,694 | | | 1,362,082 |
General Electric Co. | | 212,951 | | | 8,151,764 |
Textron, Inc. | | 2,366 | | | 260,520 |
Tyco International Ltd. | | 38,378 | | | 1,296,793 |
| | | | | |
| | | | | 11,071,159 |
| Information Technology Services — 1.0% |
Affiliated Computer Services, Inc., Class A(1) | | 2,300 | | | 130,456 |
Automatic Data Processing, Inc. | | 9,913 | | | 480,483 |
Cognizant Technology Solutions Corp., Class A(1) | | 2,600 | | | 195,234 |
Computer Sciences Corp.(1) | | 3,266 | | | 193,184 |
Convergys Corp.(1) | | 2,590 | | | 62,782 |
Electronic Data Systems Corp. | | 10,014 | | | 277,688 |
Fidelity National Information Services, Inc. | | 3,300 | | | 179,124 |
First Data Corp. | | 15,929 | | | 520,400 |
Fiserv, Inc.(1) | | 3,775 | | | 214,420 |
Paychex, Inc. | | 7,597 | | | 297,195 |
Unisys Corp.(1) | | 4,833 | | | 44,174 |
Western Union Co. | | 15,929 | | | 331,801 |
| | | | | |
| | | | | 2,926,941 |
| Insurance — 4.6% |
ACE Ltd. | | 6,224 | | | 389,124 |
AFLAC, Inc. | | 11,497 | | | 590,946 |
Allstate Corp. | | 13,399 | | | 824,172 |
Ambac Financial Group, Inc. | | 2,084 | | | 181,704 |
American International Group, Inc. | | 53,503 | | | 3,746,815 |
Aon Corp. | | 5,608 | | | 238,957 |
Assurant, Inc. | | 2,100 | | | 123,732 |
Chubb Corp. | | 7,936 | | | 429,655 |
Cincinnati Financial Corp. | | 4,875 | | | 211,575 |
Genworth Financial, Inc., Class A | | 8,000 | | | 275,200 |
Lincoln National Corp. | | 6,446 | | | 457,344 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Insurance (continued) |
Loews Corp. | | 9,663 | | $ | 492,620 |
Marsh & McLennan Cos., Inc. | | 11,451 | | | 353,607 |
MBIA, Inc. | | 2,700 | | | 167,994 |
MetLife, Inc. | | 15,772 | | | 1,016,979 |
Principal Financial Group, Inc. | | 5,188 | | | 302,409 |
Progressive Corp. | | 14,224 | | | 340,380 |
Prudential Financial, Inc. | | 9,477 | | | 921,449 |
SAFECO Corp. | | 2,047 | | | 127,446 |
The Hartford Financial Services Group, Inc. | | 5,690 | | | 560,522 |
The Travelers Companies, Inc. | | 13,898 | | | 743,543 |
Torchmark Corp. | | 1,782 | | | 119,394 |
UnumProvident Corp. | | 9,310 | | | 243,084 |
XL Capital Ltd., Class A | | 3,956 | | | 333,451 |
| | | | | |
| | | | | 13,192,102 |
| Internet & Catalog Retail — 0.2% |
Amazon.com, Inc.(1) | | 6,400 | | | 437,824 |
IAC/ InterActiveCorp(1) | | 4,000 | | | 138,440 |
| | | | | |
| | | | | 576,264 |
| Internet Software & Services — 1.4% |
eBay, Inc.(1) | | 25,334 | | | 815,248 |
Google, Inc., Class A(1) | | 4,400 | | | 2,302,872 |
VeriSign, Inc.(1) | | 4,100 | | | 130,093 |
Yahoo! Inc.(1) | | 25,976 | | | 704,729 |
| | | | | |
| | | | | 3,952,942 |
| Leisure Equipment & Products — 0.2% |
Brunswick Corp. | | 1,348 | | | 43,985 |
Eastman Kodak Co. | | 7,563 | | | 210,478 |
Hasbro, Inc. | | 2,589 | | | 81,321 |
Mattel, Inc. | | 9,333 | | | 236,032 |
| | | | | |
| | | | | 571,816 |
| Life Sciences Tools & Services — 0.3% |
Applera Corp. — Applied Biosystems Group | | 3,176 | | | 96,995 |
Millipore Corp.(1) | | 723 | | | 54,290 |
PerkinElmer, Inc. | | 1,870 | | | 48,732 |
Thermo Fisher Scientific, Inc.(1) | | 8,790 | | | 454,619 |
Waters Corp.(1) | | 1,962 | | | 116,464 |
| | | | | |
| | | | | 771,100 |
| Machinery — 1.8% |
Caterpillar, Inc. | | 13,694 | | | 1,072,240 |
Cummins, Inc. | | 2,036 | | | 206,064 |
Danaher Corp. | | 5,066 | | | 382,483 |
Deere & Company | | 4,466 | | | 539,225 |
Dover Corp. | | 7,032 | | | 359,687 |
Eaton Corp. | | 2,646 | | | 246,078 |
Illinois Tool Works, Inc. | | 11,408 | | | 618,199 |
Ingersoll-Rand Co. Ltd., Class A | | 5,794 | | | 317,627 |
ITT Industries, Inc. | | 4,742 | | | 323,784 |
PACCAR, Inc. | | 5,273 | | | 458,962 |
Pall Corp. | | 2,232 | | | 102,650 |
Parker-Hannifin Corp. | | 2,365 | | | 231,557 |
Terex Corp.(1) | | 1,900 | | | 154,470 |
| | | | | |
| | | | | 5,013,026 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS S&P 500 INDEX VIP SERIES | | 11 |
| | |
| | Schedule of Investments — RS S&P 500 Index VIP Series (continued) |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Media — 3.4% |
CBS Corp., Class B | | 15,737 | | $ | 524,357 |
Citadel Broadcasting Corp. | | 3,257 | | | 21,008 |
Clear Channel Communications, Inc. | | 9,954 | | | 376,460 |
Comcast Corp.(1) | | 64,632 | | | 1,817,452 |
Dow Jones & Co., Inc. | | 1,257 | | | 72,215 |
Gannett Co., Inc. | | 5,313 | | | 291,950 |
Interpublic Group Cos., Inc.(1) | | 7,803 | | | 88,954 |
McGraw-Hill Cos., Inc. | | 7,324 | | | 498,618 |
Meredith Corp. | | 742 | | | 45,707 |
New York Times Co., Class A | | 3,273 | | | 83,134 |
News Corp., Class A | | 47,300 | | | 1,003,233 |
Omnicom Group, Inc. | | 6,222 | | | 329,268 |
Scripps E.W. Co., Class A | | 1,600 | | | 73,104 |
The DIRECTV Group, Inc.(1) | | 15,600 | | | 360,516 |
Time Warner, Inc. | | 86,724 | | | 1,824,673 |
Tribune Co. | | 6,418 | | | 188,689 |
Viacom, Inc., Class B(1) | | 15,737 | | | 655,131 |
Walt Disney Co. | | 42,416 | | | 1,448,082 |
| | | | | |
| | | | | 9,702,551 |
| Metals & Mining — 0.9% |
Alcoa, Inc. | | 18,625 | | | 754,871 |
Allegheny Technologies, Inc. | | 2,406 | | | 252,341 |
Freeport-McMoran Copper & Gold, Inc., Class B | | 7,403 | | | 613,117 |
Newmont Mining Corp. | | 9,604 | | | 375,132 |
Nucor Corp. | | 6,822 | | | 400,111 |
United States Steel Corp. | | 2,788 | | | 303,195 |
| | | | | |
| | | | | 2,698,767 |
| Multiline Retail — 1.2% |
Big Lots, Inc.(1) | | 1,734 | | | 51,014 |
Dillards, Inc., Class A | | 1,262 | | | 45,344 |
Dollar General Corp. | | 6,584 | | | 144,321 |
Family Dollar Stores, Inc. | | 2,592 | | | 88,958 |
Federated Department Stores, Inc. | | 11,094 | | | 441,319 |
J.C. Penney Co., Inc. | | 5,398 | | | 390,707 |
Kohl’s Corp.(1) | | 6,913 | | | 491,030 |
Nordstrom, Inc. | | 5,040 | | | 257,645 |
Sears Holdings Corp.(1) | | 1,811 | | | 306,965 |
Target Corp. | | 17,546 | | | 1,115,926 |
| | | | | |
| | | | | 3,333,229 |
| Office Electronics — 0.1% |
Xerox Corp.(1) | | 20,891 | | | 386,066 |
| | | | | |
| | | | | 386,066 |
| Oil, Gas & Consumable Fuels — 8.5% |
Anadarko Petroleum Corp. | | 9,186 | | | 477,580 |
Apache Corp. | | 7,096 | | | 578,963 |
Chesapeake Energy Corp. | | 6,700 | | | 231,820 |
Chevron Corp. | | 45,419 | | | 3,826,097 |
ConocoPhillips | | 34,735 | | | 2,726,697 |
CONSOL Energy, Inc | | 3,600 | | | 165,996 |
Devon Energy Corp. | | 8,698 | | | 680,966 |
El Paso Corp. | | 13,790 | | | 237,602 |
EOG Resources, Inc. | | 4,845 | | | 353,976 |
Exxon Mobil Corp. | | 118,002 | | | 9,898,008 |
Hess Corp. | | 5,421 | | | 319,622 |
Marathon Oil Corp. | | 14,496 | | | 869,180 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Oil, Gas & Consumable Fuels (continued) |
Murphy Oil Corp. | | 3,000 | | $ | 178,320 |
Occidental Petroleum Corp. | | 17,458 | | | 1,010,469 |
Peabody Energy Corp. | | 5,300 | | | 256,414 |
Spectra Energy Corp. | | 11,651 | | | 302,460 |
Sunoco, Inc. | | 2,532 | | | 201,750 |
Valero Energy Corp. | | 12,700 | | | 938,022 |
Williams Companies, Inc. | | 10,715 | | | 338,808 |
XTO Energy, Inc. | | 9,233 | | | 554,903 |
| | | | | |
| | | | | 24,147,653 |
| Paper & Forest Products — 0.3% |
International Paper Co. | | 9,605 | | | 375,075 |
MeadWestvaco Corp. | | 2,990 | | | 105,607 |
Weyerhaeuser Co. | | 5,010 | | | 395,439 |
| | | | | |
| | | | | 876,121 |
| Personal Products — 0.2% |
Avon Products, Inc. | | 9,396 | | | 345,303 |
Estee Lauder Companies, Inc., Class A | | 2,300 | | | 104,673 |
| | | | | |
| | | | | 449,976 |
| Pharmaceuticals — 6.2% |
Abbott Laboratories | | 32,289 | | | 1,729,076 |
Allergan, Inc. | | 5,726 | | | 330,047 |
Barr Pharmaceuticals, Inc.(1) | | 2,000 | | | 100,460 |
Bristol-Myers Squibb Co. | | 41,437 | | | 1,307,752 |
Eli Lilly & Co. | | 22,839 | | | 1,276,243 |
Forest Laboratories, Inc.(1) | | 7,079 | | | 323,156 |
Johnson & Johnson | | 60,954 | | | 3,755,985 |
King Pharmaceuticals, Inc.(1) | | 3,645 | | | 74,577 |
Merck & Co., Inc. | | 45,858 | | | 2,283,728 |
Mylan Laboratories, Inc. | | 4,500 | | | 81,855 |
Pfizer, Inc. | | 150,003 | | | 3,835,577 |
Schering-Plough Corp. | | 31,420 | | | 956,425 |
Watson Pharmaceuticals, Inc.(1) | | 1,956 | | | 63,629 |
Wyeth | | 27,069 | | | 1,552,136 |
| | | | | |
| | | | | 17,670,646 |
| Real Estate Investment Trusts — 1.0% |
Apartment Investment & Management Co., Class A | | 3,463 | | | 174,604 |
Archstone-Smith Trust | | 4,200 | | | 248,262 |
AvalonBay Communities, Inc. | | 1,600 | | | 190,208 |
Boston Properties, Inc. | | 2,200 | | | 224,686 |
Developers Diversified Realty Corp. | | 2,600 | | | 137,046 |
Equity Residential | | 5,321 | | | 242,797 |
Host Hotels & Resorts, Inc. | | 10,800 | | | 249,696 |
Kimco Realty Corp. | | 4,200 | | | 159,894 |
Plum Creek Timber Co., Inc. | | 3,362 | | | 140,061 |
ProLogis | | 5,292 | | | 301,115 |
Public Storage, Inc. | | 2,900 | | | 222,778 |
Simon Property Group, Inc. | | 4,402 | | | 409,562 |
Vornado Realty Trust | | 2,700 | | | 296,568 |
| | | | | |
| | | | | 2,997,277 |
| Real Estate Management & Development — 0.0% |
CB Richard Ellis Group, Inc.,
Class A(1) | | 3,700 | | | 135,050 |
| | | | | |
| | | | | 135,050 |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS S&P 500 INDEX VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Road & Rail — 0.8% |
Burlington Northern Santa Fe Corp. | | 7,561 | | $ | 643,744 |
CSX Corp. | | 8,968 | | | 404,277 |
Norfolk Southern Corp. | | 8,129 | | | 427,342 |
Ryder System, Inc. | | 930 | | | 50,034 |
Union Pacific Corp. | | 5,442 | | | 626,646 |
| | | | | |
| | | | | 2,152,043 |
| Semiconductors & Semiconductor Equipment — 2.6% |
Advanced Micro Devices, Inc.(1) | | 11,902 | | | 170,199 |
Altera Corp. | | 6,790 | | | 150,263 |
Analog Devices, Inc. | | 6,027 | | | 226,856 |
Applied Materials, Inc. | | 29,509 | | | 586,344 |
Broadcom Corp., Class A(1) | | 9,144 | | | 267,462 |
Intel Corp. | | 118,353 | | | 2,812,067 |
KLA-Tencor Corp. | | 3,328 | | | 182,874 |
Linear Technology Corp. | | 5,347 | | | 193,454 |
LSI Logic Corp.(1) | | 14,361 | | | 107,851 |
Maxim Integrated Products, Inc. | | 7,129 | | | 238,180 |
MEMC Electronic Materials, Inc.(1) | | 4,600 | | | 281,152 |
Micron Technology, Inc.(1) | | 15,228 | | | 190,807 |
National Semiconductor Corp. | | 6,658 | | | 188,222 |
Novellus Systems, Inc.(1) | | 2,370 | | | 67,237 |
NVIDIA Corp.(1) | | 8,174 | | | 337,668 |
PMC-Sierra, Inc.(1) | | 3,328 | | | 25,725 |
Teradyne, Inc.(1) | | 3,377 | | | 59,368 |
Texas Instruments, Inc. | | 31,480 | | | 1,184,592 |
Xilinx, Inc. | | 5,730 | | | 153,392 |
| | | | | |
| | | | | 7,423,713 |
| Software — 3.2% |
Adobe Systems, Inc.(1) | | 11,654 | | | 467,908 |
Autodesk, Inc.(1) | | 4,116 | | | 193,781 |
BMC Software, Inc.(1) | | 3,606 | | | 109,262 |
CA, Inc. | | 9,555 | | | 246,806 |
Citrix Systems, Inc.(1) | | 4,616 | | | 155,421 |
Compuware Corp.(1) | | 5,622 | | | 66,677 |
Electronic Arts, Inc.(1) | | 6,400 | | | 302,848 |
Intuit, Inc.(1) | | 6,330 | | | 190,406 |
Microsoft Corp. | | 177,565 | | | 5,232,840 |
Novell, Inc.(1) | | 7,029 | | | 54,756 |
Oracle Corp.(1) | | 83,811 | | | 1,651,915 |
Symantec Corp.(1) | | 21,273 | | | 429,715 |
| | | | | |
| | | | | 9,102,335 |
| Specialty Retail — 1.9% |
Abercrombie & Fitch Co., Class A | | 1,500 | | | 109,470 |
AutoNation, Inc.(1) | | 4,700 | | | 105,468 |
AutoZone, Inc.(1) | | 1,474 | | | 201,378 |
Bed, Bath & Beyond, Inc.(1) | | 5,064 | | | 182,253 |
Best Buy Co., Inc. | | 8,740 | | | 407,896 |
Circuit City Stores, Inc. | | 3,140 | | | 47,351 |
Gap, Inc. | | 14,914 | | | 284,857 |
Limited Brands, Inc. | | 9,195 | | | 252,403 |
Lowe’s Companies, Inc. | | 30,368 | | | 931,994 |
Office Depot, Inc.(1) | | 6,624 | | | 200,707 |
OfficeMax, Inc. | | 2,141 | | | 84,141 |
RadioShack Corp. | | 2,565 | | | 85,004 |
Sherwin-Williams Co. | | 2,251 | | | 149,624 |
Staples, Inc. | | 13,890 | | | 329,610 |
The Home Depot, Inc. | | 42,730 | | | 1,681,426 |
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | | |
| Specialty Retail (continued) |
Tiffany & Co. | | | 3,379 | | $ | 179,290 |
TJX Cos., Inc. | | | 8,072 | | | 221,980 |
| | | | | | |
| | | | | | 5,454,852 |
| Textiles, Apparel & Luxury Goods — 0.4% |
Coach, Inc.(1) | | | 7,600 | | | 360,164 |
Jones Apparel Group, Inc. | | | 1,927 | | | 54,438 |
Liz Claiborne, Inc. | | | 1,595 | | | 59,493 |
NIKE, Inc., Class B | | | 8,816 | | | 513,885 |
Polo Ralph Lauren Corp. | | | 1,200 | | | 117,732 |
V.F. Corp. | | | 1,636 | | | 149,825 |
| | | | | | |
| | | | | | 1,255,537 |
| Thrifts & Mortgage Finance — 1.3% |
Countrywide Financial Corp. | | | 12,410 | | | 451,104 |
Federal Home Loan Mortgage Corp. | | | 13,787 | | | 836,871 |
Federal National Mortgage Association | | | 19,513 | | | 1,274,784 |
Hudson City Bancorp, Inc. | | | 10,500 | | | 128,310 |
MGIC Investment Corp. | | | 1,536 | | | 87,337 |
Sovereign Bancorp, Inc. | | | 9,765 | | | 206,432 |
Washington Mutual, Inc. | | | 18,321 | | | 781,207 |
| | | | | | |
| | | | | | 3,766,045 |
| Tobacco — 1.2% |
Altria Group, Inc. | | | 43,295 | | | 3,036,711 |
Reynolds American, Inc. | | | 4,678 | | | 305,006 |
UST, Inc. | | | 3,831 | | | 205,763 |
| | | | | | |
| | | | | | 3,547,480 |
| Trading Companies & Distributors — 0.1% |
W.W. Grainger, Inc. | | | 2,192 | | | 203,966 |
| | | | | | |
| | | | | | 203,966 |
| Wireless Telecommunication Services — 0.6% |
ALLTEL Corp. | | | 6,702 | | | 452,720 |
Sprint Nextel Corp. | | | 59,117 | | | 1,224,313 |
| | | | | | |
| | | | | | 1,677,033 |
| | | | | | |
Total Common Stocks
(Cost $204,340,485) | | | 280,474,840 |
| | | | | | |
| | |
| | | Principal
Amount | | Value |
| U.S. Government Securities — 0.1% |
| U.S. Treasury Bills — 0.1% |
United States Treasury Bill
4.602% due 9/20/2007(2) | | $ | 230,000 | | $ | 227,619 |
| | | | | | |
| | | | | | 227,619 |
| | | | | | |
Total U.S. Government Securities
(Cost $227,619) | | | 227,619 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS S&P 500 INDEX VIP SERIES | | 13 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series (continued) |
| | | | | |
| June 30, 2007 (unaudited) | |
Shares | | Value |
Other Investments — For Trustee Deferred
Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y (3) | | 5 | | $ | 228 |
RS Emerging Growth Fund, Class Y (3) | | 22 | | | 865 |
RS Emerging Markets Fund, Class A (3) | | 6 | | | 157 |
RS Global Natural Resources Fund,
Class Y (3) | | 67 | | | 2,436 |
RS Growth Fund, Class Y (3) | | 50 | | | 838 |
RS Investors Fund, Class Y (3) | | 129 | | | 1,667 |
RS MidCap Opportunities Fund, Class Y (3) | | 43 | | | 697 |
RS Partners Fund, Class Y (3) | | 16 | | | 617 |
RS Smaller Company Growth Fund,
Class Y (3) | | 22 | | | 501 |
RS Value Fund, Class Y (3) | | 15 | | | 474 |
| | | | | |
Total Other Investments
(Cost $7,942) | | | | | 8,480 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| Repurchase Agreements — 1.6% |
State Street Bank and Trust Co.
Repurchase Agreement,
5.13% dated 6/29/07, maturity
value of $4,489,919,
due 7/2/07, collateralized by $4,575,00 in FNMA, 6.125%, due 6/27/17, with a value
of $4,580,719 | | $ | 4,488,000 | | $ | 4,488,000 |
| | | | | | |
Total Repurchase Agreements
(Cost $4,488,000) | | | 4,488,000 |
| | | | | | |
Total Investments — 99.9%
(Cost $209,064,046) | | | 285,198,939 |
| | | | | | |
| Other Assets, Net — 0.1% | | | | | | 248,223 |
| | | | | | |
| Total Net Assets — 100.0% | | | | | $ | 285,447,162 |
(1) | Non income-producing security. |
(2) | The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts. |
(3) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
| | | | | | | | | | | |
| Description | | Number of
Contracts | | Expiration | | Face Value
(Thousands) | | Unrealized
Depreciation | |
| Purchased Futures Contracts — 1.6% | | | | |
| S&P 500 Index | | 12 | | 9/2007 | | $ | 4,546 | | $ | (47,010 | ) |
| | |
The accompanying notes are an integral part of these financial statements.
| | |
| 14 | | RS S&P 500 INDEX VIP SERIES |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 285,198,939 | |
Cash and cash equivalents | | | 882 | |
Dividends/interest receivable | | | 303,618 | |
Receivable for fund shares subscribed | | | 48,852 | |
Prepaid expenses | | | 6,422 | |
| | | | |
Total Assets | | | 285,558,713 | |
| | | | |
Liabilities | | | | |
Payable to adviser | | | 47,584 | |
Deferred trustees’ compensation | | | 8,480 | |
Payable for variation margin | | | 5,400 | |
Payable for fund shares redeemed | | | 5,160 | |
Payable for investments purchased | | | 2,831 | |
Accrued expenses/other liabilities | | | 42,096 | |
| | | | |
Total Liabilities | | | 111,551 | |
| | | | |
Total Net Assets | | $ | 285,447,162 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 337,896,840 | |
Accumulated undistributed net investment income | | | 2,520,485 | |
Accumulated net realized loss from investments and futures contracts | | | (131,058,046 | ) |
Net unrealized appreciation on investments and futures contracts | | | 76,087,883 | |
| | | | |
Total Net Assets | | $ | 285,447,162 | |
| | | | |
Investments, at Cost | | $ | 209,064,046 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 25,796,484 | |
| |
Net Asset Value Per Share | | | $11.07 | |
| | |
| | Statement of Operations For the Six Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 141,414 | |
Dividends | | | 2,600,010 | |
| | | | |
Total Investment Income | | | 2,741,424 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 343,930 | |
Custodian fees | | | 50,037 | |
Professional fees | | | 25,867 | |
Shareholder reports | | | 12,761 | |
Registration fees | | | 11,556 | |
Trustees’ fees and expenses | | | 6,997 | |
Insurance expense | | | 5,802 | |
Administrative service fees | | | 4,181 | |
Other expense | | | 707 | |
| | | | |
Total Expenses | | | 461,838 | |
Less: Fee waiver by adviser | | | (76,740 | ) |
Custody credits | | | (137 | ) |
| | | | |
Total Expenses, net | | | 384,961 | |
| | | | |
Net Investment Income | | | 2,356,463 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Futures Contracts | | | | |
Net realized gain from investments | | | 742,753 | |
Net realized gain from futures contracts | | | 296,374 | |
Net change in unrealized appreciation on investments | | | 14,994,161 | |
Net change in unrealized (depreciation) on futures contracts | | | (53,130 | ) |
| | | | |
Net Gain on Investments and Futures Contracts | | | 15,980,158 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 18,336,621 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS S&P 500 INDEX VIP SERIES | | 15 |
| | |
| | Financial Information — RS S&P 500 Index VIP Series |
| | |
| | Financial Information — RS S&P 500 Index VIP Series |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the Six
Months Ended
06/30/07 | | | For the Year
Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 2,356,463 | | | $ | 4,108,892 | |
Net realized gain on investments and futures contracts | | | 1,039,127 | | | | 201,503 | |
Net change in unrealized appreciation on investments and futures contracts | | | 14,941,031 | | | | 30,966,600 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 18,336,621 | | | | 35,276,995 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (4,039,774 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (4,039,774 | ) |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 10,836,191 | | | | 30,197,829 | |
Reinvestment of distributions | | | — | | | | 4,039,774 | |
Cost of shares redeemed | | | (12,116,428 | ) | | | (16,612,725 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (1,280,237 | ) | | | 17,624,878 | |
| | |
Net Increase in Net Assets | | | 17,056,384 | | | | 48,862,099 | |
| | |
Net Assets | | | | | | | | |
Beginning of period | | | 268,390,778 | | | | 219,528,679 | |
| | | | | | | | |
End of period | | $ | 285,447,162 | | | $ | 268,390,778 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 2,520,485 | | | $ | 164,022 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
Shares | | | | | | | | |
Sold | | | 1,018,664 | | | | 3,150,395 | |
Reinvested | | | — | | | | 411,347 | |
Redeemed | | | (1,127,156 | ) | | | (1,722,127 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (108,492 | ) | | | 1,839,615 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 16 | | RS S&P 500 INDEX VIP SERIES |
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The accompanying notes are an integral part of these financial statements.
| | |
| RS S&P 500 INDEX VIP SERIES | | 17 |
| | |
| | Financial Information — RS S&P 500 Index VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past five years and the six months ended June 30, 2007. 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | |
| | |
Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(Loss) | | | Total from
Investment
Operations | | | Distributions
From Net
Investment
Income | |
| | | | | | |
Six Months Ended 06/30/07(1) | | $ | 10.36 | | $ | 0.09 | | $ | 0.62 | | | $ | 0.71 | | | $ | — | |
| | | | | | |
Year Ended 12/31/06 | | | 9.12 | | | 0.16 | | | 1.24 | | | | 1.40 | | | | (0.16 | ) |
| | | | | | |
Year Ended 12/31/05 | | | 8.86 | | | 0.14 | | | 0.26 | | | | 0.40 | | | | (0.14 | ) |
| | | | | | |
Year Ended 12/31/04 | | | 8.14 | | | 0.14 | | | 0.72 | | | | 0.86 | | | | (0.14 | ) |
| | | | | | |
Year Ended 12/31/03 | | | 6.44 | | | 0.11 | | | 1.70 | | | | 1.81 | | | | (0.11 | ) |
| | | | | | |
Year Ended 12/31/02 | | | 8.47 | | | 0.14 | | | (2.03 | ) | | | (1.89 | ) | | | (0.14 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
| 18 | | RS S&P 500 INDEX VIP SERIES |
| | | | | | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total Return* | | Net Assets, End of
Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | | Gross Ratio of
Expenses to
Average Net
Assets | | Net Ratio of Net
Investment Income
to Average Net
Assets | | | Gross Ratio of Net
Investment Income
to Average Net
Assets | | Portfolio
Turnover Rate |
| | | | | | | |
| $11.07 | | 6.85% | | $ | 285,447 | | 0.28% | (a) | | 0.34% | | 1.71% | (a) | | 1.65% | | 0% |
| | | | | | | |
| 10.36 | | 15.46% | | | 268,391 | | 0.28% | (a) | | 0.36% | | 1.72% | (a) | | 1.64% | | 2% |
| | | | | | | |
| 9.12 | | 4.54% | | | 219,529 | | 0.28% | | | 0.37% | | 1.61% | | | 1.52% | | 2% |
| | | | | | | |
| 8.86 | | 10.59% | | | 202,818 | | 0.28% | | | 0.36% | | 1.75% | | | 1.67% | | 1% |
| | | | | | | |
| 8.14 | | 28.25% | | | 170,825 | | 0.28% | | | 0.40% | | 1.51% | | | 1.39% | | 12% |
| | | | | | | |
| 6.44 | | (22.42)% | | | 127,984 | | 0.28% | | | 0.34% | | 1.29% | | | 1.23% | | 17% |
| | (1) | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | (a) | Includes the effect of expenses waived by GIS. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS S&P 500 INDEX VIP SERIES | | 19 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series |
June 30, 2007 (unaudited)
Note A. Organization and Accounting Policies
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS S&P 500 Index VIP Series (the “Fund” or “SP500IV”) is a series of the Trust. SP500IV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of SP500IV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost which approximates market value (see Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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.
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily.
Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $137. The Fund could have employed the
| | |
| 20 | | RS S&P 500 INDEX VIP SERIES |
uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
Futures Contracts
SP500IV may enter into financial futures contracts. In entering into such contracts, SP500IV is required to
deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by SP500IV each day, depending on the daily fluctuations in the value of the underlying contracts, and are recorded for financial statement purposes as variation margins paid or received by SP500IV. The daily changes in the variation margin are recognized as unrealized gains or losses by SP500IV. SP500IV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for SP500IV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of SP500IV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Fund.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was as follows:
| | | |
| | | Ordinary
Income |
| 2006 | | $ | 4,039,774 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:
| | | | | |
Undistributed Ordinary Income | | Capital Loss
Carryforward
(Including Post-
October Loss) | |
| $ | 165,876 | | $ | (127,236,087 | ) |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund elected to defer $504,522 net capital losses.
As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:
| | | | | | |
| | | Capital Loss
Carryforward | | | Expiration
Date |
| | $ | (114,242,796 | ) | | 2010 |
| | | (11,938,809 | ) | | 2011 |
| | | (549,960 | ) | | 2013 |
| | | | | | |
| Total | | $ | (126,731,565 | ) | | |
| | | | | | |
| | |
| RS S&P 500 INDEX VIP SERIES | | 21 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series (continued) |
June 30, 2007 (unaudited)
Note B. Advisory Fees and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co. LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 0.25% of the average daily net assets of the Fund.
Pursuant to a Sub-Administration and Accounting Services Agreement, Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments, receives fees at an annual rate of 0.2375% of the Fund’s average daily net assets from RS Investments.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 0.28% of the average daily net assets of SP500IV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $5,535,101 and $1,321,430, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June 30, 2007 aggregated $86,111,801 and $14,751,247, respectively, resulting in net unrealized appreciation of $71,360,554. The cost of investments owned at June 30, 2007 for federal income tax purposes was $213,838,385.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities.
Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, SP500IV 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, SP500IV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, all repurchase agreements held by the Fund had been entered into on June 29, 2007.
| | |
| 22 | | RS S&P 500 INDEX VIP SERIES |
Note E. Shares of Beneficial Interest
There is an unlimited number of shares of beneficial interest authorized for SP500IV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 1,018,664 | | | 3,150,395 | | | $ | 10,836,191 | | | $ | 30,197,829 | |
Shares issued in reinvestment of dividends | | — | | | 411,347 | | | | — | | | | 4,039,774 | |
Shares repurchased | | (1,127,156 | ) | | (1,722,127 | ) | | | (12,116,428 | ) | | | (16,612,725 | ) |
| | |
Net increase/(decrease) | | (108,492 | ) | | 1,839,615 | | | ($ | 1,280,237 | ) | | $ | 17,624,878 | |
| | |
Note F. Temporary Borrowings
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Note G. Indemnifications
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
Note H. New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
Note I. Legal Matters
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through
| | |
| RS S&P 500 INDEX VIP SERIES | | 23 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series (continued) |
June 30, 2007 (unaudited)
2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of undertakings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
| | |
| 24 | | RS S&P 500 INDEX VIP SERIES |
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| RS S&P 500 INDEX VIP SERIES | | 25 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution
| | |
| | Supplemental Information — unaudited (continued) |
capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
Portfolio Holdings and Proxy Voting Procedure
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
RS Variable Products Trust
RS International Growth VIP Series
| | |
| 6.30.07 | |  |
| | |
 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments, Guardian Baillie Gifford Limited or Baillie Gifford Overseas Limited. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS International Growth VIP Series |
| | |
 | | R. Robin Menzies (Baillie Gifford Overseas Limited) has managed RS International Growth VIP Series since 1993*. In this role, Mr. Menzies works with the investment management teams at Baillie Gifford Overseas Limited (“BG Overseas”), which make the securities selections for the Fund, and an investment policy committee BG Overseas, which reviews geographical allocations. Mr. Menzies, as coordinator, has responsibility for reviewing the overall composition of the Fund’s portfolio to ensure its compliance with its stated investment objective and strategies. Mr. Menzies is a director of BG Overseas and a partner of Baillie Gifford & Co., where he has worked since 1976. He received a B.A. in engineering and law from Cambridge University. |
| * | Includes service as portfolio manager of the Fund’s predecessor fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
Fund Philosophy
The RS International Growth VIP Series seeks long-term capital appreciation. It is anticipated that long-term capital appreciation will be accompanied by dividend income, which may vary depending on factors such as the location of the investments.
Investment Process
The Fund normally invests at least 80% of the Fund’s net assets (plus the amount, if any, of the Fund’s borrowings for investment purposes) in common stocks and convertible securities issued by companies that are domiciled outside of the U.S. The Fund uses a bottom-up, stock-driven approach, with the objective of selecting stocks that the sub-adviser/portfolio manager believes can sustain an above-average growth rate and trade at a reasonable price.
Performance
Despite expectations of further interest rate hikes in many countries, international equity markets performed strongly in aggregate. The RS International Growth VIP Series produced positive absolute returns of 5.37% during the second quarter and 10.33% year-to-date ended June 30, 2007, but it lagged the Morgan Stanley Capital International (MSCI) Europe, Australasia, and Far East (EAFE) Growth Index1, which returned 6.87% and 12.24%, respectively.
Portfolio Review
European capital goods and utilities companies were the best performers, with Sandvik, Atlas Copco, and Electricite de France among the top contributors to relative performance. Performance was also helped by stock selection in Japan, in particular Mitsui & Co., Mitsui O.S.K. Lines (shipping company), and Sumitomo Mitsui Financial Group. It was a similar story for the quarter, with the additional benefit of strong returns from Brazilian companies Petrobras and Banco Itau.
At the sector level, over the second quarter, stock selection in energy, real estate, and utilities helped relative performance, but this was more than offset by stock selection in the banking sector where Svenska Handelsbanken (Sweden), and Unicredito Italiano underperformed; concerns that expected interest rate rises will dent the profits of these leveraged businesses weighed on their share prices.
For the first half of the year, stock selection in the utilities, transportation, food and beverage, and tobacco sectors was good, but this was offset by stock selection in the technology sector where the Fund lost out by not owning two star performers; Nokia (Finland) and Siemens (Germany).
| | |
| RS INTERNATIONAL GROWTH VIP SERIES | | 3 |
| | |
| | RS International Growth VIP Series (continued) |
Outlook
We believe that the most influential factors determining the outlook for financial markets are:
| Ø | | The global economy remains strong with the developing nations increasingly to the fore. |
| Ø | | Equities still look reasonably valued, with the rising cost of debt offset by robust global growth. |
| Ø | | The best prospects are in the industrial sector, which benefits from high levels of investment in the developing economies. |
Thank you for your continued support.
R. Robin Menzies
Portfolio Manager
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty, and greater volatility.
| | |
| 4 | | RS INTERNATIONAL GROWTH VIP SERIES |
| | |
| Assets Under Management: $308,114,623 | | Data as of June 30, 2007 |
| | |
 | | Geographical Location vs. Index |
| | |
| | Top Ten Holdings2 |
| | | | |
| | | |
| Company | | Country | | Percentage of Total Net Assets |
Atlas Copco AB | | Sweden | | 3.17% |
UBS AG | | Switzerland | | 2.78% |
Royal Dutch Shell PLC | | United Kingdom | | 2.68% |
Essilor International S.A. | | France | | 2.40% |
Kone Oyj | | Finland | | 2.37% |
Celesio AG | | Germany | | 2.17% |
CRH PLC | | Ireland | | 2.15% |
Seadrill Ltd. | | Norway | | 2.06% |
Svenska Handelsbanken AB | | Sweden | | 1.93% |
L’Oreal S.A. | | France | | 1.91% |
| Total | | | | 23.62% |
1 | The Morgan Stanley Capital International (MSCI) Growth Index for Europe, Australasia, and Far East (EAFE) is generally considered to be representative of international stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
| | |
| RS INTERNATIONAL GROWTH VIP SERIES | | 5 |
| | |
| | RS International Growth VIP Series (continued) |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | | | | | |
| | | | | | | | |
| | | Inception
Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | 10 Years | | Since Inception |
RS International Growth VIP Series | | 02/08/91 | | 10.33% | | 24.70% | | 21.65% | | 15.11% | | 7.54% | | 9.91% |
MSCI EAFE Growth Index1 | | | | 12.24% | | 25.71% | | 21.07% | | 15.75% | | 5.47% | | 6.39% |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 06/30/97 |
The chart above shows the performance of a hypothetical $10,000 investment made 10 years ago in RS International Growth VIP Series and in the MSCI EAFE Growth Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Baillie Gifford International Growth Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.98%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
| 6 | | RS INTERNATIONAL GROWTH VIP SERIES |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,103.30 | | $4.94 | | 0.95% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,020.10 | | $4.74 | | 0.95% |
| * | 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). |
| | |
| RS INTERNATIONAL GROWTH VIP SERIES | | 7 |
| | |
| | Schedule of Investments – RS International Growth VIP Series |
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value | |
| | | | | | |
| Common Stocks — 96.9% | |
| Australia — 5.4% | |
| Beverages — 0.4% | |
Fosters Group Ltd. | | 255,500 | | $ | 1,381,991 | |
| Commercial Banks — 1.2% | |
Australia & NZ Banking Group Ltd. | | 87,754 | | | 2,156,794 | |
Westpac Banking Corp. | | 77,000 | | | 1,675,101 | |
| | | | | | |
| | | | | 3,831,895 | |
| Commercial Services & Supplies — 0.3% | |
Brambles Ltd.(1) | | 89,000 | | | 919,032 | |
| Construction Engineering — 0.2% | |
James Hardie Industries N.V. | | 78,000 | | | 576,640 | |
| Food & Staples Retailing — 0.8% | |
Woolworths Ltd. | | 107,700 | | | 2,465,319 | |
| Insurance — 0.3% | |
AMP Ltd. | | 95,000 | | | 815,075 | |
| Metals & Mining — 1.5% | |
BHP Billiton Ltd. | | 155,956 | | | 4,631,651 | |
| Oil, Gas & Consumable Fuels — 0.4% | |
Woodside Petroleum Ltd. | | 27,900 | | | 1,082,153 | |
| Real Estate Investment Trusts — 0.3% | |
Westfield Group | | 61,000 | | | 1,032,248 | |
| | | | | | |
| | | | | 16,736,004 | |
| Belgium — 1.2% | |
| Diversified Financial Services — 1.2% | |
Groupe Bruxelles Lambert S.A. | | 30,000 | | | 3,747,295 | |
| | | | | | |
| | | | | 3,747,295 | |
| Denmark — 2.3% | |
| Chemicals — 1.5% | |
Novozymes AS, Class B | | 39,900 | | | 4,644,260 | |
| Marine — 0.8% | |
A.P. Moeller-Maersk AS, Class B | | 206 | | | 2,491,452 | |
| | | | | | |
| | | | | 7,135,712 | |
| Finland — 2.4% | |
| Construction & Engineering — 2.4% | |
Kone Oyj, Class B | | 115,400 | | | 7,303,353 | |
| | | | | | |
| | | | | 7,303,353 | |
| France — 9.7% | |
| Diversified Financial Services — 1.6% | |
Eurazeo | | 32,734 | | | 4,744,938 | |
| Food & Staples Retailing — 1.6% | |
Carrefour S.A. | | 71,529 | | | 5,047,719 | |
| Health Care Equipment & Supplies — 2.4% | |
Essilor International S.A. | | 61,910 | | | 7,404,703 | |
| Multi – Utilities — 1.3% | |
Electricite de France S.A. | | 36,800 | | | 3,998,500 | |
| Personal Products — 1.9% | |
L’Oreal S.A. | | 49,406 | | | 5,871,055 | |
| Pharmaceuticals — 0.9% | |
Sanofi-Aventis | | 34,620 | | | 2,816,070 | |
| | | | | | |
| | | | | 29,882,985 | |
| Germany — 4.8% | |
| Diversified Financial Services — 1.2% | |
Deutsche Boerse AG | | 32,800 | | | 3,717,925 | |
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value | |
| | | | | | |
| Germany (continued) | |
| Health Care Providers & Services — 2.2% | |
Celesio AG | | 102,556 | | $ | 6,682,041 | |
| Software — 1.4% | |
SAP AG | | 82,392 | | | 4,245,314 | |
| | | | | | |
| | | | | 14,645,280 | |
| Hong Kong — 1.8% | |
| Commercial Banks — 0.2% | |
BOC Hong Kong Holdings Ltd. | | 202,000 | | | 479,993 | |
| Distributors — 0.2% | |
Li & Fung Ltd. | | 177,000 | | | 639,483 | |
| Diversified Financial Services — 0.5% | |
Hong Kong Exchanges & Clearing Ltd. | | 106,000 | | | 1,499,335 | |
| Media — 0.1% | |
Television Broadcasts Ltd. | | 66,000 | | | 464,242 | |
| Real Estate Management & Development — 0.8% | |
Cheung Kong Holdings Ltd. | | 90,000 | | | 1,179,788 | |
Hang Lung Properties Ltd. | | 405,000 | | | 1,395,891 | |
| | | | | | |
| | | | | 2,575,679 | |
| | | | | | |
| | | | | 5,658,732 | |
| India — 0.4% | |
| Information Technology Services — 0.4% | |
Infosys Technologies Ltd., ADR(2) | | 23,900 | | | 1,204,082 | |
| | | | | | |
| | | | | 1,204,082 | |
| Ireland — 2.1% | | | | | | |
| Construction Materials — 2.1% | |
CRH PLC | | 133,450 | | | 6,616,030 | |
| | | | | | |
| | | | | 6,616,030 | |
| Italy — 1.6% | | | | | | |
| Commercial Banks — 1.6% | |
UniCredito Italiano SpA | | 564,812 | | | 5,068,266 | |
| | | | | | |
| | | | | 5,068,266 | |
| Japan — 18.5% | |
| Automobiles — 1.1% | |
Nissan Motor Co. Ltd. | | 310,200 | | | 3,328,115 | |
| Building Products — 1.1% | |
Asahi Glass Co. | | 250,000 | | | 3,378,680 | |
| Commercial Banks — 1.3% | |
Mitsubishi UFJ Financial Group, Inc. | | 377 | | | 4,164,223 | |
| Construction & Engineering — 0.7% | |
Chiyoda Corp. | | 117,000 | | | 2,233,096 | |
| Electrical Equipment — 0.7% | |
Mitsubishi Electric Corp. | | 230,000 | | | 2,133,279 | |
| Electronic Equipment & Instruments — 3.1% | |
Hirose Electric Co. Ltd. | | 20,100 | | | 2,647,894 | |
Keyence Corp. | | 12,400 | | | 2,712,138 | |
Nidec Corp. | | 34,000 | | | 1,999,269 | |
YASKAWA Electric Corp. | | 186,000 | | | 2,120,967 | |
| | | | | | |
| | | | | 9,480,268 | |
| Insurance — 0.9% | |
Mitsui Sumitomo Insurance Co. | | 210,000 | | | 2,698,234 | |
| Internet Software & Services — 0.3% | |
Rakuten, Inc. | | 2,578 | | | 868,930 | |
The accompanying notes are an integral part of these financial statements.
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value | |
| | | | | | |
| Japan (continued) | |
| Marine — 0.8% | |
Mitsui O.S.K. Lines Ltd. | | 187,000 | | $ | 2,542,441 | |
| Office Electronics — 1.8% | |
Canon, Inc. | | 96,100 | | | 5,643,070 | |
| Paper & Forest Products — 0.5% | |
Nippon Paper Group, Inc. | | 461 | | | 1,535,107 | |
| Real Estate Management & Development — 0.4% | |
Sumitomo Realty & Development Co. Ltd. | | 40,000 | | | 1,305,990 | |
| Road & Rail — 0.8% | |
Tokyu Corp. | | 351,000 | | | 2,349,027 | |
| Specialty Retail — 1.1% | |
Yamada Denki Co. Ltd. | | 31,050 | | | 3,248,114 | |
| Tobacco — 0.8% | |
Japan Tobacco, Inc. | | 477 | | | 2,355,460 | |
| Trading Companies & Distributors — 2.3% | |
Hitachi High-Technologies Corp. | | 53,600 | | | 1,393,056 | |
Mitsui & Co. Ltd. | | 282,000 | | | 5,622,822 | |
| | | | | | |
| | | | | 7,015,878 | |
| Wireless Telecommunication Services — 0.8% | |
KDDI Corp. | | 349 | | | 2,587,915 | |
| | | | | | |
| | | | | 56,867,827 | |
| Norway — 3.3% | |
| Construction & Engineering — 1.2% | |
Aker Kvaerner ASA | | 149,286 | | | 3,797,370 | |
| Oil, Gas & Consumable Fuels — 2.1% | |
Seadrill Ltd.(1) | | 293,927 | | | 6,342,636 | |
| | | | | | |
| | | | | 10,140,006 | |
| Russia — 0.9% | |
| Oil, Gas & Consumable Fuels — 0.4% | |
OAO Gazprom, ADR(2) | | 29,500 | | | 1,236,050 | |
| Wireless Telecommunication Services — 0.5% | |
Mobile TeleSystems, ADR(2) | | 27,000 | | | 1,635,390 | |
| | | | | | |
| | | | | 2,871,440 | |
| Singapore — 0.6% | |
| Industrial Conglomerates — 0.6% | |
Keppel Corp. Ltd. | | 210,000 | | | 1,714,846 | |
| | | | | | |
| | | | | 1,714,846 | |
| Spain — 1.3% | |
| Diversified Financial Services — 1.3% | |
Corp. Financiera Alba S.A. | | 52,585 | | | 4,056,754 | |
| | | | | | |
| | | | | 4,056,754 | |
| Sweden — 8.0% | |
| Commercial Banks — 1.9% | |
Svenska Handelsbanken AB, Class A | | 210,987 | | | 5,938,560 | |
| Health Care Equipment & Supplies — 1.2% | |
Getinge AB, Class B | | 170,480 | | | 3,695,412 | |
| Machinery — 4.9% | |
Atlas Copco AB, Class B | | 619,157 | | | 9,777,306 | |
Sandvik AB | | 252,720 | | | 5,136,285 | |
| | | | | | |
| | | | | 14,913,591 | |
| | | | | | |
| | | | | 24,547,563 | |
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value | |
| | | | | | |
| Switzerland — 10.7% | |
| Building Products — 1.3% | |
Geberit AG | | 24,120 | | $ | 4,126,959 | |
| Commercial Banks — 2.8% | |
UBS AG | | 142,300 | | | 8,574,114 | |
| Computers & Peripherals — 1.0% | |
Logitech International S.A.(1) | | 116,296 | | | 3,118,047 | |
| Food Products — 1.3% | |
Nestle S.A. | | 10,670 | | | 4,070,585 | |
| Health Care Equipment & Supplies — 1.3% | |
Straumann Holding AG | | 13,600 | | | 3,830,045 | |
| Machinery — 0.9% | |
Schindler Holding AG | | 43,320 | | | 2,890,364 | |
| Pharmaceuticals — 0.7% | |
Basilea Pharmaceutica(1) | | 10,320 | | | 2,285,354 | |
| Textiles, Apparel & Luxury Goods — 1.4% | |
Compagnie Financiere Richemont AG, Class A | | 69,800 | | | 4,200,000 | |
| | | | | | |
| | | | | 33,095,468 | |
| Taiwan — 0.5% | |
| Semiconductors & Semiconductor Equipment — 0.5% | |
Taiwan Semiconductor Mfg. Co. Ltd., ADR(2) | | 126,476 | | | 1,407,679 | |
| | | | | | |
| | | | | 1,407,679 | |
| United Kingdom — 21.4% | |
| Chemicals — 1.3% | |
Imperial Chemical Industries PLC | | 328,000 | | | 4,096,847 | |
| Commercial Banks — 3.3% | |
Royal Bank of Scotland | | 449,664 | | | 5,715,804 | |
Standard Chartered PLC | | 137,000 | | | 4,484,289 | |
| | | | | | |
| | | | | 10,200,093 | |
| Commercial Services & Supplies — 1.6% | |
Capita Group PLC | | 142,000 | | | 2,070,191 | |
Hays PLC | | 774,000 | | | 2,661,687 | |
| | | | | | |
| | | | | 4,731,878 | |
| Containers & Packaging — 1.0% | |
Rexam PLC | | 313,000 | | | 3,134,821 | |
| Food Products — 1.2% | |
Cadbury Schweppes PLC | | 277,000 | | | 3,782,458 | |
| Health Care Equipment & Supplies — 0.6% | |
Smith & Nephew PLC | | 149,000 | | | 1,852,091 | |
| Hotels, Restaurants & Leisure — 0.7% | |
Carnival PLC | | 46,200 | | | 2,212,666 | |
| Media — 1.0% | |
Reed Elsevier PLC | | 239,000 | | | 3,102,787 | |
| Oil, Gas & Consumable Fuels — 6.0% | |
BG Group PLC | | 250,000 | | | 4,124,137 | |
Cairn Energy PLC(1) | | 92,043 | | | 3,260,430 | |
John Wood Group PLC | | 414,018 | | | 2,814,254 | |
Royal Dutch Shell PLC, Class A | | 202,400 | | | 8,266,981 | |
| | | | | | |
| | | | | 18,465,802 | |
| Pharmaceuticals — 1.9% | |
GlaxoSmithKline PLC | | 222,277 | | | 5,824,928 | |
| Tobacco — 0.8% | |
Imperial Tobacco Group PLC | | 51,900 | | | 2,404,365 | |
The accompanying notes are an integral part of these financial statements.
| | |
| | Schedule of Investments – RS International Growth VIP Series (continued) |
| | | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value | |
| | | | | | |
| United Kingdom (continued) | |
| Trading Companies & Distributors — 1.1% | |
Wolseley PLC | | 139,000 | | $ | 3,355,095 | |
| Wireless Telecommunication Services — 0.9% | |
Vodafone Group PLC | | 838,000 | | | 2,823,720 | |
| | | | | | |
| | | | | 65,987,551 | |
| | | | | | |
Total Common Stocks
(Cost $201,289,284) | | | | | 298,686,873 | |
| | |
| | | Shares | | Value | |
| Preferred Stocks — 2.0% | | | | | | |
| Brazil — 2.0% | | | | | | |
| Commercial Banks — 0.6% | |
Banco Itau Holdings Financeira S.A., ADR(2) | | 43,000 | | | 1,910,920 | |
| Oil, Gas & Consumable Fuels — 1.4% | |
Petroleo Brasileiro S.A., ADR(2) | | 40,600 | | | 4,331,209 | |
| | | | | | |
| | | | | 6,242,129 | |
| | | | | | |
Total Preferred Stocks
(Cost $2,146,340) | | | | | 6,242,128 | |
| | |
| | | Shares | | Value | |
| Rights — 0.0% | | | | | | |
| Australia — 0.0% | |
Westfield Group(1) exp. 7/6/2007 | | 5,304 | | | 2,069 | |
| | | | | | |
| | | | | 2,069 | |
| | | | | | |
Total Rights
(Cost $0) | | | | | 2,069 | |
| | |
| | | Shares | | Value | |
| Other Investments — For Trustee Deferred Compensation Plan — 0.0% | |
RS Core Equity Fund, Class Y(3) | | 6 | | | 239 | |
RS Emerging Growth Fund, Class Y(3) | | 22 | | | 905 | |
RS Emerging Markets Fund, Class A(3) | | 6 | | | 168 | |
RS Global Natural Resources Fund, Class Y(3) | | 70 | | | 2,551 | |
RS Growth Fund, Class Y(3) | | 53 | | | 877 | |
RS Investors Fund, Class Y(3) | | 135 | | | 1,741 | |
RS MidCap Opportunities Fund, Class Y(3) | | 45 | | | 730 | |
RS Partners Fund, Class Y(3) | | 17 | | | 649 | |
RS Smaller Company Growth Fund, Class Y(3) | | 23 | | | 525 | |
RS Value Fund, Class Y(3) | | 16 | | | 497 | |
| | | | | | |
Total Other Investments
(Cost $8,326) | | | | | 8,882 | |
| | | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value | |
| | | | | | | |
| Repurchase Agreement — 1.2% | |
State Street Bank and Trust Co. repurchase agreement, 2.50% dated 6/29/2007, maturity value of $3,535,736, due 7/2/2007, collateralized by $3,735,000 in U.S. Treasury Note, 4.25%, due 11/15/2013, with a value of $3,608,944 | | $ | 3,535,000 | | $ | 3,535,000 | |
| | | | | | | |
| Total Repurchase Agreement (Cost $3,535,000) | | | | | | 3,535,000 | |
| | | | | | | |
| Total Investments — 100.1% (Cost $206,978,950) | | | | | | 308,474,951 | |
| | | | | | | |
| Other Liabilities, Net — (0.1)% | | | | | | (360,328 | ) |
| | | | | | | |
| Total Net Assets — 100.0% | | | | | $ | 308,114,623 | |
(1) | Non income-producing security. |
(2) | ADR — American Depositary Receipt. |
(3) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
| | |
| | Financial Information — RS International Growth VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 308,474,951 | |
Cash and cash equivalents | | | 117 | |
Receivable for investments sold | | | 4,529,159 | |
Dividends/interest receivable | | | 547,611 | |
Receivable for fund shares subscribed | | | 82,268 | |
Prepaid expenses | | | 11,612 | |
| | | | |
Total Assets | | | 313,645,718 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 4,582,087 | |
Foreign currency overdraft, at value | | | 403,018 | |
Payable for fund shares redeemed | | | 309,783 | |
Payable to adviser | | | 200,893 | |
Deferred trustees’ compensation | | | 8,882 | |
Accrued expenses/other liabilities | | | 26,432 | |
| | | | |
Total Liabilities | | | 5,531,095 | |
| | | | |
Total Net Assets | | $ | 308,114,623 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 213,481,663 | |
Accumulated undistributed net investment income | | | 4,213,105 | |
Accumulated net realized loss from investments and foreign currency transactions | | | (11,084,576 | ) |
Net unrealized appreciation on investments and foreign currency transactions | | | 101,504,431 | |
| | | | |
Total Net Assets | | $ | 308,114,623 | |
| | | | |
| |
Investments, at Cost | | $ | 206,978,950 | |
| | | | |
| |
Foreign Currency, at Cost | | $ | (402,453 | ) |
| | | | |
| |
Pricing of Shares | | | | |
Shares of beneficial interest outstanding with no par value | | | 12,874,208 | |
| |
Net Asset Value Per Share | | | $23.93 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 55,301 | |
Dividends | | | 4,871,515 | |
Withholding taxes on foreign dividends | | | (460,198 | ) |
| | | | |
Total Investment Income | | | 4,466,618 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 1,167,334 | |
Custodian fees | | | 161,130 | |
Professional fees | | | 26,387 | |
Shareholder reports | | | 21,812 | |
Trustees’ fees and expenses | | | 7,316 | |
Insurance expense | | | 5,898 | |
Administrative service fees | | | 4,521 | |
Registration fees | | | 2,460 | |
Other expense | | | 1,005 | |
| | | | |
Total Expenses Before Custody Credits | | | 1,397,863 | |
Less: Custody credits | | | (16 | ) |
| | | | |
Expenses Net of Custody Credits | | | 1,397,847 | |
| | | | |
Net Investment Income | | | 3,068,771 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | | | | |
Net realized gain from investments and foreign currency transactions | | | 18,938,491 | |
Net change in unrealized appreciation/(depreciation) on investments and on translation of assets and liabilities in foreign currency | | | 6,792,641 | |
| | | | |
Net Gain on Investments and Foreign Currency Transactions | | | 25,731,132 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 28,799,903 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| | Financial Information — RS International Growth VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the Six Months Ended
06/30/07 | | | For the Year Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 3,068,771 | | | $ | 2,577,526 | |
Net realized gain on investments, foreign currency transactions, and foreign capital gains tax | | | 18,938,491 | | | | 20,537,691 | |
Net change in unrealized appreciation on investments, foreign currency transactions, and foreign capital gains tax | | | 6,792,641 | | | | 28,229,704 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 28,799,903 | | | | 51,344,921 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (2,754,132 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 24,251,855 | | | | 60,921,815 | |
Reinvestment of distributions | | | — | | | | 2,754,132 | |
Cost of shares redeemed | | | (25,307,724 | ) | | | (42,755,047 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (1,055,869 | ) | | | 20,920,900 | |
| | | | | | | | |
Net Increase in Net Assets | | | 27,744,034 | | | | 69,511,689 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 280,370,589 | | | | 210,858,900 | |
| | | | | | | | |
End of period | | $ | 308,114,623 | | | $ | 280,370,589 | |
| | | | | | | | |
| | |
Accumulated undistributed net investment income/(loss) included in net assets | | $ | 4,213,105 | | | $ | 1,144,334 | |
| | | | | | | | |
| | |
Other Information | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 1,063,610 | | | | 3,124,358 | |
Reinvested | | | — | | | | 157,289 | |
Redeemed | | | (1,113,292 | ) | | | (2,201,444 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (49,682 | ) | | | 1,080,203 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
This page intentionally left blank
| | |
| | Financial Information — RS International Growth VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods. 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(loss) | | | Total
Operations | | | Dividends
From Net
Investment
Income | |
| | | | | | |
Six Months Ended 06/30/071 | | $ | 21.69 | | $ | 0.24 | | $ | 2.00 | | | $ | 2.24 | | | $ | — | |
| | | | | | |
Year Ended 12/31/06 | | | 17.80 | | | 0.20 | | | 3.92 | | | | 4.12 | | | | (0.23 | ) |
| | | | | | |
Year Ended 12/31/05 | | | 15.60 | | | 0.22 | | | 2.24 | | | | 2.46 | | | | (0.26 | ) |
| | | | | | |
Year Ended 12/31/04 | | | 13.40 | | | 0.16 | | | 2.08 | | | | 2.24 | | | | (0.04 | ) |
| | | | | | |
Year Ended 12/31/03 | | | 10.46 | | | 0.14 | | | 2.99 | | | | 3.13 | | | | (0.19 | ) |
| | | | | | |
Year Ended 12/31/02 | | | 12.72 | | | 0.11 | | | (2.36 | ) | | | (2.25 | ) | | | (0.01 | ) |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total
Return* | | Net Assets, End
of Period
(000s) | | Net Ratio of
Expenses to
Average Net
Assets | | | Net Ratio of Net
Investment Income
to Average
Net Assets | | | Portfolio
Turnover Rate |
| | | | | |
| $23.93 | | 10.33% | | $ | 308,115 | | 0.95% | | | 2.09% | | | 15% |
| | | | | |
| 21.69 | | 23.43% | | | 280,371 | | 1.04% | a | | 1.06% | a | | 22% |
| | | | | |
| 17.80 | | 16.02% | | | 210,859 | | 1.05% | | | 1.30% | | | 28% |
| | | | | |
| 15.60 | | 16.72% | | | 189,858 | | 1.01% | | | 1.03% | | | 24% |
| | | | | |
| 13.40 | | 30.03% | | | 194,159 | | 1.05% | | | 1.17% | | | 41% |
| | | | | |
| 10.46 | | (17.70)% | | | 163,815 | | 1.02% | | | 0.89% | | | 39% |
| | 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | a | Includes the effect of expenses waived by GIS. |
The accompanying notes are an integral part of these financial statements.
| | |
| | Notes to Financial Statements — RS International Growth VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS International Growth VIP Series (the “Fund” or “IGV”) is a series of the Trust. IGV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of IGV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost, which approximates market value (See Note D). Foreign securities are valued in the currencies of the markets where they trade and are then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts are valued at the current cost of covering or offsetting such contracts. Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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.
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of
uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $16. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
Foreign-Currency Translation
The accounting records of the Fund is maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are translated into U.S. dollars at the exchange rates quoted at the close of the New York Stock Exchange on each business day. 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 with the net realized and unrealized gain or loss from investments.
Forward Foreign Currency Contracts
IGV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the values of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by IGV. When forward contracts are closed, IGV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. IGV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.
Futures Contracts
IGV may enter into financial futures contracts. In entering into such contracts, IGV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by IGV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins paid or received by IGV. The daily changes in the variation margin are recognized as unrealized gains or losses by IGV. IGV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for IGV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of IGV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Fund.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, a Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was:
| | | |
| | | Ordinary
Income |
| 2006 | | $ | 2,754,132 |
| | |
| | Notes to Financial Statements — RS International Growth VIP Series (continued) |
June 30, 2007 (unaudited)
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated loss on a tax basis were as follows:
| | | | | | | | |
Undistributed
Ordinary
Income | | Capital Loss
Carryforward | | | Unrealized
Appreciation |
| $ | 5,314,117 | | $ | (29,815,072 | ) | | $ | 90,335,889 |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund had no such losses.
As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:
| | | | | | |
| | | Capital Loss
Carryforward | | | Expiration
Date |
| | $ | (9,327,153 | ) | | 2010 |
| | | (20,487,919 | ) | | 2011 |
| | | | | | |
| Total | | $ | (29,815,072 | ) | | |
| | | | | | |
During the year ended December 31, 2006 IGV utilized capital loss carry over of $20,619,540.
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co. LLC (“RS Investments”) an investment advisory fee calculated at an annual rate of 0.80% of the average daily net assets of the Fund.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Baillie Gifford Limited (“GBG”), a Scottish corporation owned by GIAC and Baillie Gifford Overseas Limited (“BG Overseas”). As compensation for GBG’s services, RS Investments pays fees to GBG at an annual rate of 0.76% of the average daily net assets of IGV. Payment of the sub-advisory fees does not represent a separate or additional expense to IGV. GBG has entered into a Sub-Sub-Investment Advisory Agreement with BG Overseas pursuant to which BG Overseas is responsible for the day-to-day investment advisory services of IGV. A sub-sub-advisory fee of 0.40% of the average daily net assets of IGV is payable by GBG to BG Overseas for its services. Payment of the sub-sub-investment advisory fee does not represent a separate or additional expense to IGV.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 1.04% of the average daily net assets of IGV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”), receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”) a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return
of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ applicable fees in the accompanying financial statements include applicable current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $46,385,316 and $42,820,919, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding foreign currency, forward contracts, and futures, at June 30, 2007 aggregated $104,869,395 and $3,577,245, respectively, resulting in net unrealized appreciation of $101,292,150. The cost of investments owned at June 30, 2007 for federal income tax purposes was $207,182,801.
Foreign securities investments involve special risks and consideration not typically associated with those of U.S. origin. These risks include, but are not limited to, revaluation of currencies; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of many foreign companies and markets may be less liquid and their prices more volatile than those of U.S. companies and markets.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, IGV 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, IGV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, the repurchase agreement held by IGV had been entered into on June 29, 2007.
| Note E. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for IGV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 1,063,610 | | | 3,124,358 | | | $ | 24,251,855 | | | $ | 60,921,815 | |
Shares issued in reinvestment of dividends | | — | | | 157,289 | | | | — | | | | 2,754,132 | |
Shares repurchased | | (1,113,292 | ) | | (2,201,444 | ) | | | (25,307,724 | ) | | | (42,755,047 | ) |
| | |
Net increase/(decrease) | | (49,682 | ) | | 1,080,203 | | | $ | (1,055,869 | ) | | $ | 20,920,900 | |
| | |
| Note F. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds trust are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including
| | |
| | Notes to Financial Statements — RS International Growth VIP Series (continued) |
June 30, 2007 (unaudited)
amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note H. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain Series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of undertakings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement
agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution
| | |
| | Supplemental Information — unaudited (continued) |
capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
RS Variable Products Trust
RS Emerging Markets VIP Series
| | |
| 6.30.07 | |  |
| | |
 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments, Guardian Baillie Gifford Limited or Baillie Gifford Overseas Limited. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS Emerging Markets VIP Series |
| | |
 | | Edward H. Hocknell (Baillie Gifford Overseas Limited) has managed RS Emerging Markets VIP Series since 1997.* In this role, Mr. Hocknell works with the investment management teams at Baillie Gifford Overseas Limited (“BG Overseas”), who make the securities selections for the Fund, and an investment policy committee of the firm, which reviews geographical allocations. Mr. Hocknell, as coordinator, has responsibility for reviewing the overall composition of the Fund’s portfolio to ensure its compliance with its stated investment objective and strategies. Mr. Hocknell is a director of BG Overseas and a partner of Baillie Gifford & Co., where he has worked since 1984. He holds a B.A. from Oxford University. |
| * | Includes service as portfolio manager of Baillie Gifford Emerging Markets Fund, the Fund’s predecessor fund, for periods prior to October 9, 2006, the commencement of operations of the Fund. |
Fund Philosophy
The RS Emerging Markets VIP Series seeks long-term capital appreciation. It is anticipated that long-term capital appreciation will be accompanied by dividend income, which may vary depending on factors such as the location of the investments.
Investment Process
The Fund normally invests at least 80% of the Fund’s net assets (plus the amount, if any, of the Fund’s borrowing for investment purposes) in securities of emerging market companies. The Fund uses a bottom-up, stock-driven approach to country and asset allocation, with the objective of selecting stocks that the subadviser/portfolio manager believes can sustain an above-average growth rate and trade at a reasonable price.
Performance
The RS Emerging Markets VIP Series returned 18.29% compared with 17.75% for the benchmark Morgan Stanley Capital International (MSCI ) Emerging Markets Free (EMF) Index1 for the six-month period ended June 30, 2007.
The Fund began the year up 1.06% underperforming the Index by 1.29%, for the three months ended March 31, 2007. A setback in March seems a distant memory as markets have recovered with gusto. The MSCI EMF Index rose 15.05% over the three-month period ended June 30, 2007, easily outpacing developed markets.
China was the alleged culprit of the first-quarter fall, but investors have clearly ignored such accusations and the Chinese market has surged ahead over the past three months, posting a much-needed revival in pan-Asian fortunes. Indeed, the BRIC countries (Brazil, Russia, India and China) as a whole have again made important contributions to emerging market returns, with the notable exception of Russia, which was one of the few countries to fail to register a positive return in the second quarter.
Over the three months ended June 30, 2007, the Fund outperformed the benchmark by 2.00%. The Fund also outperformed the benchmark by 0.54% for the six months ended June 30, 2007.
Portfolio Review
During the second quarter, we believe the Fund’s outperformance was helped by stock selection in a number of countries, particularly South Korea, China (via Hong Kong-listed companies), and Taiwan. At the sector level, stock selection also helped, especially in energy, capital goods, and materials. South Korean conglomerate Samsung Corporation was the top contributor to relative performance, and not owning Samsung Electronics also helped performance. Good stock selection was seen in many other areas of the portfolio as well; Brazilian bank Itausa and Indian petrochemical company Reliance Industries both posted strong returns. Asset allocation also helped performance: we were underweighted in Russia, which stood out as a poor performing country, and overweighted in capital goods, which soared ahead.
| | |
| RS EMERGING MARKETS VIP SERIES | | 3 |
| | |
| | RS Emerging Markets VIP Series (continued) |
Over the six months ended June 30, 2007, the Fund’s outperformance was also due to good stock selection, this time in South Korea, Malaysia, and China (via Hong Kong-listed investments). At the sector level, stock selection in energy, capital goods, and banks helped. The top contributors to relative performance year to date were the same as for the second quarter. One consistent theme has been the poor performance of Russian energy stocks, so it is probably no surprise that the stock that most hurt relative performance was the overweight position in Rosneft, the Russian oil company.
Outlook
We believe that H shares (securities of companies incorporated in mainland China and listed on the Hong Kong Stock Exchange) and “red chips” (securities of companies incorporated outside of mainland China, controlled by mainland Chinese shareholders, and listed on the Hong Kong Stock Exchange) are attracting renewed interest as they are considerably cheaper than A shares (sometimes, in the case of H shares, in the same company); and we expect further measures to increase the amount of money that Chinese investors can invest outside of the mainland to support prices in Hong Kong. We also believe that “red chips” are likely to be allowed to raise money in the A share markets for the first time. Although some H share companies are already issuing A shares (and we expect more of the big players to do so quite soon), it is a more complicated process for “red chips”; we might see the first listings occurring later this year or possibly into next year. In our view, the main issue is whether companies can deliver the long-term growth rates required to support current ratings.
The general trend of interest rates heading higher at the long end has been seen in Asia as elsewhere in recent weeks. We believe that this is a positive trend for insurance companies in Korea and Taiwan, but not so good for banks. In India, weekly wholesale inflation fig-ures show a deceleration, but credit growth is still pretty rapid and nonperforming loans are rising, so we think the outlook for interest rates remains uncertain. Over the past month, there has been a pick-up in merger- and-acquisitions activity and capital raising, with the general direction being Indian companies buying outside of India and raising lots of capital at home and abroad.
In Latin America, weakness in the domestic Mexican economy has shown up in same-store sales at Walmex (1.23%), and this may represent an opportunity to add to an attractive long-term investment. Brazilian index-linked bonds are now yielding less than 6%, and the currency has been strong but there has been little stock-specific news of note.
In Europe, the Russian energy stocks have been lackluster performers. Political developments have been generally unhelpful for sentiment, but the economy is continuing to boom and we think that exposure to the range of companies available in the domestic Russian market would be extremely beneficial. There is also plenty of political noise in the Turkish market; but while Turkey has managed to squander its potential on numerous occasions in the past, economic management does appear to have improved, and we are happy with our current holdings.
In the Middle East, the backlog of major development projects in the Gulf Cooperation Council (GCC) countries has been expanding rapidly as has the amount of foreign assets. Kuwait has ended its peg to the U.S. dollar and has adopted an undisclosed basket instead but other GCC countries remain pegged to the dollar. The result is a massive build up in liquidity and upward pressure on currencies and inflation. In South Africa, the main news to note is that interest rates have risen as inflation is above the central bank’s target.
| | |
| 4 | | RS EMERGING MARKETS VIP SERIES |
In conclusion, although valuations of emerging market companies are no longer as compelling as they have been, we believe that the earnings growth potential still represents a great opportunity.
Thank you for your continued support.
Edward H. Hocknell
Portfolio Manager
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty, and greater volatility. These risks are even greater when investing in emerging markets.
| | |
| RS EMERGING MARKETS VIP SERIES | | 5 |
| | |
| | RS Emerging Markets VIP Series (continued) |
Assets Under Management: $205,533,633 | Data as of June 30, 2007 |
| | |
 | | Geographical Location vs. Index |
| | |
| | Top Ten Holdings2 |
| | | | |
| | | |
| Company | | Country | | Percentage of Total Net Assets |
Petroleo Brasileiro S.A. | | Brazil | | 3.63% |
Samsung Corp. | | South Korea | | 3.55% |
OAO Gazprom | | Russia | | 3.36% |
Hon Hai Precision Industries Co. Ltd. | | Taiwan | | 3.31% |
Taiwan Semiconductor Manufacturing | | Taiwan | | 3.03% |
Reliance Industries Ltd. | | India | | 2.67% |
Itausa-Investimentos Itau S.A. | | Brazil | | 2.49% |
CNOOC Ltd. | | Hong Kong | | 2.01% |
Infosys Technologies Ltd. | | India | | 1.97% |
OAO Rosneft Oil Co. | | Russia | | 1.92% |
| Total | | | | 27.94% |
1 | The Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF) Index is generally considered to be representative of the stock market activity of emerging markets. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
| | |
| 6 | | RS EMERGING MARKETS VIP SERIES |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | | | | | |
| | | | | | | | |
| | | Inception
Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | 10 Years | | Since Inception |
RS Emerging Markets VIP Series | | 10/17/94 | | 18.29% | |
45.77% | |
41.49% | |
30.61% | |
12.68% | |
12.24% |
MSCI EMF Index1 | | | |
17.75% | |
45.45% | |
38.67% | |
30.66% | |
9.40% | |
7.44% |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 06/30/97 |
The chart above shows the performance of a hypothetical $10,000 investment made 10 years ago in the RS Emerging Markets VIP Series and the MSCI EMF Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to Baillie Gifford Emerging Markets Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 1.33%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com
| | |
| RS EMERGING MARKETS VIP SERIES | | 7 |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,182.90 | | $6.94 | | 1.28% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,018.43 | | $6.42 | | 1.28% |
| * | 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). |
| | |
| 8 | | RS EMERGING MARKETS VIP SERIES |
| | |
| | Schedule of Investments – RS Emerging Markets VIP Series |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Common Stocks — 88.7% |
| Bolivia — 0.8% |
| Metals & Mining — 0.8% |
Apex Silver Mines Ltd.(1) | | 82,178 | | $ | 1,658,352 |
| | | | | |
| | | | | 1,658,352 |
| Brazil — 3.8% |
| Airlines — 0.7% |
Gol-Linhas Aereas Inteligentes S.A., ADR(2) | | 45,200 | | | 1,491,148 |
| Commercial Banks — 0.6% |
Unibanco-Uniao de Bancos Brasileiros S.A., GDR(3) | | 12,100 | | | 1,365,727 |
| Food Products — 0.5% |
JBS S.A.(1) | | 241,300 | | | 1,013,235 |
| Metals & Mining — 1.3% |
Companhia Vale do Rio Doce, ADR(2) | | 58,600 | | | 2,610,630 |
| Textiles, Apparel & Luxury Goods — 0.7% |
Lojas Renner S.A. | | 75,000 | | | 1,411,353 |
| | | | | |
| | | | | 7,892,093 |
| Egypt — 1.5% |
| Commercial Banks — 0.7% |
Commercial International Bank, GDR(3) | | 137,000 | | | 1,507,000 |
| Construction Materials — 0.8% |
Orascom Construction Industries, GDR(3) | | 11,900 | | | 1,576,750 |
| | | | | |
| | | | | 3,083,750 |
| Hong Kong — 10.3% |
| Diversified Telecommunication Services — 1.4% |
Hutchison Telecommunications International Ltd. | | 2,166,000 | | | 2,792,265 |
| Electronic Equipment & Instruments — 0.9% |
Kingboard Chemical Holdings Ltd. | | 411,500 | | | 1,894,567 |
| Food Products — 0.5% |
FU JI Food & Catering Services | | 286,000 | | | 980,254 |
| Leisure Equipment & Products — 0.6% |
Li Ning Co. Ltd. | | 514,000 | | | 1,246,347 |
| Oil, Gas & Consumable Fuels — 2.0% |
CNOOC Ltd. | | 3,649,000 | | | 4,134,712 |
| Real Estate Management & Development — 0.7% |
China Overseas Land & Investment Ltd. | | 962,000 | | | 1,488,669 |
| Specialty Retail — 0.7% |
GOME Electrical Appliance Holdings Ltd. | | 984,000 | | | 1,510,129 |
| Transportation Infrastructure — 0.6% |
COSCO Pacific Ltd. | | 446,000 | | | 1,166,449 |
| Wireless Telecommunication Services — 2.9% |
China Mobile (Hong Kong) Ltd. | | 273,000 | | | 2,936,272 |
China Unicom Ltd. | | 1,750,000 | | | 3,012,457 |
| | | | | |
| | | | | 5,948,729 |
| | | | | |
| | | | | 21,162,121 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| India — 5.3% |
| Information Technology Services — 2.0% |
Infosys Technologies Ltd., ADR(2) | | 85,500 | | $ | 4,054,975 |
| Metals & Mining — 0.7% |
JSW Steel Ltd. | | 94,700 | | | 1,423,350 |
| Oil, Gas & Consumable Fuels — 2.6% |
Reliance Industries Ltd., GDR(3),(4) | | 131,300 | | | 5,486,827 |
| | | | | |
| | | | | 10,965,152 |
| Indonesia — 3.9% |
| Commercial Banks — 2.1% |
PT Bank Mandiri | | 6,082,000 | | | 2,103,625 |
PT Bank Rakyat Indonesia | | 3,287,000 | | | 2,091,893 |
| | | | | |
| | | | | 4,195,518 |
| Diversified Telecommunication Services — 1.8% |
PT Indosat Tbk | | 2,715,500 | | | 1,953,597 |
PT Telekomunikasi Indonesia | | 1,641,000 | | | 1,789,026 |
| | | | | |
| | | | | 3,742,623 |
| | | | | |
| | | | | 7,938,141 |
| Ireland — 3.1% |
| Metals & Mining — 2.9% |
Anglo American PLC | | 66,200 | | | 3,835,713 |
Kenmare Resources PLC(1) | | 1,535,694 | | | 2,012,198 |
| | | | | |
| | | | | 5,847,911 |
| Oil, Gas & Consumable Fuels — 0.2% |
Dragon Oil PLC(1) | | 121,120 | | | 484,618 |
| | | | | |
| | | | | 6,332,529 |
| Malaysia — 3.1% |
| Commercial Banks — 1.1% |
Bumiputra-Commerce Holdings Berhad | | 655,000 | | | 2,219,696 |
| Food Products — 1.0% |
IOI Corp. Berhad | | 1,376,200 | | | 2,072,770 |
| Industrial Conglomerates — 1.0% |
Sime Darby Berhad | | 763,000 | | | 2,121,593 |
| | | | | |
| | | | | 6,414,059 |
| Mexico — 7.0% |
| Commercial Banks — 1.4% |
Grupo Financiero Banorte S.A.B. de C.V. | | 610,500 | | | 2,796,088 |
| Food & Staples Retailing — 1.2% |
Wal-Mart de Mexico SAB de C.V. | | 665,842 | | | 2,526,915 |
| Household Durables — 0.6% |
Consorcio ARA, S.A. de C.V. | | 831,700 | | | 1,339,527 |
| Metals & Mining — 0.8% |
Ternium SA | | 52,900 | | | 1,602,341 |
| Wireless Telecommunication Services — 3.0% |
America Movil SAB de C.V. | | 750,980 | | | 2,318,942 |
America Movil SAB de C.V., ADR(2) | | 60,600 | | | 3,752,958 |
| | | | | |
| | | | | 6,071,900 |
| | | | | |
| | | | | 14,336,771 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS EMERGING MARKETS VIP SERIES | | 9 |
| | |
| | Schedule of Investments – RS Emerging Markets VIP Series (continued) |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| People’s Republic of China — 4.6% |
| Energy Equipment & Services — 2.1% |
China Shenhua Energy Co. Ltd. | | 638,000 | | $ | 2,207,119 |
PetroChina Co. Ltd. | | 1,450,000 | | | 2,128,862 |
| | | | | |
| | | | | 4,335,981 |
| Machinery — 0.5% |
Shanghai Prime Machinery Co. Ltd. | | 2,150,000 | | | 890,884 |
| Metals & Mining — 0.9% |
Angang Steel Co. Ltd. | | 920,000 | | | 1,894,311 |
| Transportation Infrastructure — 1.1% |
Beijing Capital International Airport Co. Ltd. | | 918,000 | | | 1,291,437 |
Jiangsu Expressway Co. Ltd. | | 1,022,000 | | | 1,036,482 |
| | | | | |
| | | | | 2,327,919 |
| | | | | |
| | | | | 9,449,095 |
| Russia — 8.4% |
| Commercial Banks — 0.1% |
Sberbank, GDR(3) | | 500 | | | 245,651 |
| Metals & Mining — 1.6% |
Evraz Group SA, GDR(3) | | 35,900 | | | 1,475,490 |
MMC Norilsk Nickel | | 8,400 | | | 1,864,800 |
| | | | | |
| | | | | 3,340,290 |
| Oil, Gas & Consumable Fuels — 5.3% |
OAO Gazprom, ADR(2) | | 164,850 | | | 6,907,215 |
OAO Rosneft Oil Co., GDR(3),(4) | | 498,500 | | | 3,943,135 |
| | | | | |
| | | | | 10,850,350 |
| Pharmaceuticals — 0.4% |
Pharmstandard, GDR(1),(3),(4) | | 52,800 | | | 883,344 |
| Wireless Telecommunication Services — 1.0% |
VimpelCom, ADR(2) | | 18,800 | | | 1,980,768 |
| | | | | |
| | | | | 17,300,403 |
| South Africa — 3.5% |
| Commercial Banks — 1.4% |
ABSA Group Ltd. | | 91,500 | | | 1,702,476 |
FirstRand Ltd. | | 340,000 | | | 1,087,231 |
| | | | | |
| | | | | 2,789,707 |
| Food & Staples Retailing — 0.6% |
Massmart Holdings Ltd. | | 108,532 | | | 1,325,265 |
| Media — 1.0% |
Naspers Ltd. | | 77,500 | | | 1,995,755 |
| Metals & Mining — 0.5% |
Impala Platinum Holdings Ltd. | | 33,000 | | | 1,008,560 |
| | | | | |
| | | | | 7,119,287 |
| South Korea — 19.6% |
| Beverages — 0.6% |
Hite Brewery Co. Ltd. | | 9,100 | | | 1,182,010 |
| Commercial Banks — 2.0% |
Daegu Bank | | 119,200 | | | 2,090,210 |
Industrial Bank of Korea | | 94,600 | | | 1,930,194 |
| | | | | |
| | | | | 4,020,404 |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| South Korea (continued) |
| Construction & Engineering — 1.3% |
Hyundai Development Co. | | 38,210 | | $ | 2,721,457 |
| Diversified Financial Services — 1.2% |
Hana Financial Group, Inc. | | 50,500 | | | 2,462,548 |
| Food & Staples Retailing — 2.6% |
Orion Corp. | | 6,600 | | | 1,971,748 |
Shinsegae Co. Ltd. | | 5,050 | | | 3,290,686 |
| | | | | |
| | | | | 5,262,434 |
| Household Durables — 0.7% |
Woongjin Coway Co. Ltd. | | 42,400 | | | 1,436,510 |
| Insurance — 2.6% |
Hyundai Marine & Fire Insurance Co. Ltd. | | 112,500 | | | 2,033,609 |
Samsung Fire & Marine Insurance Co. Ltd. | | 17,600 | | | 3,391,027 |
| | | | | |
| | | | | 5,424,636 |
| Marine — 2.1% |
Daewoo Shipbuilding & Marine Engineering Co. Ltd. | | 41,700 | | | 2,360,675 |
Samsung Heavy Industries Co. Ltd. | | 42,290 | | | 2,069,068 |
| | | | | |
| | | | | 4,429,743 |
| Metals & Mining — 1.0% |
POSCO | | 4,100 | | | 1,968,231 |
| Pharmaceuticals — 1.1% |
Yuhan Corp. | | 11,660 | | | 2,183,450 |
| Textiles, Apparel & Luxury Goods — 0.9% |
Cheil Industries, Inc. | | 38,200 | | | 1,835,883 |
| Trading Companies & Distributors — 3.5% |
Samsung Corp. | | 148,860 | | | 7,299,191 |
| | | | | |
| | | | | 40,226,497 |
| Taiwan — 10.8% |
| Chemicals — 0.5% |
Taiwan Fertilizer Co. Ltd. | | 450,000 | | | 944,745 |
| Commercial Banks — 1.0% |
Chang Hwa Commercial Bank(1) | | 2,511,000 | | | 1,589,144 |
Far East International Bank | | 961,000 | | | 438,599 |
| | | | | |
| | | | | 2,027,743 |
| Diversified Financial Services — 1.0% |
Shin Kong Financial Holding Co. Ltd. | | 1,757,819 | | | 2,045,779 |
| Electronic Equipment & Instruments — 3.3% |
Hon Hai Precision Industries Co. Ltd. | | 786,329 | | | 6,794,786 |
| Insurance — 0.4% |
China Life Insurance Co. Ltd.(1) | | 1,689,000 | | | 899,334 |
| Marine — 0.1% |
Yang Ming Marine Transport | | 409,000 | | | 317,334 |
| Multiline Retail — 0.9% |
Far Eastern Deptartment Stores Ltd. | | 2,328,600 | | | 1,796,081 |
| Semiconductors & Semiconductor Equipment — 3.6% |
Greatek Electronics, Inc. | | 634,000 | | | 1,194,079 |
Taiwan Semiconductor Manufacturing | | 2,891,341 | | | 6,237,330 |
| | | | | |
| | | | | 7,431,409 |
| | | | | |
| | | | | 22,257,211 |
The accompanying notes are an integral part of these financial statements.
| | |
| 10 | | RS EMERGING MARKETS VIP SERIES |
| | | | | |
| June 30, 2007 (unaudited) | | Shares | | Value |
| | | | | |
| Thailand — 0.6% |
| Commercial Banks — 0.6% |
Bangkok Bank Pub. Co. Ltd. | | 363,500 | | $ | 1,231,846 |
| | | | | |
| | | | | 1,231,846 |
| Turkey — 1.5% |
| Commercial Banks — 1.5% |
Turkiye Garanti Bankasi A.S. | | 558,600 | | | 3,128,160 |
| | | | | |
| | | | | 3,128,160 |
| United Kingdom — 0.9% |
| Metals & Mining — 0.9% |
Gem Diamonds Ltd.(1) | | 86,700 | | | 1,775,844 |
| | | | | |
| | | | | 1,775,844 |
| | | | | |
Total Common Stocks
(Cost $121,550,899) | | | 182,271,311 |
| | |
| | | Shares | | Value |
| Preferred Stocks — 8.0% |
| Brazil — 7.1% |
| Commercial Banks — 3.5% |
Banco Bradesco S.A. | | 84,300 | | | 2,042,603 |
Itausa-Investimentos Itau S.A., ADR(2) | | 12,849 | | | 79,465 |
Itausa-Investimentos Itau S.A. | | 815,879 | | | 5,121,978 |
| | | | | |
| | | | | 7,244,046 |
| Oil, Gas & Consumable Fuels — 3.7% |
Petroleo Brasileiro S.A., ADR(2) | | 61,531 | | | 7,461,865 |
| | | | | |
| | | | | 14,705,911 |
| Colombia — 0.8% |
| Commercial Banks — 0.8% |
BanColombia S.A. | | 50,700 | | | 1,664,481 |
| | | | | |
| | | | | 1,664,481 |
| | | | | |
Total Preferred Stocks
(Cost $7,709,815) | | | 16,370,392 |
| | |
| | | Shares | | Value |
| Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(5) | | 3 | | | 146 |
RS Emerging Growth Fund, Class Y(5) | | 14 | | | 553 |
RS Emerging Markets Fund, Class A(5) | | 4 | | | 104 |
RS Global Natural Resources Fund, Class Y(5) | | 43 | | | 1,559 |
RS Growth Fund, Class Y(5) | | 32 | | | 536 |
RS Investors Fund, Class Y(5) | | 82 | | | 1,063 |
RS MidCap Opportunities Fund, Class Y(5) | | 28 | | | 446 |
RS Partners Fund, Class Y(5) | | 10 | | | 398 |
RS Smaller Company Growth Fund, Class Y(5) | | 14 | | | 320 |
RS Value Fund, Class Y(5) | | 10 | | | 303 |
| | | | | |
Total Other Investments
(Cost $5,090) | | | 5,428 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Repurchase Agreement — 2.2% |
State Street Bank and Trust Co. repurchase agreement, 2.50% dated 6/29/2007, maturity value of $4,572,953, due 7/2/2007, collateralized by $4,830,000 in U.S. Treasury Note, 4.25%, due 11/15/2013, with a value of $4,666,988 | | $ | 4,572,000 | | $ | 4,572,000 |
| | | | | | |
Total Repurchase Agreement
(Cost $4,572,000) | | | 4,572,000 |
| | | | | | |
Total Investments — 98.9%
(Cost $133,837,804) | | | 203,219,131 |
| | | | | | |
| Other Assets, Net — 1.1% | | | 2,314,502 |
| | | | | | |
| Total Net Assets — 100.0% | | $ | 205,533,633 |
(1) | Non income-producing security. |
(2) | ADR — American Depositary Receipt. |
(3) | GDR — Global Depositary Receipt. |
(4) | Securities that may be resold in transactions exempt from registration under Rule 144A of the Securities Act of 1933, normally to certain qualified buyers. The aggregate market value as of June 30, 2007 was $10,313,306 and as a percentage of net assets was 5%. These securities have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
(5) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS EMERGING MARKETS VIP SERIES | | 11 |
| | |
| | Financial Information — RS Emerging Markets VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | |
| |
Assets | | | |
Investments, at value | | $ | 203,219,131 |
Cash and cash equivalents | | | 86 |
Foreign currency, at value | | | 2,580,096 |
Dividends/interest receivable | | | 1,904,331 |
Receivable for investments sold | | | 570,211 |
Receivable for fund shares subscribed | | | 120,603 |
Prepaid expenses | | | 8,624 |
| | | |
Total Assets | | | 208,403,082 |
| | | |
Liabilities | | | |
Payable for investments purchased | | | 2,540,210 |
Payable to adviser | | | 163,525 |
Accrued foreign capital gains tax | | | 103,888 |
Payable for fund shares redeemed | | | 26,219 |
Deferred trustees’ compensation | | | 5,428 |
Accrued expenses/other liabilities | | | 30,179 |
| | | |
Total Liabilities | | | 2,869,449 |
| | | |
Total Net Assets | | $ | 205,533,633 |
| | | |
Net Assets Consist of: | | | |
Paid-in capital | | $ | 109,773,252 |
Accumulated undistributed net investment income | | | 2,670,675 |
Accumulated net realized gain from investments, foreign currency transactions and foreign capital gains tax | | | 23,819,014 |
Net unrealized appreciation on investments, foreign currency transactions and foreign capital gains tax | | | 69,270,692 |
| | | |
Total Net Assets | | $ | 205,533,633 |
| | | |
Investments, at Cost | | $ | 133,837,804 |
| | | |
Foreign Currency, at Cost | | $ | 2,577,406 |
| | | |
| |
Pricing of Shares | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 7,076,453 |
| |
Net Asset Value Per Share | | | $29.04 |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 30,498 | |
Dividends | | | 3,617,786 | |
Withholding taxes on foreign dividends | | | (245,272 | ) |
| | | | |
Total Investment Income | | | 3,403,012 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 891,941 | |
Custodian fees | | | 207,287 | |
Professional fees | | | 17,308 | |
Shareholder reports | | | 12,352 | |
Trustees’ fees and expenses | | | 4,460 | |
Insurance expense | | | 3,677 | |
Administrative service fees | | | 2,732 | |
Registration fees | | | 2,450 | |
Other expense | | | 2,626 | |
| | | | |
Total Expenses Before Custody Credits | | | 1,144,833 | |
Less: Custody Credits | | | (674 | ) |
| | | | |
Expenses Net of Custody Credits | | | 1,144,159 | |
| | | | |
Net Investment Income | | | 2,258,853 | |
| | | | |
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 and foreign currency transactions | | | 19,209,322 | |
Realized foreign capital gains tax | | | (71,978 | ) |
Net change in unrealized appreciation on investments and translation of assets and liabilities in foreign currency | | | 9,297,071 | |
Net change in accrued foreign capital gains tax | | | 84,769 | |
| | | | |
Net Gain on Investments, Foreign Currency Transactions and Foreign Capital Gains Tax | | | 28,519,184 | |
| | | | |
Net Increase in Net Assets
Resulting from Operations | | $ | 30,778,037 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS EMERGING MARKETS VIP SERIES |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the Six Months Ended
06/30/07 | | | For the Year Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 2,258,853 | | | $ | 878,066 | |
Net realized gain on investments, foreign currency transactions, and foreign capital gains tax | | | 19,137,344 | | | | 29,047,960 | |
Net change in unrealized appreciation/(depreciation), foreign currency transactions and foreign capital gains tax | | | 9,381,840 | | | | 15,453,761 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 30,778,037 | | | | 45,379,787 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (1,007,567 | ) |
Net realized gain on investments and foreign currency related transactions | | | — | | | | (25,878,121 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (26,885,688 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 28,031,175 | | | | 61,773,358 | |
Reinvestment of distributions | | | — | | | | 26,885,689 | |
Cost of shares redeemed | | | (29,936,826 | ) | | | (53,969,864 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (1,905,651 | ) | | | 34,689,183 | |
| | | | | | | | |
Net Increase in Net Assets | | | 28,872,386 | | | | 53,183,282 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 176,661,247 | | | | 123,477,965 | |
| | | | | | | | |
End of period | | $ | 205,533,633 | | | $ | 176,661,247 | |
| | | | | | | | |
Accumulated undistributed net investment income included in net assets | | $ | 2,670,675 | | | $ | 411,822 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 1,071,388 | | | | 2,526,725 | |
Reinvested | | | — | | | | 1,141,633 | |
Redeemed | | | (1,192,060 | ) | | | (2,225,790 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (120,672 | ) | | | 1,442,568 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS EMERGING MARKETS VIP SERIES | | 13 |
| | |
| | Financial Information — RS Emerging Markets VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods. 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(Loss) | | | Total
Operations | | | Dividends
From Net
Investment
Income | | | Distributions
From Net
Realized
Capital Gains | | | Total
Dividends and
Distributions | |
| | | | | | | | |
Six Months Ended 06/30/071 | | $ | 24.55 | | $ | 0.32 | | $ | 4.17 | | | $ | 4.49 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
Year Ended 12/31/06 | | | 21.46 | | | 0.16 | | | 7.33 | | | | 7.49 | | | | (0.17 | ) | | | (4.23 | ) | | | (4.40 | ) |
| | | | | | | | |
Year Ended 12/31/05 | | | 16.43 | | | 0.19 | | | 6.35 | | | | 6.54 | | | | (0.18 | ) | | | (1.33 | ) | | | (1.51 | ) |
| | | | | | | | |
Year Ended 12/31/04 | | | 13.60 | | | 0.11 | | | 3.09 | | | | 3.20 | | | | (0.03 | ) | | | (0.34 | ) | | | (0.37 | ) |
| | | | | | | | |
Year Ended 12/31/03 | | | 8.91 | | | 0.10 | | | 4.69 | | | | 4.79 | | | | (0.10 | ) | | | — | | | | (0.10 | ) |
| | | | | | | | |
Year Ended 12/31/02 | | | 9.57 | | | 0.05 | | | (0.66 | ) | | | (0.61 | ) | | | (0.05 | ) | | | — | | | | (0.05 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
| 14 | | RS EMERGING MARKETS VIP SERIES |
| | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total
Return* | | Net Assets, End
of Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | | Net Ratio of Net
Investment Income
to Average
Net Assets | | | Portfolio
Turnover Rate |
| | | | | |
| $29.04 | | 18.29% | | $ | 205,534 | | 1.28% | | | 2.51% | | | 32% |
| | | | | |
| 24.55 | | 36.19% | | | 176,661 | | 1.43% | (a) | | 0.58% | (a) | | 62% |
| | | | | |
| 21.46 | | 40.51% | | | 123,478 | | 1.51% | | | 1.08% | | | 41% |
| | | | | |
| 16.43 | | 23.56% | | | 74,081 | | 1.57% | | | 0.76% | | | 75% |
| | | | | |
| 13.60 | | 53.92% | | | 55,252 | | 1.82% | | | 0.99% | | | 71% |
| | | | | |
| 8.91 | | (6.34)% | | | 33,211 | | 1.54% | | | 0.42% | | | 101% |
| | 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | (a) | Includes the effect of expenses waived by GIS. |
| | |
| RS EMERGING MARKETS VIP SERIES | | 15 |
The accompanying notes are an integral part of these financial statements.
| | |
| | Notes to Financial Statements — RS Emerging Markets VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS Emerging Markets VIP Series (the “Fund” or “EMV”) is a series of the Trust. EMV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of EMV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost, which approximates market value (See Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts are valued at the current cost of covering or offsetting such contracts. Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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.
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of
| | |
| 16 | | RS EMERGING MARKETS VIP SERIES |
the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $674. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
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 translated into U.S. dollars at the exchange rates quoted at the close of the New York Stock Exchange on each business day. Purchases and sales of securities, income receipts, and expense payments are translated into U.S. dollars at the exchange rate 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 with the net realized and unrealized gain or loss from investments.
Forward Foreign Currency Contracts
EMV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the values of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by EMV. When forward contracts are closed, EMV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. EMV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.
Futures Contracts
EMV may enter into financial futures contracts. In entering into such contracts, EMV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by EMV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins by EMV. The daily changes in the variation margin are recognized as unrealized gains or losses by EMV. EMV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for EMV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of EMV at the net asset value recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Fund.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as regulated investment company, and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was as follows:
| | | | | | | | | |
| | | Ordinary
Income | | Long-Term
Capital Gain | | Total |
2006 | | $ | 1,545,089 | | $ | 25,340,599 | | $ | 26,885,688 |
| | |
| RS EMERGING MARKETS VIP SERIES | | 17 |
| | |
| | Notes to Financial Statements — RS Emerging Markets VIP Series (continued) |
June 30, 2007 (unaudited)
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated gains on a tax basis were as follows:
| | | | | | | |
Undistributed
Ordinary
Income | | Long-Term
Capital Gain | | Unrealized
Appreciation |
| $ | 452,004 | | $ | 4,972,363 | | $ | 59,559,138 |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund had no such losses.
Withholding taxes on foreign interest, dividends and capital gains in EMV have been provided for in accordance with the applicable country’s tax rules and rates.
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays RS Investment Management Co., LLC (“RS Investments”) an investment advisory fee calculated at an annual rate of 1.00% of EMV’s average daily net assets.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Baillie Gifford Limited (“GBG”), a Scottish corporation owned by GIAC and Baillie Gifford Overseas Limited (“BG Overseas”). As compensation for GBG’s services, RS Investments pays fees to GBG at an annual rate of 0.95% of the average daily net fees to assets of EMV. Payment of the sub-advisory fees does not represent a separate or additional expense to EMV. GBG has entered into a Sub-Sub-Investment Advisory Agreement with BG Overseas pursuant to which BG Overseas is responsible for the day-to-day investment advisory services of EMV. A sub-sub-advisory fee of 0.50% of the average daily net assets of EMV is payable by GBG to BG Overseas for its services. Payment of the sub-sub-investment advisory fee does not represent a separate or additional expense to EMV.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009 to limit the Fund’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 1.43% of the average daily net assets of EMV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund. Trustees of the Fund who are not interested persons of RS Investments, as defined in the 1940 Act, received compensation and reimbursement of expenses for the period ended June 30, 2007.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”) adopted November 6, 2006, a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the
| | |
| 18 | | RS EMERGING MARKETS VIP SERIES |
Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees fees, in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $56,310,150 and $59,156,124, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments on a tax basis, excluding foreign currency, forward contracts, and futures, at June 30, 2007 aggregated $71,030,316 and $2,008,647, respectively resulting in a net unrealized appreciation of $69,021,669. The cost of investments owned at June 30, 2007 for federal income tax purposes $134,197,462.
Foreign securities investments involve special risks and consideration not typically associated with those of U.S. origin. These risks include, but are not limited to, revaluation of currencies; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of many foreign companies and markets may be less liquid and their prices more volatile than those of U.S. companies and markets.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, EMV 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, EMV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, the repurchase agreement held by EMV had been entered into on June 29, 2007.
| | |
| RS EMERGING MARKETS VIP SERIES | | 19 |
| | |
| | Notes to Financial Statements — RS Emerging Markets VIP Series (continued) |
June 30, 2007 (unaudited)
| Note E. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for EMV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 1,071,388 | | | 2,526,725 | | | $ | 28,031,175 | | | $ | 61,773,358 | |
Shares issued in reinvestment of dividends and distributions | | — | | | 1,141,633 | | | | — | | | | 26,885,689 | |
Shares repurchased | | (1,192,060 | ) | | (2,225,790 | ) | | | (29,936,826 | ) | | | (53,969,864 | ) |
| | |
Net increase/(decrease) | | (120,672 | ) | | 1,442,568 | | | $ | (1,905,651 | ) | | $ | 34,689,183 | |
| | |
| Note F. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note H. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the
| | |
| 20 | | RS EMERGING MARKETS VIP SERIES |
New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of undertakings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached
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| RS EMERGING MARKETS VIP SERIES | | 21 |
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| | Notes to Financial Statements — RS Emerging Markets VIP Series (continued) |
June 30, 2007 (unaudited)
fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
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| 22 | | RS EMERGING MARKETS VIP SERIES |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution capabilities resulting from the combination may result in
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| RS EMERGING MARKETS VIP SERIES | | 23 |
| | |
| | Supplemental Information — unaudited (continued) |
increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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| 24 | | RS EMERGING MARKETS VIP SERIES |
RS Variable Products Trust
RS Investment Quality Bond VIP Series
| | |
| 6.30.07 | |  |
| | |
 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or Guardian Investor Services LLC. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
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| | RS Investment Quality Bond VIP Series |
| | |
 | | Howard W. Chin (Guardian Investor Services) has been a co-portfolio manager of RS Investment Quality Bond VIP Series since 1998 and of RS Low Duration Bond VIP Series since 2003 (includes time co-managing The Guardian VC Low Duration Bond Fund and The Guardian Bond Fund). Mr. Chin has been a managing director of Guardian Life since 1997. He also manages part of the fixed-income assets of Guardian Life and fixed-income assets for other GIS subsidiaries. Prior to joining Guardian Life, Mr. Chin spent four years as a strategist at Goldman Sachs & Company. Mr. Chin earned a B.S. in engineering from Polytechnic Institute of New York and an M.B.A. from the University of California at Berkeley. |
| |
 | | Robert J. Crimmins, Jr. (Guardian Investor Services) has been a co-portfolio manager of RS Investment Quality Bond VIP Series and of RS Low Duration VIP Series since 2004 (includes time co-managing The Guardian VC Low Duration Bond Fund and The Guardian Bond Fund). Mr. Crimmins has been a managing director of Guardian Life since March 2004. Prior to that, Mr. Crimmins was an assistant vice president of fixed-income investments of Guardian Life. Mr. Crimmins holds a B.A. in finance from St. John’s University and an M.B.A. from Fordham University. |
Fund Philosophy
The RS Investment Quality Bond VIP Series seeks a high level of current income and capital appreciation without undue risk to principal. The Fund normally diversifies its asset allocations broadly among the debt securities markets but may emphasize some sectors over others based on their attractiveness relative to one another.
Investment Process
The Fund normally invests at least 80% of its net assets in investment grade debt securities, such as corporate bonds, mortgage-backed and asset-backed securities, zero-coupon bonds and obligations of the U.S. government and its agencies. The Fund’s investments are allocated among the various sectors of the debt markets by analyzing overall economic conditions within and among these sectors.
Performance
The RS Investment Quality Bond VIP Series had a total return of -0.59% for the quarter ended June 30, 2007, and the average returns for the Lipper Intermediate Investment Grade peer group was -0.86% over the same period. (The peer group consists of 62 variable subaccount funds that invest primarily in investment-grade debt with an average maturity of five to ten years.) In contrast, the Fund’s benchmark, the Lehman Brothers Aggregate Bond Index2, which measures the taxable fixed-income market, returned -0.52% over the same period. Year-to-date ended June 30, 2007, the Fund has returned 0.76%, the average return of the funds in the Lipper peer group was 0.63%, and the benchmark has returned 0.98%.
Portfolio Review
While the first quarter of 2007 for fixed income was nothing to write home about, the second quarter was clearly worse. By nearly any measure, bonds fared poorly as economic data came out that dashed many investors’ hopes of another rate cut by the Federal Reserve Board (the “Fed”). While the Fed actually remained on hold during the quarter, leaving the federal funds rate unchanged at 5.25% following its May and June meetings, the market lost its conviction regarding a rate cut. At the beginning of the second quarter, the futures mar-
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| RS INVESTMENT QUALITY BOND VIP SERIES | | 3 |
| | |
| | RS Investment Quality Bond VIP Series (continued) |
ket had priced in a federal funds rate below 4.85% by the end of 2007 (one 0.25% rate cut followed by a strong probability of a second quarter-point cut.) By mid- June, however, market sentiment ratcheted yield expectations upward to an unchanged year-end federal funds rate. (We also note that the market took on a more bullish tone in the second half of June as it started pricing in some probability of an easing by year-end.)
Despite this more positive outlook, rates still wound up sharply higher over the second quarter. Specifically, the yield on the benchmark 10-year Treasury note increased by 0.38%, from 4.65% at the start of the quarter to 5.03% by quarter-end. In fact, rates had gotten as high as 5.30% in mid-June when they popped by 0.20% in just two days. (Although this move may seem fairly modest, it was in reality, a huge move for the bond market.) Similarly, two-year Treasury yields moved up by 0.28%, from 4.59% at the beginning of the quarter to 4.87% at its end. As a result of these yield changes, the slope of the yield curve continued its steepening trend from the first quarter to a more-normal condition where longer-maturity yields are greater than short ones. The yield curve (the difference between two- and 10-year Treasury maturities) finished the quarter at 0.16%.
Rising rates were not the only cause for concern for bond investors during the quarter. If anything, it was overshadowed by growing concerns about the subprime mortgage market. Uncharacteristically high delinquency and default rates (with many loans defaulting right after closing) were the first red flags, raising questions about whether these problems would affect other portions of the bond market and the housing market or cause the economy to stumble into a recession. Although home prices have fallen in many markets and inventories of unsold homes have increased in others, it does not appear to us that there has been a cascading contagion effect into other markets or the economy.
However, the poor performance of these subprime loans has affected the bonds backed by these loans. The rating agencies have already announced significant downgrades and the prospect for more became a concern for all investors, not just ones directly involved in the subprime or bond markets. In fact, bond and equity investors began closely monitoring the ABX Index (comprising the largest subprime bond deals) as an indicator of the subprime market’s health. They did not like what they saw. The portion of the index rated BBB- was priced at par upon release, but it quickly fell to about 55 cents on the dollar in the wake of the subprime market’s turmoil.
Another indicator of the deteriorating credit environment was the accelerated widening in the risk premium demanded by investors (also known as swap spreads) that started in the first quarter. The risk premium widened by 0.05% during the first quarter but more than doubled that in the second quarter. After starting the year at 0.48%, these spreads finished the first half of 2007 at 0.64%, reaching levels not seen since August 2003. As a result of these wider spreads, all the segments in fixed income benchmarked with this measure (primarily structured finance bonds, agency debentures, and bank and finance corporate issues) were adversely affected.
The market was further rattled by the severe liquidity problems experienced by two hedge funds operated by Bear Stearns, a firm noted for its mortgage expertise. (As it turns out, Bear Stearns announced on July 17th that both funds were nearly worthless and would seek an orderly closure.) However, we think a more important question lingers. Specifically, how many other funds (as yet unidentified) have similar investment strategies and assets and to what extent will they face the same margin call pressures? A disorderly disposition of subprime assets at fire sale prices would likely force investors to revalue their subprime portfolios at substantially lower prices with unknown negative consequences for the broader markets. In other words, we’re waiting for the other shoe to drop.
Against this backdrop it was not surprising to us that bonds did not fare well during the period. The Lehman Brothers Aggregate Bond Index returned -0.52% for the second quarter, in sharp contrast to the 1.5% posted for the first quarter. Most segments of the taxable bond market experienced negative returns with
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| 4 | | RS INVESTMENT QUALITY BOND VIP SERIES |
asset-backed securities (ABS) faring the best with a return of 0.14% while corporate bonds, mortgage- backed securities (MBS) and commercial mortgage- backed securities (CMBS) returning -0.73%, -0.50% and -1.05% respectively. Year-to-date these subsectors have returned 1.55% (ABS), 0.76% (corporate bonds), 1.05% (MBS), and 0.43% (CMBS).
The various subsectors did not perform better relative to Treasuries either for the second quarter, as the Lehman Brothers Aggregate Index underperformed comparable duration Treasuries (negative excess returns) by 0.25%. MBS and CMBS were the worst performing sectors, posting excess returns of -0.56% and -0.44%, respectively, while ABS lost 0.17% to Treasuries. Corporates did best on a relative basis, posting 0.04% of excess returns in the quarter. However, this performance was still a bit of a disappointment since the sector posted 0.34% of excess returns in April and May, only to give much of it back in June. Year-to-date, the Lehman Brothers Aggregate Bond Index has underperformed Treasuries by 0.27%, while ABS, MBS and CMBS have underperformed by 0.27%, 0.57% and 0.62%, respectively, while corporate bonds — the only sector in positive territory — have outperformed by 0.05%.
To quote Yogi Berra, it was “déjà vu all over again” for corporate bonds in the second quarter. April and May saw very solid performance in the sector, but just as in the first quarter, corporate bonds stumbled in the last month. The strong performance earlier in the quarter resulted from better-than-expected first quarter corporate earnings, an improving stock market, and a brighter outlook for the U.S. economy. Investors also re-entered the corporate bond market to take advantage of the cheapening that occurred at the end of the first quarter, while continued demand from structured credit products lent further support to the sector. In June however, the credit market buckled under the weight of several negative forces. Concerns of a spillover from the subprime mortgage sector, rising interest rates, a declining stock market, an uptick in volatility, increased debt issuance to fund share buybacks, and large overall new-issue supply — all combined to push spreads wider.
We entered the second quarter with a slight underweight in corporate bonds relative to our benchmark and maintained this view throughout the period. Concerns about leveraged buyouts, companies relevering to buy back stock, our earnings outlook for the second half of the year and historically tight spreads caused us to remain underweighted in the sector. The Fund’s holdings in U.S. Steel and JCPenney as well as our active participation in the new-issue market (where new issues are frequently priced cheaper than a company’s outstanding debt) added positive performance to the Fund. The Fund was negatively impacted by our underweighting in the sovereign sector, which outperformed.
The Fund was also negatively impacted by its structured finance exposure. As mentioned earlier, these sectors underperformed as swap spreads widened, and we were overweighted in structured finance assets overall. The Fund had an underweight position in agency MBS for much of the quarter because we believed that the sector was overvalued from a risk/return perspective. Instead we continued to add shorter-maturity, non-agency CMOs backed by prime and alt-A residential mortgages (loans made with much less documentation regarding verified income or verified assets of the borrower) for their incremental 0.15-0.25% option adjusted spread (OAS) advantage. In June, however, MBS cheapened fundamentally in the wake of the sharp rise in interest rates, so we increased our agency MBS exposure to a slight overweighting. The Fund’s overweight exposures to the CMBS and ABS were largely unchanged during the quarter, but we opportunistically added CMBS following the sector’s widening in May by selling less-liquid specialty ABS and CMBS issues.
Despite the delinquencies and the defaults experienced in some sectors of the subprime mortgage market, we are very pleased to note that the Fund has not experienced these performance problems. The poorly performing subprime loans (and the bonds backed by them) are largely adjustable rate mortgages (ARMs)
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| RS INVESTMENT QUALITY BOND VIP SERIES | | 5 |
| | |
| | RS Investment Quality Bond VIP Series (continued) |
originated in late 2005 and thereafter. We believe lax underwriting standards made these loans more suspect and more vulnerable to greater defaults. Specifically, we expect that many borrowers have been (or will be) unable to pay the higher monthly interest payments once these ARMs reset upwards (known as “payment shock”). Moreover, we believe that in an environment of tighter lending standards and falling home prices, borrowers very likely will not be able to refinance, either. Both situations are recipes for defaults, and we have sought to position our portfolio away from these risks.
The AAA-rated subprime bonds that the Fund holds are almost exclusively backed by fixed-rate loans issued from 1997 to 2004. Besides having no ARM reset risk, these more-seasoned loans are on homes that have participated in the run-up of housing prices, even net of the recent softness. We believe that the substantial remaining equity in these homes makes it much less likely (and much more expensive) for borrowers to default on these loans. The market recognizes these fundamental advantages and those subprime bonds have performed well despite the turmoil in the subprime market.
Outlook
Our outlook remains largely unchanged from the first quarter. We believe that inflation is likely to remain near the upper bounds of the Fed’s comfort zone as strong global demand for energy and commodities persist. Wages have also been supported by consistent job growth. We also expect the economy to continue growing at a 2%-2.5% rate in the near term, so we anticipate that the Fed will leave rates unchanged for the balance of the year. We do not expect a slide into a recession or recession-like conditions, but this may hinge on the health of the housing sector and the impact of growing delinquencies in the subprime mortgage market.
The housing market boom and new mortgage lending products fueled consumer spending over the past few years, and we think it’s clear that these factors are waning. We have seen that house prices are now declining, sales are lower, and inventories of unsold homes are reaching multi-year highs. Mortgage rates are also significantly higher while lending standards have been tightened to avoid the excesses caused by lax (or fraudulent) underwriting during the subprime boom. As a result, we think that many subprime borrowers may find themselves unable to refinance or service their current mortgages. The impact of higher delinquencies and defaults on consumer spending and the broader economy is worrisome to us. We believe that it will certainly affect the entire mortgage origination food chain: borrowers, mortgage brokers and originators, mortgage servicers, Wall Street bond originators, and, ultimately, bond investors.
Also uncertain (and troubling) to us is the impact of downgraded subprime bonds on hedge funds, Wall Street, and the overall capital markets. The whole issue of leverage, counterparty risk, distressed sales of repossessed margin call assets, and the potential for bankruptcy were all featured during the Bear Stearns episode, but many more such episodes may be waiting in the wings. Furthermore, we think the illiquid nature of these assets — notably collateralized debt obligations (CDOs), which are investment vehicles that hold subprime bonds — will likely magnify their impact. It’s unclear whether the capital markets can comfortably digest all the assets sold under distressed conditions.
We believe the uncertainty about the subprime market will cast a pall over the bond market, and increased volatility in risk premiums (swap spreads) will likely persist and adversely affect agency debt, MBS (both residential and commercial) and ABS.
Although we think corporate balance sheets are in good shape generally, we also remain cautious about the credit market. We believe that leveraged buyouts and mergers-and-acquisitions activity are ever-present risks in an environment where global pools of liquidity are chasing all available opportunities. Further, we think there is the growing risk of corporate recapitalizations, where new debt is issued to fund share buybacks, an activity that rewards shareholders at the expense of bondholders. We think corporate earnings may also begin to ease. Given this outlook, we anticipate that we
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| 6 | | RS INVESTMENT QUALITY BOND VIP SERIES |
will underweight the corporate sector relative to our benchmark.
As always, we will be monitoring all of these factors extremely closely and will seek to position the Fund accordingly.
We thank you for your continued support.
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Howard W. Chin Co-Portfolio Manager | | 
Robert J. Crimmins Co-Portfolio Manager |
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
Bond funds are subject to interest rate risk, credit risk, and prepayment risk. When interest rates rise, bond prices generally fall, and when interest rates fall, bond prices generally rise. Currently, interest rates are at relatively low levels. Please keep in mind that in this kind of environment the risk that bond prices may fall when interest rates rise is potentially greater. The values of mortgage-backed securities depend on the credit quality and adequacy of the underlying assets or collateral and may be highly volatile.
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| RS INVESTMENT QUALITY BOND VIP SERIES | | 7 |
| | |
| | RS Investment Quality Bond VIP Series (continued) |
Assets Under Management: $431,116,457 | Data as of June 30, 2007 |
| | |
 | | Asset Allocation1 |
| | |
| | Top Ten Holdings1 |
| | | | | | |
| | | | |
| Company | | Coupon | | Maturity Date | | Percentage of
Total Net Assets |
U.S. Treasury Notes | | 4.875% | | 07/31/2011 | | 6.34% |
FNMA (30 yr. TBA) | | 5.500% | | 07/01/2037 | | 3.65% |
FNMA | | 5.000% | | 05/01/2037 | | 2.99% |
U.S. Treasury Bonds | | 4.500% | | 02/15/2036 | | 2.03% |
FNMA | | 6.500% | | 11/01/2036 | | 2.01% |
FHLMC | | 5.500% | | 09/15/2035 | | 1.90% |
FNMA (15 yr. TBA) | | 5.000% | | 07/01/2020 | | 1.86% |
Banc of America Alternative Loan Trust | | 6.000% | | 02/25/2034 | | 1.73% |
FHLB | | 5.125% | | 07/17/2018 | | 1.61% |
FNMA | | 5.500% | | 01/01/2037 | | 1.42% |
Total | | | | | | 25.54% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
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| 8 | | RS INVESTMENT QUALITY BOND VIP SERIES |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | | | | | |
| | | | | | | | |
| | | Inception Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | 10 Years | | Since Inception |
RS Investment Quality Bond VIP Series | | 05/01/83 | | 0.76% | | 5.81% | | 3.82% | | 4.41% | | 5.67% | | 7.78% |
Lehman Brothers Aggregate Bond Index2 | | | | 0.98% | | 6.12% | | 3.98% | | 4.48% | | 6.02% | | 8.32% |
Since inception performance for the index is measured from 4/30/1983, the month end prior to the Fund’s commencement of operations.
2 | The Lehman Brothers Aggregate Bond Index is generally considered to be representative of U.S. bond market activity. Unlike the Fund, the index does not incur fees or expenses. |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 06/30/97 |
The chart above shows the performance of a hypothetical $10,000 investment made 10 years ago in RS Investment Quality Bond VIP Series and the Lehman Brothers Aggregate Bond Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian Bond Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.60%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 9 |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,007.60 | | $2.84 | | 0.57% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,021.97 | | $2.86 | | 0.57% |
| * | 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). |
| | |
| 10 | | RS INVESTMENT QUALITY BOND VIP SERIES |
| | |
| | Schedule of Investments — RS Investment Quality Bond VIP Series |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Asset Backed Securities — 6.2% |
Ameriquest Mortgage Securities, Inc. | | | | | | |
2003-5 A6 | | | | | | |
4.541% due 4/25/2033 | | $ | 2,640,439 | | $ | 2,544,765 |
Amresco Residential Securities Mortgage
Loan Trust | | | | | | |
1997-1 MIF | | | | | | |
7.42% due 3/25/2027 | | | 151,500 | | | 150,903 |
Capital Auto Receivables Asset Trust | | | | | | |
2006-SN1A A3 | | | | | | |
5.31% due 10/20/2009(1) | | | 5,200,000 | | | 5,194,554 |
Carmax Auto Owner Trust | | | | | | |
2005-1 A4 | | | | | | |
4.35% due 3/15/2010 | | | 4,251,000 | | | 4,208,103 |
Chase Funding Mortgage Loan Trust | | | | | | |
2004-1 1A6 | | | | | | |
4.266% due 6/25/2015 | | | 454,664 | | | 429,221 |
CitiFinancial Mortgage Securities, Inc. | | | | | | |
2003-3 AF5 | | | | | | |
4.553% due 8/25/2033 | | | 1,403,000 | | | 1,337,132 |
Countrywide Asset-Backed Certificates Trust | | | | | | |
2004-S1 A2 | | | | | | |
3.872% due 3/25/2020 | | | 298,165 | | | 293,303 |
Ford Credit Auto Owner Trust | | | | | | |
2005-B A4 | | | | | | |
4.38% due 1/15/2010 | | | 2,450,000 | | | 2,428,853 |
Renaissance Home Equity Loan Trust | | | | | | |
2005-2 AF3 | | | | | | |
4.499% due 8/25/2035 | | | 3,200,000 | | | 3,166,860 |
Residential Asset Mortgage Products, Inc. | | | | | | |
2003-RZ4 A5 | | | | | | |
4.66% due 2/25/2032 | | | 860,000 | | | 847,549 |
2003-RS7 AI4 | | | | | | |
5.09% due 2/25/2031 | | | 1,755,964 | | | 1,743,419 |
2004-RS9 AII2 | | | | | | |
5.66% due 5/25/2034(2) | | | 208,693 | | | 208,765 |
2003-RS3 AI4 | | | | | | |
5.67% due 4/25/2033 | | | 2,204,890 | | | 2,199,157 |
Residential Funding Mortgage Securities Trust | | | | | | |
2003-HS3 AI2 | | | | | | |
3.15% due 7/25/2018 | | | 534,782 | | | 530,733 |
Vanderbilt Acquisition Loan Trust | | | | | | |
2002-1 A3 | | | | | | |
5.70% due 9/7/2023 | | | 1,462,015 | | | 1,463,799 |
| | | | | | |
Total Asset Backed Securities
(Cost $26,974,547) | | | | | | 26,747,116 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Collateralized Mortgage Obligations — 23.1% |
Banc of America Alternative Loan Trust | | | | | | |
2004-1 2A1 | | | | | | |
6.00% due 2/25/2034 | | $ | 7,523,263 | | $ | 7,442,894 |
Banc of America Funding Corp. | | | | | | |
2006-3 5A5 | | | | | | |
5.50% due 3/25/2036 | | | 3,345,918 | | | 3,291,386 |
Banc of America Mortgage Securities, Inc. | | | | | | |
2004-F 2A6 | | | | | | |
4.144% due 7/25/2034(2) | | | 1,350,000 | | | 1,317,478 |
Citigroup Mortgage Loan | | | | | | |
Trust | | | | | | |
2005-8 2A5 | | | | | | |
5.50% due 9/25/2035 | | | 1,439,661 | | | 1,431,613 |
Countrywide Alternative Loan Trust | | | | | | |
2004-35T2 A1 | | | | | | |
6.00% due 2/25/2035 | | | 3,829,684 | | | 3,834,144 |
2006-19CB A15 | | | | | | |
6.00% due 8/25/2036 | | | 4,035,449 | | | 4,042,923 |
2006-45T1 1A7 | | | | | | |
6.00% due 2/25/2037 | | | 3,863,219 | | | 3,848,063 |
Countrywide Home Loans Trust | | | | | | |
2002-19 1A1 | | | | | | |
6.25% due 11/25/2032 | | | 1,962,480 | | | 1,966,818 |
FHLMC | | | | | | |
2663 VQ | | | | | | |
5.00% due 6/15/2022 | | | 2,800,000 | | | 2,626,852 |
1534 Z | | | | | | |
5.00% due 6/15/2023 | | | 1,265,627 | | | 1,236,233 |
2500 TD | | | | | | |
5.50% due 2/15/2016 | | | 282,572 | | | 282,327 |
3227 PR | | | | | | |
5.50% due 9/15/2035 | | | 8,458,331 | | | 8,179,928 |
2367 ME | | | | | | |
6.50% due 10/15/2031 | | | 2,465,892 | | | 2,498,915 |
FNMA | | | | | | |
2006-45 AC | | | | | | |
5.50% due 6/25/2036 | | | 2,117,229 | | | 2,092,018 |
2002-52 PB | | | | | | |
6.00% due 2/25/2032 | | | 5,500,000 | | | 5,518,969 |
GNMA | | | | | | |
1997-19 PG | | | | | | |
6.50% due 12/20/2027 | | | 5,234,917 | | | 5,293,518 |
J.P. Morgan Mortgage Trust | | | | | | |
2005-S2 2A15 | | | | | | |
6.00% due 9/25/2035 | | | 5,401,280 | | | 5,302,539 |
Mastr Asset Securitization Trust | | | | | | |
2003-10 3A7 | | | | | | |
5.50% due 11/25/2033 | | | 2,142,000 | | | 2,067,009 |
RBSGC Mortgage Pass Through Certificates | | | | | | |
2007-B 2A1 | | | | | | |
6.087% due 11/25/2021(2) | | | 3,941,995 | | | 3,928,444 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 11 |
| | |
| | Schedule of Investments — RS Investment Quality Bond VIP Series (continued) |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Collateralized Mortgage Obligations (continued) |
Residential Accredit Loans, Inc. | | | | | | |
2007-QS1 1A1 | | | | | | |
6.00% due 1/25/2037 | | $ | 4,539,921 | | $ | 4,541,465 |
Residential Asset Mortgage Products, Inc. | | | | | | |
2005-SL1 A4 | | | | | | |
6.00% due 5/25/2032 | | | 3,868,154 | | | 3,824,034 |
Residential Funding Mortgage Securities I | | | | | | |
2006-S10 1A1 | | | | | | |
6.00% due 10/25/2036 | | | 4,894,179 | | | 4,807,768 |
Residential Funding Mortgage Securities Trust | | | | | | |
2006-S3 A7 | | | | | | |
5.50% due 3/25/2036 | | | 4,154,194 | | | 4,106,543 |
Wells Fargo Mortgage Backed Securities Trust | | | | | | |
2003-11 1A3 | | | | | | |
4.75% due 10/25/2018 | | | 3,500,000 | | | 3,445,961 |
2005-5 1A1 | | | | | | |
5.00% due 5/25/2020 | | | 4,690,997 | | | 4,500,425 |
2006-1 A3 | | | | | | |
5.00% due 3/25/2021 | | | 2,656,680 | | | 2,551,243 |
2003-2 A7 | | | | | | |
5.25% due 2/25/2018 | | | 5,900,000 | | | 5,787,421 |
| | | | | | |
Total Collateralized Mortgage Obligations
(Cost $101,263,670) | | | | | | 99,766,931 |
| Commercial Mortgage Backed Securities — 9.4% |
Bear Stearns Commercial Mortgage Securities | | | | | | |
2006-T24 AM | | | | | | |
5.568% due 10/12/2041(2) | | | 2,822,000 | | | 2,753,350 |
Chase Commercial Mortgage Securities Corp. | | | | | | |
1998-2 A2 | | | | | | |
6.39% due 11/18/2030 | | | 640,206 | | | 645,200 |
Crown Castle Towers LLC | | | | | | |
2005-1A AFX | | | | | | |
4.643% due 6/15/2035(1) | | | 3,499,999 | | | 3,407,505 |
First Union National Bank Commercial Mortgage Trust | | | | | | |
2000-C2 A1 | | | | | | |
6.94% due 10/15/2032 | | | 57,331 | | | 57,356 |
Four Times Square Trust | | | | | | |
2000-4TS A2 | | | | | | |
7.795% due 4/15/2015(1) | | | 5,510,000 | | | 5,841,252 |
GMAC Commercial Mortgage Securities, Inc. | | | | | | |
2006-C1 AM | | | | | | |
5.29% due 11/10/2045(2) | | | 2,100,000 | | | 2,013,414 |
J.P. Morgan Chase Commercial Mortgage Securities Corp. | | | | | | |
2001-C1 A3 | | | | | | |
5.857% due 10/12/2035 | | | 4,000,000 | | | 4,029,440 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Commercial Mortgage Backed Securities (continued) |
J.P. Morgan Commercial Mortgage Finance Corp. | | | | | | |
2000-C9 A2 | | | | | | |
7.77% due 10/15/2032 | | $ | 3,982,255 | | $ | 4,145,215 |
LB UBS Commercial Mortgage Trust | | | | | | |
2006-C6 AM | | | | | | |
5.413% due 9/15/2039 | | | 3,600,000 | | | 3,467,531 |
Merrill Lynch Mortgage Trust | | | | | | |
2004-BPC1 A5 | | | | | | |
4.855% due 10/12/2041(2) | | | 3,475,000 | | | 3,289,813 |
2006-C1 AM | | | | | | |
5.843% due 5/12/2039(2) | | | 1,000,000 | | | 989,255 |
Morgan Stanley Capital I | | | | | | |
2006-HQ9 AM | | | | | | |
5.773% due 7/12/2044(2) | | | 3,500,000 | | | 3,462,925 |
1999-RM1 E | | | | | | |
7.22% due 12/15/2031(2) | | | 2,495,000 | | | 2,545,639 |
Wachovia Bank Commercial Mortgage Trust | | | | | | |
2005-C22 A4 | | | | | | |
5.441% due 12/15/2044(2) | | | 4,100,000 | | | 3,970,723 |
| | | | | | |
Total Commercial Mortgage Backed Securities
(Cost $41,347,368) | | | | | | 40,618,618 |
| Corporate Bonds — 19.2% | | | | | | |
| Aerospace & Defense — 0.3% | | | |
General Dynamics Corp. | | | | | | |
4.50% due 8/15/2010 | | | 500,000 | | | 488,878 |
L-3 Communications Corp. | | | | | | |
6.125% due 1/15/2014 | | | 1,000,000 | | | 942,500 |
| | | | | | |
| | | | | | 1,431,378 |
| Automotive — 0.4% | | | | | | |
DaimlerChrysler NA Holdings | | | | | | |
4.05% due 6/4/2008 | | | 800,000 | | | 788,777 |
6.50% due 11/15/2013 | | | 300,000 | | | 309,838 |
TRW, Inc. | | | | | | |
7.75% due 6/1/2029 | | | 500,000 | | | 588,120 |
| | | | | | |
| | | | | | 1,686,735 |
| Building Materials — 0.3% | | | | | | |
CRH America, Inc. | | | | | | |
6.00% due 9/30/2016 | | | 1,350,000 | | | 1,334,804 |
| | | | | | |
| | | | | | 1,334,804 |
| Diversified Manufacturing — 0.5% | | | |
Siemens Financieringsmat N.V. | | | | | | |
6.125% due 8/17/2026(1) | | | 750,000 | | | 740,137 |
United Technologies Corp. | | | | | | |
4.375% due 5/1/2010 | | | 500,000 | | | 486,584 |
4.875% due 5/1/2015 | | | 1,000,000 | | | 947,235 |
| | | | | | |
| | | | | | 2,173,956 |
| Electric — 0.5% | | | | | | |
Nevada Power Co. | | | | | | |
5.875% due 1/15/2015 | | | 1,200,000 | | | 1,172,223 |
6.65% due 4/1/2036 | | | 600,000 | | | 601,989 |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS INVESTMENT QUALITY BOND VIP SERIES |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Electric (continued) | | | | | | |
PacifiCorp | | | | | | |
5.25% due 6/15/2035 | | $ | 350,000 | | $ | 307,644 |
| | | | | | |
| | | | | | 2,081,856 |
| Energy — 0.7% | | | | | | |
Canadian Natural Resources Ltd. | | | | | | |
6.25% due 3/15/2038 | | | 600,000 | | | 567,710 |
RAS Laffan Liquefied Natural Gas Co., Ltd. | | | | | | |
3.437% due 9/15/2009(1) | | | 1,188,480 | | | 1,159,529 |
Western Oil Sands, Inc. | | | | | | |
8.375% due 5/1/2012 | | | 1,000,000 | | | 1,093,750 |
| | | | | | |
| | | | | | 2,820,989 |
| Energy-Refining — 0.1% | | | | | | |
Tosco Corp. | | | | | | |
8.125% due 2/15/2030 | | | 500,000 | | | 611,246 |
| | | | | | |
| | | | | | 611,246 |
| Entertainment — 0.5% | | | | | | |
Time Warner, Inc. | | | | | | |
7.57% due 2/1/2024 | | | 1,250,000 | | | 1,335,299 |
Viacom, Inc. | | | | | | |
6.875% due 4/30/2036 | | | 800,000 | | | 772,899 |
| | | | | | |
| | | | | | 2,108,198 |
| Finance Companies — 1.6% | | | | | | |
American Express Co. | | | | | | |
6.80% due 9/1/2066(2) | | | 275,000 | | | 283,558 |
Capital One Bank Co. | | | | | | |
5.75% due 9/15/2010 | | | 1,000,000 | | | 1,004,735 |
General Electric Capital Corp. | | | | | | |
6.75% due 3/15/2032 | | | 850,000 | | | 922,223 |
GMAC LLC | | | | | | |
5.125% due 5/9/2008 | | | 1,500,000 | | | 1,481,266 |
Household Finance Corp. | | | | | | |
6.375% due 11/27/2012 | | | 1,000,000 | | | 1,026,671 |
Residential Capital Corp. | | | | | | |
6.125% due 11/21/2008 | | | 1,200,000 | | | 1,189,048 |
SLM Corp. | | | | | | |
4.00% due 1/15/2009 | | | 1,050,000 | | | 1,008,868 |
| | | | | | |
| | | | | | 6,916,369 |
| Financial — 1.4% | | | | | | |
Goldman Sachs Group, Inc. | | | | | | |
5.125% due 1/15/2015 | | | 1,400,000 | | | 1,330,335 |
5.95% due 1/15/2027 | | | 600,000 | | | 563,762 |
Lehman Brothers Holdings Capital Trust VII | | | | | | |
5.857% due 11/29/2049(2) | | | 1,000,000 | | | 979,558 |
Lehman Brothers Holdings, Inc. | | | | | | |
4.25% due 1/27/2010 | | | 800,000 | | | 779,901 |
Merrill Lynch & Co. | | | | | | |
5.00% due 1/15/2015 | | | 1,000,000 | | | 947,052 |
Morgan Stanley | | | | | | |
4.00% due 1/15/2010 | | | 400,000 | | | 386,167 |
4.75% due 4/1/2014 | | | 950,000 | | | 887,147 |
| | | | | | |
| | | | | | 5,873,922 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Financial-Banks — 3.0% | | | | | | |
Bank of America Corp. | | | | | | |
4.875% due 9/15/2012 | | $ | 1,300,000 | | $ | 1,256,251 |
Bank One Corp. | | | | | | |
5.25% due 1/30/2013 | | | 600,000 | | | 587,509 |
BB&T Corp. | | | | | | |
4.90% due 6/30/2017 | | | 1,000,000 | | | 919,648 |
Citigroup, Inc. | | | | | | |
4.625% due 8/3/2010 | | | 1,300,000 | | | 1,272,516 |
5.00% due 9/15/2014 | | | 1,900,000 | | | 1,807,398 |
City National Corp. | | | | | | |
5.125% due 2/15/2013 | | | 700,000 | | | 680,003 |
Credit Suisse First Boston USA, Inc. | | | | | | |
6.50% due 1/15/2012 | | | 800,000 | | | 828,621 |
HSBC USA, Inc. | | | | | | |
4.625% due 4/1/2014 | | | 700,000 | | | 653,937 |
JPMorgan Chase & Co. | | | | | | |
5.75% due 1/2/2013 | | | 1,650,000 | | | 1,650,427 |
Sovereign Bank, Inc. | | | | | | |
5.125% due 3/15/2013 | | | 1,000,000 | | | 964,523 |
Wachovia Capital Trust III | | | | | | |
5.80% due 8/29/2049(2) | | | 1,000,000 | | | 995,642 |
Wachovia Corp. | | | | | | |
5.25% due 8/1/2014 | | | 900,000 | | | 874,247 |
Washington Mutual Bank, FA | | | | | | |
5.65% due 8/15/2014 | | | 600,000 | | | 585,314 |
| | | | | | |
| | | | | | 13,076,036 |
| Food & Beverage — 0.3% | | | | | | |
Diageo Capital PLC | | | | | | |
5.50% due 9/30/2016 | | | 500,000 | | | 483,440 |
Kellogg Co. | | | | | | |
2.875% due 6/1/2008 | | | 1,050,000 | | | 1,024,674 |
| | | | | | |
| | | | | | 1,508,114 |
| Health Care — 0.2% | | | | | | |
Fisher Scientific International, Inc. | | | | | | |
6.125% due 7/1/2015 | | | 800,000 | | | 785,528 |
| | | | | | |
| | | | | | 785,528 |
| Home Construction — 0.2% | | | | | | |
Ryland Group, Inc. | | | | | | |
5.375% due 6/1/2008 | | | 1,000,000 | | | 997,635 |
| | | | | | |
| | | | | | 997,635 |
| Insurance — 1.4% | | | | | | |
AXA SA | | | | | | |
6.463% due 12/14/2049(1)(2) | | | 800,000 | | | 743,686 |
Genworth Financial, Inc. | | | | | | |
4.95% due 10/1/2015 | | | 450,000 | | | 421,940 |
Liberty Mutual Group, Inc. | | | | | | |
7.50% due 8/15/2036(1) | | | 400,000 | | | 405,668 |
MetLife, Inc. | | | | | | |
6.40% due 12/15/2036(2) | | | 1,000,000 | | | 926,352 |
Symetra Financial Corp. | | | | | | |
6.125% due 4/1/2016(1) | | | 800,000 | | | 791,134 |
UnitedHealth Group, Inc. | | | | | | |
5.375% due 3/15/2016 | | | 675,000 | | | 650,215 |
6.50% due 6/15/2037(1) | | | 1,000,000 | | | 1,002,609 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 13 |
| | |
| | Schedule of Investments — RS Investment Quality Bond VIP Series (continued) |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Insurance (continued) | | | | | | |
UnumProvident Finance Co. | | | | | | |
6.85% due 11/15/2015(1) | | $ | 1,100,000 | | $ | 1,124,059 |
| | | | | | |
| | | | | | 6,065,663 |
| Media – Cable — 0.6% | | | | | | |
Comcast Cable Communications, Inc. | | | | | | |
6.875% due 6/15/2009 | | | 1,050,000 | | | 1,075,070 |
Comcast Corp. | | | | | | |
6.45% due 3/15/2037 | | | 1,000,000 | | | 963,724 |
Time Warner Cable, Inc. | | | | | | |
5.85% due 5/1/2017(1) | | | 800,000 | | | 778,118 |
| | | | | | |
| | | | | | 2,816,912 |
| Media – NonCable — 0.1% | | | | | | |
News America Holdings, Inc. | | | | | | |
8.00% due 10/17/2016 | | | 500,000 | | | 562,835 |
| | | | | | |
| | | | | | 562,835 |
| Metals & Mining — 0.7% | | | |
Noranda, Inc. | | | | | | |
6.00% due 10/15/2015 | | | 750,000 | | | 749,676 |
Steel Dynamics, Inc. | | | | | | |
6.75% due 4/1/2015(1) | | | 700,000 | | | 686,000 |
United States Steel Corp. | | | | | | |
6.65% due 6/1/2037 | | | 600,000 | | | 581,038 |
Vale Overseas Ltd. | | | | | | |
6.875% due 11/21/2036 | | | 800,000 | | | 800,320 |
| | | | | | |
| | | | | | 2,817,034 |
| Natural Gas-Pipelines — 0.1% | | | |
Enterprise Products Operating LP | | | | | | |
8.375% due 8/1/2066(2) | | | 400,000 | | | 426,901 |
| | | | | | |
| | | | | | 426,901 |
| Paper & Forest Products — 0.1% | | | |
Weyerhaeuser Co. | | | | | | |
6.75% due 3/15/2012 | | | 275,000 | | | 284,530 |
| | | | | | |
| | | | | | 284,530 |
| Pharmaceuticals — 0.7% | | | | | | |
Amgen, Inc. | | | | | | |
5.85% due 6/1/2017(1) | | | 800,000 | | | 787,567 |
Genentech, Inc. | | | | | | |
4.75% due 7/15/2015 | | | 500,000 | | | 467,283 |
5.25% due 7/15/2035 | | | 900,000 | | | 794,566 |
Schering-Plough Corp. | | | | | | |
5.55% due 12/1/2013(2) | | | 400,000 | | | 401,473 |
Wyeth | | | | | | |
5.95% due 4/1/2037 | | | 475,000 | | | 453,949 |
| | | | | | |
| | | | | | 2,904,838 |
| Railroads — 0.4% | | | | | | |
CSX Corp. | | | 550,000 | | | 541,189 |
4.875% due 11/1/2009 | | | | | | |
Norfolk Southern Corp. | | | 1,150,000 | | | 1,192,129 |
6.75% due 2/15/2011 | | | | | | |
| | | | | | |
| | | | | | 1,733,318 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Real Estate Investment Trusts — 1.5% | | | |
ERP Operating LP | | | | | | |
5.375% due 8/1/2016 | | $ | 775,000 | | $ | 743,195 |
Federal Realty Investment Trust | | | | | | |
6.20% due 1/15/2017 | | | 550,000 | | | 554,628 |
Highwoods Realty Ltd. | | | | | | |
5.85% due 3/15/2017(1) | | | 600,000 | | | 580,341 |
Liberty Property LP | | | | | | |
7.25% due 3/15/2011 | | | 700,000 | | | 734,358 |
PPF Funding, Inc. | | | | | | |
5.35% due 4/15/2012(1) | | | 750,000 | | | 737,068 |
Regency Centers LP | | | | | | |
6.75% due 1/15/2012 | | | 375,000 | | | 389,751 |
Simon Property Group LP | | | | | | |
5.25% due 12/1/2016 | | | 750,000 | | | 714,110 |
USB Realty Corp. | | | | | | |
6.091% due 12/22/2049(1)(2) | | | 950,000 | | | 931,857 |
Westfield Group | | | | | | |
5.40% due 10/1/2012(1) | | | 900,000 | | | 887,434 |
| | | | | | |
| | | | | | 6,272,742 |
| Retailers — 0.2% | | | | | | |
CVS Caremark Corp. | | | | | | |
5.75% due 6/1/2017 | | | 475,000 | | | 458,290 |
Wal-Mart Stores, Inc. | | | | | | |
4.50% due 7/1/2015 | | | 500,000 | | | 461,303 |
| | | | | | |
| | | | | | 919,593 |
| Supermarkets — 0.1% | | | | | | |
Kroger Co. | | | | | | |
7.50% due 4/1/2031 | | | 350,000 | | | 367,555 |
| | | | | | |
| | | | | | 367,555 |
| Technology — 0.3% | | | | | | |
Cisco Systems, Inc. | | | | | | |
5.50% due 2/22/2016 | | | 850,000 | | | 829,437 |
National Semiconductor Corp. | | | | | | |
6.60% due 6/15/2017 | | | 500,000 | | | 509,095 |
| | | | | | |
| | | | | | 1,338,532 |
| Utilities-Electric — 1.3% | | | | | | |
Alabama Power Co. | | | | | | |
5.65% due 3/15/2035 | | | 750,000 | | | 671,781 |
Exelon Corp. | | | | | | |
4.45% due 6/15/2010 | | | 750,000 | | | 725,030 |
Florida Power & Light Co. | | | | | | |
4.95% due 6/1/2035 | | | 750,000 | | | 636,504 |
Pacific Gas & Electric Co. | | | | | | |
6.05% due 3/1/2034 | | | 450,000 | | | 435,910 |
Potomac Edison Co. | | | | | | |
5.35% due 11/15/2014 | | | 850,000 | | | 823,081 |
Public Service Co. of New Mexico | | | | | | |
4.40% due 9/15/2008 | | | 2,000,000 | | | 1,968,656 |
Public Service Electric Gas Co. | | | | | | |
5.125% due 9/1/2012 | | | 500,000 | | | 488,798 |
| | | | | | |
| | | | | | 5,749,760 |
The accompanying notes are an integral part of these financial statements.
| | |
| 14 | | RS INVESTMENT QUALITY BOND VIP SERIES |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Wireless Communications — 0.4% | | | |
New Cingular Wireless Services, Inc. | | | | | | |
8.125% due 5/1/2012 | | $ | 1,250,000 | | $ | 1,374,430 |
Vodafone Group PLC | | | | | | |
6.15% due 2/27/2037 | | | 350,000 | | | 325,602 |
| | | | | | |
| | | | | | 1,700,032 |
| Wireline Communications — 1.3% | | | |
AT&T, Inc. | | | | | | |
6.80% due 5/15/2036 | | | 600,000 | | | 621,418 |
Deutsche Telekom International Finance BV | | | | | | |
8.25% due 6/15/2030(2) | | | 850,000 | | | 1,018,780 |
France Telecom S.A. | | | | | | |
7.75% due 3/1/2011(2) | | | 800,000 | | | 854,700 |
8.50% due 3/1/2031(2) | | | 335,000 | | | 420,927 |
Sprint Capital Corp. | | | | | | |
6.90% due 5/1/2019 | | | 700,000 | | | 692,955 |
Telecom Italia Capital | | | | | | |
5.25% due 10/1/2015 | | | 550,000 | | | 511,426 |
Verizon Communications, Inc. | | | | | | |
5.55% due 2/15/2016 | | | 800,000 | | | 779,411 |
Verizon Global Funding Corp. | | | | | | |
5.85% due 9/15/2035 | | | 750,000 | | | 687,902 |
| | | | | | |
| | | | | | 5,587,519 |
| | | | | | |
Total Corporate Bonds
(Cost $84,626,353) | | | | | | 82,954,530 |
| Mortgage Pass-Through Securities — 23.6% |
FHLMC | | | | | | |
5.50% due 9/1/2034 -12/1/2036 | | | 11,406,607 | | | 11,021,903 |
7.00% due 8/1/2008 | | | 3,443 | | | 3,472 |
FNMA | | | | | | |
5.00% due 1/1/2033 -5/1/2037 | | | 20,670,532 | | | 19,396,135 |
5.272% due 6/1/2036(2) | | | 3,339,541 | | | 3,324,442 |
5.50% due 6/1/2034 -4/1/2037 | | | 17,299,828 | | | 16,700,109 |
5.78% due 12/1/2036(2) | | | 3,620,659 | | | 3,634,324 |
6.00% due 8/1/2021 -10/1/2036 | | | 3,546,389 | | | 3,533,706 |
6.222% due 8/1/2046(2) | | | 3,392,141 | | | 3,419,356 |
6.50% due 8/1/2010 -11/1/2036 | | | 9,598,271 | | | 9,701,789 |
7.00% due 9/1/2014 -6/1/2032 | | | 607,001 | | | 627,744 |
7.50% due 12/1/2029 | | | 483,875 | | | 506,168 |
8.00% due 6/1/2008 -9/1/2030 | | | 156,725 | | | 164,973 |
FNMA (TBA) | | | | | | |
5.00%, (15 yr. TBA) | | | 8,300,000 | | | 8,019,875 |
5.50%, (15 yr. TBA) | | | 4,000,000 | | | 3,940,000 |
5.50%, (30 yr. TBA) | | | 16,300,000 | | | 15,719,313 |
GNMA | | | | | | |
6.00% due 10/15/2032 -12/15/2033 | | | 1,200,342 | | | 1,197,512 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Mortgage Pass-Through Securities (continued) |
6.50% due 2/15/2032 -4/15/2033 | | $ | 1,005,876 | | $ | 1,026,562 |
| | | | | | |
Total Mortgage Pass-Through Securities
(Cost $103,113,364) | | | | | | 101,937,383 |
| Sovereign Debt Securities — 0.7% | | | |
Pemex Project Funding Master Trust | | | | | | |
6.625% due 6/15/2035 | | | 275,000 | | | 279,125 |
7.875% due 2/1/2009 | | | 1,200,000 | | | 1,237,800 |
Quebec Province | | | | | | |
4.60% due 5/26/2015 | | | 900,000 | | | 848,931 |
United Mexican States | | | | | | |
4.625% due 10/8/2008 | | | 450,000 | | | 444,150 |
| | | | | | |
Total Sovereign Debt Securities
(Cost $2,820,942) | | | | | | 2,810,006 |
| Taxable Municipal Securities — 0.1% | | | |
| Oregon — 0.1% | | | | | | |
Oregon School Board Association | | | | | | |
4.759% due 6/30/2028 | | | 450,000 | | | 401,337 |
| | | | | | |
| | | | | | 401,337 |
| | | | | | |
Total Taxable Municipal Securities
(Cost $450,000) | | | | | | 401,337 |
| U.S. Government Securities — 16.1% | | | |
| U.S. Government Agency Securities — 2.9% | | | |
FHLB | | | | | | |
5.125% due 7/17/2018 | | | 7,300,000 | | | 6,922,050 |
FHLMC | | | | | | |
3.15% due 12/16/2008 | | | 910,000 | | | 883,382 |
5.00% due 7/2/2018 | | | 4,255,000 | | | 3,982,212 |
FNMA | | | | | | |
4.50% due 12/1/2009 | | | 760,000 | | | 746,207 |
| | | | | | |
| | | | | | 12,533,851 |
| U.S. Treasury Bonds — 4.4% | | | |
U.S. Treasury Bonds | | | | | | |
4.50% due 2/15/2036 | | | 9,670,000 | | | 8,755,885 |
6.25% due 8/15/2023 | | | 3,530,000 | | | 3,919,680 |
8.125% due 8/15/2019 | | | 2,880,000 | | | 3,641,849 |
8.50% due 2/15/2020 | | | 1,900,000 | | | 2,479,797 |
| | | | | | |
| | | | | | 18,797,211 |
| U.S. Treasury Notes — 8.8% | | | | | | |
U.S. Treasury Notes | | | | | | |
4.50% due 4/30/2009 -5/15/2017 | | | 10,885,000 | | | 10,625,434 |
4.625% due 2/29/2012 | | | 95,000 | | | 93,783 |
4.875% due 7/31/2011 | | | 27,350,000 | | | 27,311,546 |
| | | | | | |
| | | | | | 38,030,763 |
| | | | | | |
Total U.S. Government Securities
(Cost $69,496,039) | | | | | | 69,361,825 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 15 |
| | |
| | Schedule of Investments — RS Investment Quality Bond VIP Series (continued) |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Commercial Paper — 6.5% | | | | | | |
| Chemicals — 0.9% | | | | | | |
Air Products & Chemicals, Inc. | | | | | | |
5.23% due 7/12/2007(3) | | $ | 4,000,000 | | $ | 3,993,608 |
| | | | | | |
| | | | | | 3,993,608 |
| Financial – Banks — 1.8% | | | | | | |
Bank America Corp. | | | | | | |
5.25% due 7/12/2007(3) | | | 3,900,000 | | | 3,893,744 |
Societe Generale N.A. | | | | | | |
5.25% due 7/18/2007(3) | | | 4,000,000 | | | 3,990,083 |
| | | | | | |
| | | | | | 7,883,827 |
| Food & Beverage — 0.9% | | | | | | |
Nestle Capital Corp. | | | | | | |
5.21% due 7/12/2007(3) | | | 3,750,000 | | | 3,744,030 |
| | | | | | |
| | | | | | 3,744,030 |
| Technology — 1.9% | | | | | | |
IBM Corp. | | | | | | |
5.19% due 7/17/2007(3) | | | 8,050,000 | | | 8,031,431 |
| | | | | | |
| | | | | | 8,031,431 |
| Utilities-Electric — 1.0% | | | | | | |
Southern Co. | | | | | | |
5.26% due 7/12/2007(3) | | | 4,200,000 | | | 4,193,250 |
| | | | | | |
| | | | | | 4,193,250 |
| | | | | | |
| Total Commercial Paper (Cost $27,846,146) | | | | | | 27,846,146 |
| Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund,
Class Y(4) | | | 8 | | | 333 |
RS Emerging Growth Fund, Class Y(4) | | | 31 | | | 1,259 |
RS Emerging Markets Fund, Class A(4) | | | 9 | | | 230 |
RS Global Natural Resources Fund, Class Y(4) | | | 97 | | | 3,546 |
RS Growth Fund, Class Y(4) | | | 73 | | | 1,219 |
RS Investors Fund, Class Y(4) | | | 188 | | | 2,425 |
RS MidCap Opportunities Fund, Class Y(4) | | | 63 | | | 1,015 |
RS Partners Fund, Class Y(4) | | | 23 | | | 899 |
RS Smaller Company Growth Fund, Class Y(4) | | | 32 | | | 729 |
RS Value Fund, Class Y(4) | | | 22 | | | 690 |
| | | | | | |
| Total Other Investments (Cost $11,565) | | | | | | 12,345 |
| | | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value | |
| | | | | | | |
| Repurchase Agreement — 1.3% | | | | |
State Street Bank and Trust Co.
Repurchase Agreement, 5.13% dated 6/29/2007, maturity value of
$5,480,342, due 7/2/2007(3), collateralized by $1,305,000 in FMAC, 5.80%, due 4/23/2014, with a value of $1,306,631; $3,795,000 in FHLB, 6.05%, due 2/21/2017, with a value of $3,837,694; $315,000 in FHLB, 5.50%, due 8/13/2014, with a value of $316,181; $130,000 in FNMA, 5.05%, due 4/28/2015, with a value of $127,238 | | $ | 5,478,000 | | $ | 5,478,000 | |
| | | | | | | |
Total Repurchase Agreement
(Cost $5,478,000) | | | 5,478,000 | |
| | | | | | | |
| Total Investments — 106.2% (Cost $463,427,994) | | | | | | 457,934,237 | |
| | | | | | | |
Payable for Delayed Delivery
Securities — (6.4)% | | | (27,619,604 | ) |
| | | | | | | |
| Other Assets, Net — 0.2% | | | | | | 801,824 | |
| | | | | | | |
| Total Net Assets — 100.0% | | | | | $ | 431,116,457 | |
(1) | Securities that may be resold in transactions exempt from registration under Rule 144A of the Securities Act of 1933, normally to certain qualified buyers. At June 30, 2007, the aggregate market value of these securities amounted to $25,798,518 representing 6.0% 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. |
(2) | Interest accrual can change due to structural features. The rate shown is the rate in effect at June 30, 2007. |
(3) | Securities are segregated to cover TBAs. |
(4) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
Glossary of Terms:
TBA — To be announced.
The accompanying notes are an integral part of these financial statements.
| | |
| 16 | | RS INVESTMENT QUALITY BOND VIP SERIES |
| | |
| | Financial Information — RS Investment Quality Bond VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 457,934,237 | |
Cash and cash equivalents | | | 418 | |
Interest receivable | | | 3,825,898 | |
Receivable for investments sold | | | 668,906 | |
Receivable for fund shares subscribed | | | 448,242 | |
Prepaid expenses | | | 10,462 | |
| | | | |
Total Assets | | | 462,888,163 | |
| | | | |
Liabilities | | | | |
Payable for forward mortgage securities purchased — Note F | | | 27,619,604 | |
Payable for investments purchased | | | 3,816,609 | |
Payable to adviser | | | 174,773 | |
Payable for fund shares redeemed | | | 98,446 | |
Deferred trustees’ compensation | | | 12,345 | |
Accrued expenses/other liabilities | | | 49,929 | |
| | | | |
Total Liabilities | | | 31,771,706 | |
| | | | |
Total Net Assets | | $ | 431,116,457 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 431,764,621 | |
Accumulated undistributed net investment income | | | 10,323,174 | |
Accumulated net realized loss from investments | | | (5,477,581 | ) |
Net unrealized depreciation on investments | | | (5,493,757 | ) |
| | | | |
Total Net Assets | | $ | 431,116,457 | |
| | | | |
| |
Investments, at Cost | | $ | 463,427,994 | |
| | | | |
| |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 36,319,469 | |
| |
Net Asset Value Per Share | | $ | 11.87 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 10,924,644 | |
| | | | |
Total Investment Income | | | 10,924,644 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 1,007,305 | |
Custodian fees | | | 63,045 | |
Professional fees | | | 35,860 | |
Shareholder reports | | | 24,210 | |
Trustees’ fees and expenses | | | 10,304 | |
Insurance expense | | | 8,430 | |
Administrative service fees | | | 3,162 | |
Registration fees | | | 282 | |
Other expense | | | 1,340 | |
| | | | |
Total Expenses Before Custody Credits | | | 1,153,938 | |
Less: Custody credits | | | (4,578 | ) |
| | | | |
Expenses Net of Custody Credits | | | 1,149,360 | |
| | | | |
Net Investment Income | | | 9,775,284 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation (Depreciation) on Investments | | | | |
Net realized loss from investments | | | (1,362,580 | ) |
Net change in unrealized depreciation on investments | | | (5,577,110 | ) |
| | | | |
Net Loss on Investments | | | (6,939,690 | ) |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 2,835,594 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 17 |
| | |
| | Financial Information — RS Investment Quality Bond VIP Series |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the
Six Months Ended
06/30/07 | | | For the
Year Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 9,775,284 | | | $ | 15,918,242 | |
Net realized loss on investments | | | (1,362,580 | ) | | | (2,851,915 | ) |
Net change in unrealized appreciation/(depreciation) of investments | | | (5,577,110 | ) | | | 1,593,037 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 2,835,594 | | | | 14,659,364 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (16,013,548 | ) |
Realized gain on investments | | | — | | | | (17,102 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (16,030,650 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 65,731,621 | | | | 100,333,502 | |
Reinvestment of distributions | | | — | | | | 16,030,649 | |
Cost of shares redeemed | | | (23,485,974 | ) | | | (57,665,225 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 42,245,647 | | | | 58,698,926 | |
| | | | | | | | |
Net Increase in Net Assets | | | 45,081,241 | | | | 57,327,640 | |
| | | | | | | | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 386,035,216 | | | | 328,707,576 | |
| | | | | | | | |
| | |
End of period | | $ | 431,116,457 | | | $ | 386,035,216 | |
| | | | | | | | |
| | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 10,323,174 | | | $ | 547,890 | |
| | | | | | | | |
| | |
Other Information | | | | | | | | |
Shares | | | | | | | | |
Sold | | | 5,524,670 | | | | 8,489,459 | |
Reinvested | | | — | | | | 1,366,931 | |
Redeemed | | | (1,973,760 | ) | | | (4,891,514 | ) |
| | | | | | | | |
Net Increase | | | 3,550,910 | | | | 4,964,876 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 18 | | RS INVESTMENT QUALITY BOND VIP SERIES |
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| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 19 |
| | |
| | Financial Information — RS Investment Quality Bond VIP Series |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods. 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 (assuming reinvestment of all dividends and distributions).
| | | | | | | | | | | | | | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(Loss) | | | Total
Operations | | Dividends
From Net
Investment
Income | | | Distributions
From Net
Realized
Capital Gains | | | Total
Distributions | |
| | | | | | | | |
Six Months Ended 06/30/071 | | $ | 11.78 | | $ | 0.27 | | $ | (0.18 | ) | | $ | 0.09 | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
Year Ended 12/31/06 | | | 11.82 | | | 0.52 | | | (0.03 | ) | | | 0.49 | | | (0.53 | ) | | | (0.00 | )(a) | | | (0.53 | ) |
| | | | | | | | |
Year Ended 12/31/05 | | | 12.11 | | | 0.50 | | | (0.21 | ) | | | 0.29 | | | (0.49 | ) | | | (0.09 | ) | | | (0.58 | ) |
| | | | | | | | |
Year Ended 12/31/04 | | | 12.25 | | | 0.51 | | | 0.00 | (a) | | | 0.51 | | | (0.52 | ) | | | (0.13 | ) | | | (0.65 | ) |
| | | | | | | | |
Year Ended 12/31/03 | | | 12.52 | | | 0.50 | | | 0.09 | | | | 0.59 | | | (0.48 | ) | | | (0.38 | ) | | | (0.86 | ) |
| | | | | | | | |
Year Ended 12/31/02 | | | 11.99 | | | 0.57 | | | 0.55 | | | | 1.12 | | | (0.55 | ) | | | (0.04 | ) | | | (0.59 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
| 20 | | RS INVESTMENT QUALITY BOND VIP SERIES |
| | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total
Return* | | Net Assets, End
of Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | | Net Ratio of Net
Investment Income
to Average
Net Assets | | | Portfolio
Turnover Rate |
| | | | | |
| $11.87 | | 0.76% | | $ | 431,116 | | 0.57% | | | 4.85% | | | 85% |
| | | | | |
| 11.78 | | 4.19% | | | 386,035 | | 0.60% | (b)(c) | | 4.61% | (c) | | 130% |
| | | | | |
| 11.82 | | 2.35% | | | 328,708 | | 0.59% | (b) | | 4.06% | | | 169% |
| | | | | |
| 12.11 | | 4.21% | | | 345,993 | | 0.57% | | | 4.02% | | | 217% |
| | | | | |
| 12.25 | | 4.73% | | | 384,642 | | 0.56% | | | 3.75% | | | 215% |
| | | | | |
| 12.52 | | 9.47% | | | 435,089 | | 0.56% | | | 4.55% | | | 249% |
| | 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such changes would reduce the total returns for all periods shown. |
| | (a) | Rounds to less than $0.01. |
| | (b) | Expense ratio includes interest expense associated with reverse repurchase agreements. Excluding the interest expense, the expense ratio is 0.59% in 2006 and 0.58% in 2005. |
| | (c) | Includes the effect of expenses waived by GIS. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 21 |
| | |
| | Notes to Financial Statements — RS Investment Quality Bond VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS Investment Quality Bond VIP Series (the “Fund” or “IQBV”) is a series of the Trust. IQBV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of IQBV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost, which approximates market value (see Note D). Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts are valued at the current cost of covering or offsetting such contracts. Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
Debt securities with more than 60 days to maturity for which quoted bid prices are, in the judgment of an independent pricing service (“Service”), readily available and representative of the bid side of the market are valued by the Service at the bid price. Debt securities with more than 60 days to maturity for which quoted bid prices are not, in the judgment of a Service, readily available and representative of the market value will be valued by the Service at estimated market value based on methods which include consideration of yields or prices of government securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions.
The Fund may invest in below investment grade securities (i.e. lower-quality debt), which are subject to certain 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 are generally more volatile and less liquid than investment grade debt. Lower quality debt securities can also be more sensitive to adverse economic conditions, including the issuer's financial condition or conditions or in relevant markets generally in its industry.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
| | |
| 22 | | RS INVESTMENT QUALITY BOND VIP SERIES |
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.
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.
Dividend income is generally recorded on ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $4,578. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
Futures Contracts
IQBV may enter into financial futures contracts. In entering into such contracts, IQBV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by IQBV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins paid or received by IQBV. The daily changes in the variation margin are recognized as unrealized gains or losses by IQBV. IQBV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for IQBV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of IQBV at the net asset value, recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/ (losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Funds.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as a regulated investment company and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was as follows:
| | | | | | |
| | | Ordinary
Income | | Long-Term
Capital Gain |
2006 | | $ | 16,013,647 | | $ | 17,003 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 23 |
| | |
| | Notes to Financial Statements — RS Investment Quality Bond VIP Series (continued) |
June 30, 2007 (unaudited)
shareholder distributions will result in reclassifications to paid-in-capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated loss on a tax basis were as follows:
| | | | | | | | | |
Undistributed
Ordinary
Income | | Capital Loss Carryforward | | | Unrealized
Depreciation | |
| $ | 550,534 | | $ | (3,915,624 | ) | | $ | (116,023 | ) |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year December 31, 2006, the Fund had no such losses.
As of December 31, 2006, for federal income tax purposes, the Fund had a capital loss carryforward as follows:
| | | | |
Capital Loss
Carryforward | | | Expiration
Date |
| $ | (3,858,020 | ) | | 2014 |
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, IQBV pays RS Investment Management Co. LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 0.50% of IQBV’s average daily net assets.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments. As compensation for GIS’s services, RS Investments pays fees to GIS at an annual rate of 0.475% of the average daily net assets of IQBV. Payment of the sub-advisory fees does not represent a separate or additional expense to the Fund.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust in effect through December 31, 2009, to limit IQBV’s total annual operating expenses (excluding interest expense associated with reverse repurchase agreements and securities lending) from exceeding 0.59% of the average daily net assets of IQBV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for de-ferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $398,846,044 and $335,257,226, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June 30, 2007 aggregated $663,155 and $7,235,831, respectively, resulting in net unrealized depreciation of $6,572,676. The cost of investments owned at June 30, 2007 for federal income tax purposes was $464,506,913.
| | |
| 24 | | RS INVESTMENT QUALITY BOND VIP SERIES |
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, IQBV 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, IQBV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, all repurchase agreements held by the Fund had been entered into on June 29, 2007.
| Note E. | | Reverse Repurchase Agreements |
IQBV may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short-term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time IQBV enters into a reverse repurchase agreement, IQBV segregates on its books cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by IQBV may be unable to deliver the securities when IQBV seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in IQBV’s net asset value and may be viewed as a form of leverage.
| Note F. | | Dollar Roll Transactions |
IQBV may enter into dollar rolls (principally using TBAs) in which IQBV sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an agreed-upon price on a fixed date in a future month. The securities repurchased will bear the same interest as those sold, but generally will be collateralized at the time of delivery by different pools of mortgages with different prepayment histories than those securities sold. During the period between the sale and repurchase, the Fund will not be entitled to receive principal and interest payments on the securities sold. IQBV is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the “drop”), as well as by the interest earned on the cash proceeds of the initial sale. Dollar roll transactions involve the risk that the buyer of the securities sold by IQBV may be unable to deliver the replacement securities when it is required to do so. Dollar rolls may increase fluctuations in IQBV’s net asset value and may be viewed as a form of leverage.
| Note G. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for IQBV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31,2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 5,524,670 | | | 8,489,459 | | | $ | 65,731,621 | | | $ | 100,333,502 | |
Shares issued in reinvestment of dividends and distributions | | — | | | 1,366,931 | | | | — | | | | 16,030,649 | |
Shares repurchased | | (1,973,760 | ) | | (4,891,514 | ) | | | (23,485,974 | ) | | | (57,665,225 | ) |
| | |
Net increase | | 3,550,910 | | | 4,964,876 | | | $ | 42,245,647 | | | $ | 58,698,926 | |
| | |
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 25 |
| | |
| | Notes to Financial Statements — RS Investment Quality Bond VIP Series (continued) |
June 30, 2007 (unaudited)
| Note H. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note J. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments receive compensation and reimbursement of expenses.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate
| | |
| 26 | | RS INVESTMENT QUALITY BOND VIP SERIES |
amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of under- takings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b)
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 27 |
| | |
| | Notes to Financial Statements — RS Investment Quality Bond VIP Series (continued) |
June 30, 2007 (unaudited)
and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| 28 | | RS INVESTMENT QUALITY BOND VIP SERIES |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced
| | |
| RS INVESTMENT QUALITY BOND VIP SERIES | | 29 |
| | |
| | Supplemental Information — unaudited (continued) |
distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
| | |
| 30 | | RS INVESTMENT QUALITY BOND VIP SERIES |
RS Variable Products Trust
RS Low Duration Bond VIP Series
| | |
| 6.30.07 | |  |
| | |
 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or Guardian Investor Services LLC. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS Low Duration Bond VIP Series |
| | |
 | | Howard W. Chin (Guardian Investor Services) has been a co-portfolio manager of RS Low Duration Bond VIP Series since 2003*. Mr. Chin has been a managing director of The Guardian Life Insurance Company of America (“Guardian Life”) since 1997. He also manages part of the fixed-income assets of Guardian Life and fixed-income assets for other GIS subsidiaries. Prior to joining Guardian Life, Mr. Chin spent four years as a strategist at Goldman Sachs & Company. Mr. Chin earned a B.S. in engineering from Polytechnic Institute of New York and an M.B.A. from the University of California at Berkeley. |
| |
 | | Robert J. Crimmins, Jr. (Guardian Investor Services) has been a co-portfolio manager of RS Low Duration VIP Series since 2004*. Mr. Crimmins has been a managing director of Guardian Life since March 2004. From March 2001 to March 2004, Mr. Crimmins was a senior director at Guardian Life and prior to that, Mr. Crimmins was an assistant vice president of fixed-income investments of Guardian Life. Mr. Crimmins holds a B.A. in finance from St. John’s University and an M.B.A. from Fordham University. |
| * | Includes service as a co-portfolio manager of the funds’s predecessor fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
Fund Philosophy
RS Low Duration Bond VIP Series seeks a high level of current income consistent with preservation of capital. The Fund seeks to maintain a low duration but may lengthen or shorten its duration within its range to reflect changes in the overall composition of the short-term investment grade debt markets.
Investment Process
The Fund normally invests at least 80% of its net assets in debt securities, such as corporate bonds, mortgage-backed and asset-backed securities, and obligations of the U.S. government and its agencies. The Fund tends to have an average maturity within a range of one and three years, with a typical duration of between one and three years. The Fund’s investments are allocated among the various sectors of the debt markets by analyzing overall economic conditions within and among these sectors. The Fund usually diversifies its asset allocations broadly among the debt securities market, but may emphasize some sectors over others based on what GIS believes to be their attractiveness relative to each other.
Performance
The RS Low Duration Bond VIP Series had a total return of 0.60% for the quarter ended June 30, 2007, and the average return for the Lipper Short Investment Grade peer group was 0.50% over the same period. (The peer group consists of 36 variable subaccount funds that invest primarily in investment-grade debt with average maturity of one to three years.) In contrast, the Fund’s benchmark, the Lehman Brothers U.S. Government 1-3 Year Bond Index2, returned 0.73% for the second quarter. For the six month period ended June 30, 2007, the Fund returned 2.04% while the benchmark returned 2.14%, and the average return for the funds in the Lipper peer group was 1.86%.
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| RS LOW DURATION BOND VIP SERIES | | 3 |
| | |
| | RS Low Duration Bond VIP Series (continued) |
Portfolio Review
While the first quarter of 2007 for fixed income was nothing to write home about, the second quarter was clearly worse. By nearly any measure, bonds fared poorly as economic data came out that dashed many investors’ hopes of another rate cut by the Federal Reserve Board (the “Fed”). While the Fed actually remained on hold during the quarter, leaving the federal funds rate unchanged at 5.25% following its May and June meetings, the market lost its conviction regarding a rate cut. At the beginning of the second quarter, the futures market had priced in a federal funds rate below 4.85% by the end of 2007 (one 0.25% rate cut followed by a strong probability of a second quarter-point cut.) By mid-June, however, market sentiment ratcheted yield expectations upward to an unchanged year-end federal funds rate. (We also note that the market took on a more bullish tone in the second half of June as it started pricing in some probability of an easing by year-end.)
Despite this more positive outlook, rates still wound up sharply higher over the second quarter. Specifically, the yield on the benchmark 10-year Treasury note increased by 0.38% from 4.65% at the start of the quarter to 5.03% by quarter-end. In fact, rates had gotten as high as 5.30% in mid-June when rates popped by 0.20% in just two days. (Although this move may seem to be fairly modest, it was in reality, a huge move for the bond market.) Similarly, two-year Treasury yields moved up by 0.28%, from 4.58% at the beginning of the quarter to 4.87% at its end. As a result of these yield changes, the slope of the yield curve continued its steepening trend from the first quarter to a more-normal condition, where longer maturity yields are greater than short ones. The yield curve (the difference between two- and 10-year Treasury maturities) finished the quarter at 0.16%.
Rising rates were not the only cause for concern for bond investors during the quarter. If anything, it was overshadowed by growing concerns about the subprime mortgage market. Uncharacteristically high delinquency and default rates (with many loans defaulting right after closing) were the first red flags, raising questions about whether these problems would affect other portions of the bond market and the housing market or even cause the economy to stumble into a recession. Although home prices have fallen in many markets and inventories of unsold homes have increased in others, as of yet it does not appear to us that there has been a cascading contagion effect into other markets or the economy.
However, the poor performance of these subprime loans has affected the bonds backed by these loans. The rating agencies have already announced significant downgrades, and the prospect for more became a concern for all investors, not just ones directly involved in the subprime or bond markets. In fact, bond and equity investors began closely monitoring the ABX Index (an index comprised of the largest subprime bond deals) as an indicator of the subprime market’s health. They did not like what they saw. The portion of the index rated BBB- was priced at par upon release, but it quickly fell to about 55 cents on the dollar in the wake of the subprime market’s turmoil.
Another indicator of the deteriorating credit environment was the accelerated widening in the risk premium demanded by investors (also known as swap spreads) that started in the first quarter. The risk premium widened by 0.05% during the first quarter but more than doubled that in the second quarter. After starting the year at 0.48%, these spreads finished the first half of 2007 at 0.64%, reaching levels not seen since August 2003. As a result of these wider spreads, all the segments in fixed income benchmarked with this measure (primarily structured finance bonds, agency debentures, and bank and finance corporate issues) were adversely affected.
The market was further rattled by the severe liquidity problems experienced by two hedge funds operated by Bear Stearns, a firm noted for its mortgage expertise. (As it turns out, Bear Stearns announced on July 17th that both funds were nearly worthless and would seek an orderly closure). However, we think a more important question lingers. Specifically, how many other funds (as yet unidentified) have similar investment strat-
| | |
| 4 | | RS LOW DURATION BOND VIP SERIES |
egies and assets and to what extent will they face the same margin call pressures? A disorderly disposition of subprime assets at fire sale prices would likely force investors to revalue their subprime portfolios at substantially lower prices with unknown negative consequences for the broader markets. In other words, we’re waiting for the other shoe to drop.
Against this backdrop, it was not surprising to us that bonds did not fare well during the period. The Lehman Brothers Aggregate Bond Index returned –0.52% for the second quarter, in sharp contrast to the 1.5% posted in the first quarter. Most segments of the taxable bond market experienced negative returns with asset-backed securities (ABS) faring the best with a return of 0.14% while corporate bonds, mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) returning –0.73%, –0.50% and –1.05% respectively. Year-to-date, these subsectors have returned 1.55% (ABS), 0.76% (corporate bonds), 1.05% (MBS) and 0.43% (CMBS).
For the second quarter, the various subsectors did not perform better relative to Treasuries either as the Lehman Brothers Aggregate Bond Index underperformed comparable-duration Treasuries (negative excess returns) by 0.25%. MBS and CMBS were the worst performing sectors, posting excess returns of –0.56% and –0.44%, respectively, while ABS lost 0.17% to Treasuries. Corporate bonds did best on a relative basis, posting 0.04% of excess returns in the quarter. This performance was still a bit of a disappointment, however, because the sector posted 0.34% of excess returns in April and May only to give much of it back in June. Year-to-date, the Lehman Brothers Aggregate Bond Index has underperformed Treasuries by 0.27%, while ABS, MBS, and CMBS have underperformed by 0.27%, 0.57%, and 0.62%, respectively, while corporate bonds — the only sector in positive territory — have outperformed by 0.05%.
To quote Yogi Berra, it was “déjà vu all over again” for corporate bonds in the second quarter. April and May saw very solid performance in the sector, but, just as in the first quarter, corporate bonds stumbled in the last month. The strong performance earlier in the quarter resulted from better-than-expected first quarter corporate earnings, an improving stock market, and a brighter outlook for the U.S. economy. Investors also re-entered the corporate bond market to take advantage of the cheapening that occurred at the end of the first quarter, while continued demand from structured credit products lent further support to the sector. In June, however, the credit market buckled under the weight of several negative forces. Concerns of a spillover from the subprime mortgage sector, rising interest rates, a declining stock market, an uptick in volatility, increased debt issuance to fund share buybacks, and large overall new-issue supply — all combined to push spreads wider.
The Fund maintained a significant exposure to the credit sector. Although we have some concerns about the corporate market in general, the majority of the issues we own mature in one year. In addition, the bonds offer attractive breakeven spreads and as a result, we believe these issues remain an attractive investment for the Fund.
The Fund was negatively impacted by its structured finance exposure as these sectors underperformed in the wake of wider swap spreads. The fundamentals for ABS, CMBS and MBS, however, remain positive. Unlike the experience in the subprime market, the underlying credit performance in these sectors remains solid with plenty of credit support. We are particularly positive about shorter-maturity, non-agency CMOs backed by prime and alt-A residential mortgages (loans made with much less documentation regarding verified income or verified assets of the borrower), which provides the Fund with an incremental advantage of 0.15-0.25% option adjusted spread (OAS).
Despite the delinquencies and the defaults experienced in some sectors of the subprime mortgage market, we are very pleased to note that the Fund has not experienced these performance problems. The poor performing subprime loans (and the bonds backed by them) are largely adjustable-rate mortgages (ARMs) originated in late 2005 and thereafter. We believe that lax under-
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| RS LOW DURATION BOND VIP SERIES | | 5 |
| | |
| | RS Low Duration Bond VIP Series (continued) |
writing standards made these loans more suspect and more vulnerable to greater defaults. Specifically, we expect that many borrowers have been (or will be) unable to pay the higher monthly interest payments once these ARMs reset upward (known as “payment shock”). Moreover, we believe that in an environment of tighter lending standards and falling home prices, borrowers very likely will not be able to refinance, either. Both situations are recipes for defaults, and we have sought to position the portfolio away from these risks.
The AAA-rated subprime bonds that the Fund holds are almost exclusively backed by fixed-rate loans issued from 1997 to 2004. Besides having no ARM reset risk, these more-seasoned loans are on homes that have participated in the run-up of housing prices, even net of the recent softness. We believe that the substantial remaining equity in these homes makes it much less likely (and much more expensive) for borrowers to default on these loans. The market recognizes these fundamental advantages, and, our subprime bonds have performed well despite the turmoil of the subprime market.
Outlook
Our outlook remains largely unchanged from the first quarter. We believe that inflation is likely to remain near the upper bounds of the Fed’s comfort zone as strong global demand for energy and commodities persist. Wages have also been supported by consistent job growth. We also expect the economy to continue growing at a 2%-2.5% rate in the near term, so we anticipate that the Fed will leave rates unchanged for the balance of the year. We do not expect a slide into a recession or recession-like conditions, but this may hinge on the health of the housing sector and the impact of growing delinquencies in the subprime mortgage market.
The housing market boom and new mortgage lending products fueled consumer spending over the past few years, and we think it’s clear that these factors are waning. We have seen that house prices are now declining, sales are lower, and inventories of unsold homes are reaching multi-year highs. Mortgage rates are also significantly higher, while lending standards have been tightened to avoid the excesses caused by lax (or fraudulent) underwriting during the subprime boom. As a result, we believe that many subprime borrowers may find themselves unable to refinance or service their current mortgages. The impact of higher delinquencies and defaults on consumer spending and the broader economy is worrisome to us. We believe that it will certainly affect the entire mortgage origination food chain: borrowers, mortgage brokers and originators, mortgage servicers, Wall Street bond originators, and, ultimately, bond investors.
Also uncertain (and troubling) to us is the impact of downgraded subprime bonds on hedge funds, Wall Street, and the overall capital markets. The whole issue of leverage, counterparty risk, distressed sales of repossessed margin call assets, and the potential for bankruptcy were all featured during the Bear Stearns episode, but many more such episodes may be waiting in the wings. Furthermore, we think the illiquid nature of these assets — notably collateralized debt obligations (CDOs), which are investment vehicles that hold subprime bonds — will likely magnify their impact. It’s unclear whether the capital markets can comfortably digest all the assets sold under distressed conditions.
We believe the uncertainty about the subprime market will cast a pall over the bond market, and increased volatility in risk premiums (swap spreads) will likely persist and adversely affect agency debt, MBS (both residential and commercial) and ABS.
Although we think corporate balance sheets are in good shape generally, we also remain cautious on the credit market. We believe that leveraged buyouts and mergers-and-acquisitions activity are ever-present risks in an environment where global pools of liquidity are chasing all available opportunities. Further, there is the growing risk of corporate recapitalizations where new debt is issued to fund share buybacks, an activity that rewards shareholders at the expense of bondholders. We think corporate earnings may also begin to ease.
| | |
| 6 | | RS LOW DURATION BOND VIP SERIES |
As always, we will be monitoring all of these factors extremely closely and will seek to position the Fund accordingly.
We thank you for your continued support.
| | |
| |  |
Howard W. Chin Co-Portfolio Manager | | Robert J. Crimmins Co-Portfolio Manager |
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
Bond funds are subject to interest rate risk, credit risk, and prepayment risk. When interest rates rise, bond prices generally fall, and when interest rates fall, bond prices generally rise. Currently, interest rates are at relatively low levels. Please keep in mind that this kind of environment, the risk that bond prices may fall when interest rates rise is potentially greater. The values of mortgage-backed securities depend on the credit quality and adequacy of the underlying assets or collateral and may be highly volatile.
| | |
| RS LOW DURATION BOND VIP SERIES | | 7 |
| | |
| | RS Low Duration Bond VIP Series (continued) |
| | |
| Assets Under Management: $26,427,819 | | Data as of June 30, 2007 |
| | |
 | | Asset Allocation |
| | |
| | Top Ten Holdings1 |
| | | | | | |
| | | | |
| Company | | Coupon | | Maturity Date | | Percentage of Total Net Assets |
FNMA | | 5.125% | | 04/15/2011 | | 4.07% |
FNMA | | 5.000% | | 02/16/2012 | | 2.90% |
U.S. Treasury Notes | | 4.750% | | 05/31/2012 | | 2.48% |
U.S. Treasury Notes | | 4.500% | | 05/15/2010 | | 2.34% |
Morgan Stanley Capital I | | 6.994% | | 12/15/2031 | | 2.16% |
FNMA | | 5.000% | | 10/15/2011 | | 2.06% |
Ford Credit Auto Owner Trust | | 4.380% | | 01/15/2010 | | 1.63% |
Capital Auto Receivables Asset Trust | | 5.310% | | 10/20/2009 | | 1.59% |
Chase Commercial Mortgage Securities Corp. | | 6.390% | | 11/18/2030 | | 1.55% |
FNMA | | 6.000% | | 02/25/2032 | | 1.55% |
| Total | | | | | | 22.33% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
| | |
| 8 | | RS LOW DURATION BOND VIP SERIES |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | |
| | | | | | |
| | | Inception
Date | | Year-to-Date | | 1 Year | | 3 Years | | Since
Inception |
RS Low Duration Bond VIP Series | | 08/28/03 | | 2.04% | | 5.15% | | 2.80% | | 2.41% |
Lehman Brothers U.S. Government 1-3 Year Bond Index2 | | | | 2.14% | | 5.22% | | 3.04% | | 2.66% |
2 | The Lehman Brothers U.S. Government 1-3 Year Bond Index is an unmanaged index that is generally considered to be representative of the average yield on U.S. government obligations having maturities between one and three years. Unlike the Fund, the index does not incur fees or expenses. |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 08/28/03 |
The chart above shows the performance of a hypothetical $10,000 investment made in RS Low Duration Bond VIP Series and the Lehman Brothers U.S. Government 1-3 Year Bond Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian VC Low Duration Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.68%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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| RS LOW DURATION BOND VIP SERIES | | 9 |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost 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 indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,020.40 | | $3.39 | | 0.68% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,021.44 | | $3.39 | | 0.68% |
| * | 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). |
| | |
| 10 | | RS LOW DURATION BOND VIP SERIES |
| | |
| | Schedule of Investments — RS Low Duration Bond VIP Series |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Asset Backed Securities — 16.8% | | | |
American Express Credit Account Master Trust
2004-3 A
4.35% due 12/15/2011 | | $ | 260,000 | | $ | 255,798 |
Ameriquest Mortgage Securities, Inc.
2003-5 A6
4.541% due 4/25/2033(1) | | | 242,116 | | | 233,344 |
Bank One Issuance Trust
2003-A7 A7
3.35% due 3/15/2011 | | | 280,000 | | | 274,694 |
Capital Auto Receivables Asset Trust
2006-SN1A A3
5.31% due 10/20/2009(2) | | | 420,000 | | | 419,560 |
Carmax Auto Owner Trust
2005-1 A4
4.35% due 3/15/2010 | | | 410,000 | | | 405,863 |
Chase Funding Mortgage Loan Trust
2004-1 1A6
4.266% due 6/25/2015 | | | 351,998 | | | 332,300 |
CitiFinancial Mortgage Securities., Inc.
2003-3 AF5
4.553% due 8/25/2033(1) | | | 280,000 | | | 266,855 |
Countrywide Asset-Backed Certificates Trust
2004-S1 A2
3.872% due 3/25/2020(1) | | | 136,545 | | | 134,318 |
Ford Credit Auto Owner Trust
2005-B A4
4.38% due 1/15/2010 | | | 435,000 | | | 431,245 |
Renaissance Home Equity Loan Trust
2005-2 AF3
4.499% due 8/25/2035(1) | | | 390,000 | | | 385,961 |
Residential Asset Mortgage Products, Inc.
2003-RZ4 A5
4.66% due 2/25/2032 | | | 390,000 | | | 384,354 |
2003-RS3 AI4
5.67% due 4/25/2033(1) | | | 396,880 | | | 395,848 |
2002-RS4 AI5
6.163% due 8/25/2032(1) | | | 61,600 | | | 61,043 |
Residential Funding Mortgage Securities Trust
2003-HS3 AI2
3.15% due 7/25/2018 | | | 58,678 | | | 58,233 |
World Omni Auto Receivables Trust
2005-A A4
3.82% due 11/12/2011 | | | 413,000 | | | 406,463 |
| | | | | | |
Total Asset Backed Securities
(Cost $4,488,030) | | | 4,445,879 |
| | | | | | |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Collateralized Mortgage Obligations — 15.4% |
Banc of America Mortgage Securities, Inc.
2004-F 2A6
4.144% due 7/25/2034(1) | | $ | 260,000 | | $ | 253,736 |
Countrywide Alternative Loan Trust
2004-35T2 A1
6.00% due 2/25/2035 | | | 242,905 | | | 243,188 |
2006-45T1 1A7
6.00% due 2/25/2037 | | | 251,949 | | | 250,961 |
Countrywide Home Loans Trust
2002-19 1A1
6.25% due 11/25/2032 | | | 117,163 | | | 117,422 |
FHLMC | | | | | | |
2598 QC
4.50% due 6/15/2027 | | | 256,244 | | | 252,133 |
1534 Z
5.00% due 6/15/2023 | | | 172,807 | | | 168,793 |
2500 TD
5.50% due 2/15/2016 | | | 80,294 | | | 80,224 |
20 H
5.50% due 10/25/2023 | | | 80,576 | | | 79,519 |
2470 VB
6.00% due 8/15/2018 | | | 224,945 | | | 225,194 |
1650 J
6.50% due 6/15/2023 | | | 177,500 | | | 178,824 |
FNMA | | | | | | |
2003-24 PU
3.50% due 11/25/2015 | | | 185,890 | | | 179,201 |
2003-63 GU
4.00% due 7/25/2033 | | | 184,175 | | | 181,106 |
2005-39 CL
5.00% due 12/25/2021 | | | 260,000 | | | 256,271 |
2003-13 ME
5.00% due 2/25/2026 | | | 195,576 | | | 194,325 |
2002-55 PC
5.50% due 4/25/2026 | | | 5,518 | | | 5,501 |
2006-45 AC
5.50% due 6/25/2036 | | | 151,759 | | | 149,952 |
2002-52 PB
6.00% due 2/25/2032 | | | 407,000 | | | 408,404 |
GNMA
2002-93 NV
4.75% due 2/20/2032 | | | 14,394 | | | 14,007 |
J.P. Morgan Mortgage Trust
2005-S2 2A15
6.00% due 9/25/2035 | | | 151,399 | | | 148,632 |
RBSGC Mortgage Pass Through Certificates
2007-B 2A1
6.087% due 11/25/2021(1) | | | 259,890 | | | 258,997 |
Residential Accredit Loans, Inc.
2007-QS1 1A1
6.00% due 1/25/2037 | | | 259,424 | | | 259,512 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS LOW DURATION BOND VIP SERIES | | 11 |
| | |
| | Schedule of Investments — RS Low Duration Bond VIP Series (continued) |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Collateralized Mortgage Obligations (continued) |
Residential Asset Mortgage Products, Inc.
2005-SL1 A4
6.00% due 5/25/2032 | | $ | 132,835 | | $ | 131,320 |
Wells Fargo Mortgage-Backed Securities Trust
2005-14 2A1
5.50% due 12/25/2035 | | | 46,964 | | | 44,916 |
| | | | | | |
Total Collateralized Mortgage Obligations
(Cost $4,129,179) | | | | | | 4,082,138 |
| | |
| | | Principal
Amount | | Value |
| Commercial Mortgage Backed Securities — 14.0% |
Chase Commercial Mortgage Securities Corp.
1998-2 A2
6.39% due 11/18/2030 | | | 407,404 | | | 410,582 |
Commercial Mortgage Asset Trust
1999-C1 A3
6.64% due 1/17/2032 | | | 307,071 | | | 312,070 |
Crown Castle Towers LLC
2005-1A AFX
4.643% due 6/15/2035(2) | | | 185,000 | | | 180,111 |
Four Times Square Trust
2000-4TS A2
7.795% due 4/15/2015(2) | | | 365,000 | | | 386,943 |
GMAC Commercial Mortgage Securities, Inc.
1999-C2 A2
6.945% due 9/15/2033 | | | 225,551 | | | 230,234 |
Greenwich Capital Commercial Funding Corp. | | | | | | |
2004-GG1 A2
3.835% due 6/10/2036 | | | 15,809 | | | 15,759 |
2005-GG3 A2
4.305% due 8/10/2042 | | | 274,000 | | | 266,925 |
GS Mortgage Securities Corp. II
2004-GG2 A3
4.602% due 8/10/2038 | | | 270,000 | | | 265,708 |
J.P. Morgan Chase Commercial Mortgage Securities Corp. | | | | | | |
2004-C1 A1
3.053% due 1/15/2038 | | | 330,147 | | | 319,312 |
2001-C1 A3
5.857% due 10/12/2035 | | | 250,000 | | | 251,840 |
J.P. Morgan Commercial Mortgage Finance Corp.
2000-C9 A2
7.77% due 10/15/2032 | | | 129,586 | | | 134,889 |
LB UBS Commercial Mortgage Trust | | | | | | |
2003-C1 A2
3.323% due 3/15/2027 | | | 250,000 | | | 246,394 |
2000-C5 A1
6.41% due 12/15/2019 | | | 117,329 | | | 117,651 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Commercial Mortgage Backed Securities (continued) |
Morgan Stanley Capital I
1999-RM1 E
7.22% due 12/15/2031(1) | | $ | 560,000 | | $ | 571,366 |
| | | | | | |
Total Commercial Mortgage
Backed Securities
(Cost $3,755,772) | | | 3,709,784 |
| | |
| | | Principal
Amount | | Value |
| Corporate Bonds — 30.9% | | | | | | |
| Aerospace & Defense — 0.4% |
Raytheon Co.
4.50% due 11/15/2007 | | | 96,000 | | | 95,664 |
| | | | | | |
| | | | | | 95,664 |
| Automotive — 2.1% |
DaimlerChrysler NA Holding Corp.
4.75% due 1/15/2008 | | | 300,000 | | | 298,963 |
General Motors Acceptance Corp.
4.375% due 12/10/2007 | | | 250,000 | | | 248,197 |
| | | | | | |
| | | | | | 547,160 |
| Chemicals — 2.3% |
ICI Wilmington, Inc.
7.05% due 9/15/2007 | | | 207,000 | | | 207,488 |
Lyondell Chemical Co.
10.875% due 5/1/2009 | | | 150,000 | | | 150,000 |
Praxair, Inc.
4.75% due 7/15/2007 | | | 250,000 | | | 249,965 |
| | | | | | |
| | | | | | 607,453 |
| Electric — 1.1% |
Entergy Gulf States, Inc.
3.60% due 6/1/2008 | | | 150,000 | | | 147,324 |
Pepco Holdings, Inc.
5.50% due 8/15/2007 | | | 150,000 | | | 150,060 |
| | | | | | |
| | | | | | 297,384 |
| Energy — 2.4% |
Anadarko Petroleum Corp. 3.25% due 5/1/2008 | | | 250,000 | | | 245,161 |
Occidental Petroleum Corp. 4.00% due 11/30/2007 | | | 200,000 | | | 198,874 |
RAS Laffan Liquefied Natural Gas Co., Ltd.
3.437% due 9/15/2009(2) | | | 187,200 | | | 182,640 |
| | | | | | |
| | | | | | 626,675 |
| Finance Companies — 4.1% |
Capital One Bank
4.25% due 12/1/2008 | | | 200,000 | | | 196,833 |
General Electric Capital Corp.
3.50% due 8/15/2007 | | | 300,000 | | | 299,398 |
iStar Financial, Inc.
7.00% due 3/15/2008 | | | 250,000 | | | 252,025 |
Residential Capital Corp.
6.125% due 11/21/2008 | | | 150,000 | | | 148,631 |
SLM Corp.
4.00% due 1/15/2009 | | | 200,000 | | | 192,165 |
| | | | | | |
| | | | | | 1,089,052 |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS LOW DURATION BOND VIP SERIES |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Corporate Bonds (continued) | | | | | | |
| Financial - Banks — 1.9% |
Popular NA, Inc.
3.875% due 10/1/2008 | | $ | 250,000 | | $ | 245,040 |
Sovereign Bank
4.00% due 2/1/2008 | | | 250,000 | | | 247,880 |
| | | | | | |
| | | | | | 492,920 |
| Home Construction — 0.9% |
Ryland Group, Inc.
5.375% due 6/1/2008 | | | 250,000 | | | 249,409 |
| | | | | | |
| | | | | | 249,409 |
| Insurance — 2.5% |
UnitedHealth Group, Inc.
3.375% due 8/15/2007 | | | 250,000 | | | 249,407 |
Unum Group
5.859% due 5/15/2009 | | | 150,000 | | | 150,429 |
WellPoint, Inc.
3.75% due 12/14/2007 | | | 250,000 | | | 248,042 |
| | | | | | |
| | | | | | 647,878 |
| Media – Cable — 1.0% |
Comcast Corp.
7.625% due 4/15/2008 | | | 250,000 | | | 253,669 |
| | | | | | |
| | | | | | 253,669 |
| Media – NonCable — 0.4% |
R.H. Donnelley Finance Corp. I
10.875% due 12/15/2012 | | | 100,000 | | | 106,625 |
| | | | | | |
| | | | | | 106,625 |
| Natural Gas - Distributors — 0.9% |
ONEOK, Inc.
7.125% due 4/15/2011 | | | 240,000 | | | 250,456 |
| | | | | | |
| | | | | | 250,456 |
| Natural Gas - Pipelines — 1.0% |
Enterprise Products Operating LP
4.00% due 10/15/2007 | | | 275,000 | | | 273,861 |
| | | | | | |
| | | | | | 273,861 |
| Paper & Forest Products — 1.9% |
International Paper Co.
3.80% due 4/1/2008 | | | 250,000 | | | 246,399 |
Packaging Corp. of America
4.375% due 8/1/2008 | | | 250,000 | | | 246,298 |
| | | | | | |
| | | | | | 492,697 |
| Railroads — 0.9% |
Illinois Central Railroad Co.
6.98% due 7/12/2007 | | | 250,000 | | | 250,080 |
| | | | | | |
| | | | | | 250,080 |
| Retailers — 2.9% |
CVS Corp.
3.875% due 11/1/2007 | | | 250,000 | | | 248,580 |
Federated Department Stores, Inc.
6.625% due 9/1/2008 | | | 255,000 | | | 256,673 |
J.C. Penney Corp., Inc.
6.50% due 12/15/2007 | | | 250,000 | | | 250,784 |
| | | | | | |
| | | | | | 756,037 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Corporate Bonds (continued) | | | | | | |
| Supermarkets — 0.9% |
Safeway, Inc.
7.00% due 9/15/2007 | | $ | 250,000 | | $ | 250,600 |
| | | | | | |
| | | | | | 250,600 |
| Utilities - Electric & Water — 2.4% |
American Electric Power Co, Inc.
4.709% due 8/16/2007(1) | | | 230,000 | | | 229,761 |
Public Service Co. of New Mexico
4.40% due 9/15/2008 | | | 150,000 | | | 147,649 |
Tampa Electric Co.
5.375% due 8/15/2007 | | | 250,000 | | | 249,923 |
| | | | | | |
| | | | | | 627,333 |
| Wireline Communications — 0.9% |
Telecom Italia Capital
4.00% due 11/15/2008 | | | 250,000 | | | 244,686 |
| | | | | | |
| | | | | | 244,686 |
| | | | | | |
Total Corporate Bonds
(Cost $8,187,405) | | | | | | 8,159,639 |
| | |
| | | Principal
Amount | | Value |
| Mortgage Pass-Through Security — 1.0% |
FNMA
6.222% due 8/1/2046(1) | | | 254,619 | | | 256,662 |
| | | | | | |
Total Mortgage Pass-Through Security
(Cost $257,110) | | | 256,662 |
| | |
| | | Principal
Amount | | Value |
| Sovereign Debt Security — 0.9% |
United Mexican States
4.625% due 10/8/2008 | | | 250,000 | | | 246,750 |
| | | | | | |
Total Sovereign Debt Security
(Cost $247,993) | | | 246,750 |
| | |
| | | Principal
Amount | | Value |
| U.S. Government Securities — 18.4% | | | |
| U.S. Government Agency Securities — 12.6% |
FHLMC | | | 415,000 | | | 402,861 |
3.15% due 12/16/2008 | | | | | | |
FNMA | | | | | | |
3.75% due 3/18/2010(1) | | | 140,000 | | | 136,641 |
4.50% due 12/1/2009 | | | 410,000 | | | 402,559 |
5.00% due 10/15/2011 - 2/16/2012 | | | 1,325,000 | | | 1,309,961 |
5.125% due 4/15/2011 | | | 1,080,000 | | | 1,076,083 |
| | | | | | |
| | | | | | 3,328,105 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS LOW DURATION BOND VIP SERIES | | 13 |
| | |
| | Schedule of Investments — RS Low Duration Bond VIP Series (continued) |
| | | | | | | |
June 30, 2007 (unaudited) | | Principal
Amount | | Value | |
| | | | | | | |
| U.S. Government Securities (continued) | | | | |
| U.S. Treasury Notes — 5.8% | | | | | | | |
U.S. Treasury Notes | | | | | | | |
4.50% due 5/15/2010 - 11/30/2011 | | $ | 850,000 | | $ | 839,625 | |
4.625% due 2/29/2012 | | | 30,000 | | | 29,616 | |
4.75% due 5/31/2012 | | | 660,000 | | | 654,844 | |
| | | | | | | |
| | | | | | 1,524,085 | |
| | | | | | | |
Total U.S. Government Securities
(Cost $4,884,523) | | | 4,852,190 | |
| | |
| | | Shares | | Value | |
| Other Investments – For Trustee Deferred Compensation Plan — 0.0% | |
RS Core Equity Fund, Class Y(3) | | | 1 | | | 23 | |
RS Emerging Growth Fund, Class Y(3) | | | 2 | | | 86 | |
RS Emerging Markets Fund, Class A(3) | | | 1 | | | 14 | |
RS Global Natural Resources Fund, Class Y(3) | | | 7 | | | 241 | |
RS Growth Fund, Class Y(3) | | | 5 | | | 83 | |
RS Investors Fund, Class Y(3) | | | 13 | | | 166 | |
RS MidCap Opportunities Fund, Class Y(3) | | | 4 | | | 69 | |
RS Partners Fund, Class Y(3) | | | 1 | | | 60 | |
RS Smaller Company Growth Fund, Class Y(3) | | | 2 | | | 50 | |
RS Value Fund, Class Y(3) | | | 1 | | | 47 | |
| | | | | | | |
Total Other Investments
(Cost $783) | | | 839 | |
| | |
| | | Principal
Amount | | Value | |
| | | | | | | |
| Repurchase Agreement — 4.5% | | | | |
State Street Bank and Trust Co.
Repurchase Agreement,
5.13%, dated 6/29/2007, maturity value of $1,178,504, due 7/2/2007, collateralized by $1,190,000 in FHLB, 6.05%, due 2/21/2017, with a value of $1,203,388 | | | 1,178,000 | | | 1,178,000 | |
| | | | | | | |
Total Repurchase Agreement
(Cost $1,178,000) | | | | | | 1,178,000 | |
| | | | | | | |
Total Investments — 101.9%
(Cost $27,128,795) | | | | | | 26,931,881 | |
| | | | | | | |
| Other Liabilities, Net — (1.9)% | | | (504,062 | ) |
| | | | | | | |
| Total Net Assets — 100.0% | | | | | $ | 26,427,819 | |
(1) | Interest accrual can change due to structural features. The rate shown is the rate in effect at June 30, 2007. |
(2) | Securities that may be resold in transactions exempt from registration under Rule 144A of the Securities Act of 1933, normally to certain qualified buyers. At June 30, 2007 the aggregate market value of these securities amounted to $1,169,254 representing 4.4% of net assets. These securities have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
(3) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
| | |
| 14 | | RS LOW DURATION BOND VIP SERIES |
| | |
| | Financial Information — RS Low Duration Bond VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 26,931,881 | |
Cash and cash equivalents | | | 769 | |
Interest receivable | | | 199,704 | |
Receivable for fund shares subscribed | | | 1,419 | |
Prepaid expenses | | | 593 | |
| | | | |
Total Assets | | | 27,134,366 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 688,100 | |
Payable to adviser | | | 9,757 | |
Deferred trustees’ compensation | | | 839 | |
Accrued expenses/other liabilities | | | 7,851 | |
| | | | |
Total Liabilities | | | 706,547 | |
| | | | |
Total Net Assets | | $ | 26,427,819 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 26,440,648 | |
Accumulated undistributed net investment income | | | 583,411 | |
Accumulated net realized loss from investments | | | (399,326 | ) |
Net unrealized depreciation on investments | | | (196,914 | ) |
| | | | |
Total Net Assets | | $ | 26,427,819 | |
| | | | |
| |
Investments, at Cost | | $ | 27,128,795 | |
| | | | |
| |
Pricing of Shares | | | | |
Shares of beneficial interest outstanding with no par value | | | 2,638,705 | |
Net Asset Value Per Share | | | $10.02 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 672,558 | |
| | | | |
Total Investment Income | | | 672,558 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 59,114 | |
Custodian fees | | | 17,953 | |
Professional fees | | | 6,123 | |
Shareholder reports | | | 4,393 | |
Trustees’ fees and expenses | | | 751 | |
Insurance expense | | | 692 | |
Administrative service fees | | | 388 | |
Other expense | | | 558 | |
| | | | |
Total Expenses before custody credits | | | 89,972 | |
Less: Custody credits | | | (1,025 | ) |
| | | | |
Expenses Net of Custody Credits | | | 88,947 | |
| | | | |
Net Investment Income | | | 583,611 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/Depreciation on Investments | | | | |
Net realized loss from investments | | | (11,717 | ) |
Net change in unrealized depreciation on investments | | | (51,936 | ) |
| | | | |
Net Loss on Investments | | | (63,653 | ) |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 519,958 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS LOW DURATION BOND VIP SERIES | | 15 |
| | |
| | Financial Information — RS Low Duration Bond VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the
Six Months Ended
06/30/07 | | | For the
Year Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 583,611 | | | $ | 1,081,938 | |
Net realized loss on investments | | | (11,717 | ) | | | (132,262 | ) |
Net change in unrealized appreciation/(depreciation) on investments | | | (51,936 | ) | | | 185,411 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 519,958 | | | | 1,135,087 | |
| | | | | | | | |
| | |
Distributions to Shareholders from: | | | | | | | | |
Net investment income | | | — | | | | (1,090,755 | ) |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 2,714,626 | | | | 5,829,576 | |
Reinvestment of distributions | | | — | | | | 1,090,755 | |
Cost of shares redeemed | | | (4,775,655 | ) | | | (6,373,779 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from
Capital Share Transactions | | | (2,061,029 | ) | | | 546,552 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | (1,541,071 | ) | | | 590,884 | |
| | |
Net Assets | | | | | | | | |
Beginning of period | | | 27,968,890 | | | | 27,378,006 | |
| | | | | | | | |
End of period | | $ | 26,427,819 | | | $ | 27,968,890 | |
| | | | | | | | |
| | |
Distributions in Excess of Net Investment Income included in Net Assets | | $ | — | | | $ | (200 | ) |
| | | | | | | | |
Accumulated Undistributed Net Investment Income included in Net Assets | | $ | 583,411 | | | $ | — | |
| | | | | | | | |
| | |
Other Information | | | | | | | | |
Shares | | | | | | | | |
Sold | | | 273,226 | | | | 590,712 | |
Reinvested | | | — | | | | 111,226 | |
Redeemed | | | (482,412 | ) | | | (646,229 | ) |
| | | | | | | | |
Net Increase | | | (209,186 | ) | | | 55,709 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 16 | | RS LOW DURATION BOND VIP SERIES |
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| | |
| RS LOW DURATION BOND VIP SERIES | | 17 |
| | |
| | Financial Information — RS Low Duration Bond VIP Series |
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 of the Fund’s operations). 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(Loss) | | | Total
Operations | | Dividends
From Net
Investment
Income | | | Distributions
From Net
Realized
Capital Gains | | | Total
Dividends
and
Distributions | |
| | | | | | | | |
Six Months Ended 06/30/071 | | $ | 9.82 | | $ | 0.22 | | $ | (0.02 | ) | | 0.20 | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
Year Ended 12/31/06 | | | 9.81 | | | 0.38 | | | 0.01 | | | 0.39 | | | (0.38 | ) | | | — | | | | (0.38 | ) |
| | | | | | | | |
Year Ended 12/31/05 | | | 9.97 | | | 0.28 | | | (0.16 | ) | | 0.12 | | | (0.28 | ) | | | — | | | | (0.28 | ) |
| | | | | | | | |
Year Ended 12/31/04 | | | 10.06 | | | 0.18 | | | (0.09 | ) | | 0.09 | | | (0.18 | ) | | | — | | | | (0.18 | ) |
| | | | | | | | |
Period From 08/28/03† to 12/31/03 | | | 10.00 | | | 0.03 | | | 0.07 | | | 0.10 | | | (0.03 | ) | | | (0.01 | ) | | | (0.04 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
| 18 | | RS LOW DURATION BOND VIP SERIES |
| | | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total
Return* | | | Net Assets, End
of Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | | Net Ratio of Net
Investment Income
to Average
Net Assets | | | Portfolio
Turnover Rate |
| | | | | |
| $10.02 | | 2.04% | | | $ | 26,428 | | 0.68% | | | 4.43% | | | 27% |
| | | | | |
| 9.82 | | 4.07% | | | | 27,969 | | 0.71% | (b)(d) | | 3.88% | (d) | | 78% |
| | | | | |
| 9.81 | | 1.25% | | | | 27,378 | | 0.79% | | | 2.94% | | | 109% |
| | | | | |
| 9.97 | | 0.91% | | | | 23,657 | | 0.81% | | | 2.11% | | | 90% |
| | | | | |
10.06 | | 0.97% | (a) | | | 10,840 | | 1.74% | (c) | | 0.93% | (c) | | 92% |
| | 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | † | Commencement of operations. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | (b) | Before offset of custody credits. Including the custody credits, the expense ratio is 0.70%. |
| | (d) | Includes the effect of expenses waived by GIS. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS LOW DURATION BOND VIP SERIES | | 19 |
| | |
| | Notes to Financial Statements — RS Low Duration Bond VIP Series |
June 30, 2007 (unaudited)
Note A. Organization and Accounting Policies
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS Low Duration Bond VIP Series (the “Fund” or “LDBV”) is a series of the Trust. LDBV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of LDBV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market
value. Repurchase agreements are carried at cost, which approximates market value (see Note D).
Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts are valued at the current cost of covering or offsetting such contracts. Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
Debt securities with more than 60 days to maturity for which quoted bid prices are, in the judgment of an independent pricing service (“Service”), readily available and representative of the bid side of the market are valued by the Service at the bid price. Debt securities with more than 60 days to maturity for which quoted bid prices are not, in the judgment of a Service, readily available and representative of the market value will be valued by the Service at estimated market value based on methods which include consideration of yields or prices of government securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions.
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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations are considered unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
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| 20 | | RS LOW DURATION BOND VIP SERIES |
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.
Dividend income is generally recorded on ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $1,025. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
Futures Contracts
LDBV may enter into financial futures contracts. In entering into such contracts, LDBV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by LDBV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins paid or received by LDBV. The daily changes in the variation margin are recognized as unrealized gains or losses by LDBV. LDBV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for LDBV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of LDBV at the net asset value recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/ (losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Funds.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as a regulated investment company and to distribute all net investment income and realized net capital gains, if any, to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was as follows:
| | | | | | |
| | | Ordinary
Income | | Return of
Capital |
2006 | | $ | 1,085,666 | | $ | 5,089 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency transactions may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated loss on a tax basis was as follows:
| | | | | | | | | |
Undistributed
Ordinary
Income | | Capital Loss Carryforward | | | Unrealized
Depreciation | |
| $ | — | | $ | (387,609 | ) | | $ | (144,978 | ) |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not
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| RS LOW DURATION BOND VIP SERIES | | 21 |
| | |
| | Notes to Financial Statements — RS Low Duration Bond VIP Series (continued) |
June 30, 2007 (unaudited)
distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year ended December 31, 2006, the Fund elected to defer $5,903 of net capital losses.
As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:
| | | | | | |
| | | Capital Loss
Carryforward | | | Expiration
Date |
| | $ | (15,848 | ) | | 2012 |
| | | (220,126 | ) | | 2013 |
| | | (145,732 | ) | | 2014 |
| | | | | | |
| Total | | $ | (381,706 | ) | | |
| | | | | | |
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, LDBV pays RS Investment Management Co. LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 0.45% of LDBV’s average daily net assets.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments. As compensation for GIS’s services, RS Investments pays fees to GIS at an annual rate of 0.4275% of the average daily net assets of LDBV. Payment of the sub-advisory fees does not represent a separate or additional expense to the Fund.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009, to limit LDBV’s total annual operating expenses (excluding interest expense associated with reverse repurchase agreements and securities lending) from exceeding 0.70% of the average daily net assets at LDBV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $8,505,012 and $7,061,798, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June 30, 2007 aggregated $23,982 and $220,896, respectively, resulting in net unrealized depreciation of $196,914. The cost of investments owned at June 30, 2007 for federal income tax purposes was $27,128,795.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, LDBV will typically require the seller to deposit additional collateral by the next business day. If the request for additional
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| 22 | | RS LOW DURATION BOND VIP SERIES |
collateral is not met, or the seller defaults, LDBV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, all repurchase agreements held by the Fund had been entered into on June 29, 2007.
| Note E. | | Reverse Repurchase Agreements |
LDBV may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short- term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time LDBV enters into a reverse repurchase agreement, LDBV segregates on its books cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by LDBV may be unable to deliver the securities when LDBV seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in LDBV’s net asset value and may be viewed as a form of leverage.
| Note F. | | Dollar Roll Transactions |
LDBV may enter into dollar rolls (principally using TBAs) in which LDBV sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an agreed-upon price on a fixed date in a future month. The securities repurchased will bear the same interest as those sold, but generally will be collateralized at the time of delivery by different pools of mortgages with different prepayment histories than those securities sold. During the period between the sale and repurchase, the Fund will not be entitled to receive principal and interest payments on the securities sold. LDBV is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the “drop”), as well as by the interest earned on the cash proceeds of the initial sale. Dollar roll transactions involve the risk that the buyer of the securities sold by LDBV may be unable to deliver the replacement securities when it is required to do so. Dollar rolls may increase fluctuations in LDBV’s net asset value and may be viewed as a form of leverage.
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| RS LOW DURATION BOND VIP SERIES | | 23 |
| Note G. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for LDBV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 273,226 | | | 590,712 | | | $ | 2,714,626 | | | $ | 5,829,576 | |
Shares issued in reinvestment of dividends | | — | | | 111,226 | | | | — | | | | 1,090,755 | |
Shares repurchased | | (482,412 | ) | | (646,229 | ) | | | (4,775,655 | ) | | | (6,373,779 | ) |
| | | | | | | | | | | | | | | |
Net increase/(decrease) | | (209,186 | ) | | 55,709 | | | $ | (2,061,029 | ) | | $ | 546,552 | |
| | | | | | | | | | | | | | | |
| Note H. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
| | |
| | Notes to Financial Statements — RS Low Duration Bond VIP Series (continued) |
June 30, 2007 (unaudited)
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note J. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments receive compensation and reimbursement of expenses.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of under-takings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement
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| 24 | | RS LOW DURATION BOND VIP SERIES |
agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that
fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
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| RS LOW DURATION BOND VIP SERIES | | 25 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at
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| 26 | | RS LOW DURATION BOND VIP SERIES |
improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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| RS LOW DURATION BOND VIP SERIES | | 27 |
RS Variable Products Trust
RS High Yield Bond VIP Series
| | |
| 6.30.07 | |  |
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 | | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or Guardian Investor Services LLC. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS High Yield Bond VIP Series |
| | |
 | | Ho Wang (Guardian Investor Services) has managed RS High Yield Bond VIP Series since April 2006*. Before joining Guardian Life as a managing director in March 2006, Mr. Wang served as senior portfolio manager, high yield for seven years at Muzinich & Co., Inc. managing a high-yield total return portfolio. He earned a B.A. in political science and economics from Queens College and an M.B.A. from St. John’s University. |
| * | Includes service as the portfolio manager of the Fund’s predecessor fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
Fund Philosophy
RS High Yield Bond VIP Series seeks current income by investing in debt securities rated below investment grade, commonly known as “high yield” securities or “junk bonds”. Capital appreciation is a secondary objective.
Investment Process
The Fund normally invests at least 80% of the Fund’s net assets in debt securities that, at the time of purchase, are rated below investment grade by nationally recognized statistical ratings organizations or, if unrated, have been determined by Guardian Investor Services LLC (GIS) to be of comparable quality. The investment team considers several factors in purchasing and selling securities, such as issuer’s earnings patterns, financial history, management and general prospects, relative to the price of the security.
Performance
The RS High Yield Bond VIP Series returned 0.12% in the second quarter of 2007 and 2.60% for the first half of the year. The Fund underperformed its benchmark, the Lehman Brothers U.S. Corporate High Yield Index3 (the “Index”) by 0.10% in the second quarter. The benchmark returned 2.87% for the six months ended June 30, 2007.
Year-to-date, high-yield bonds outperformed other fixed-income instruments. Similar to the first quarter, the high-yield market recorded positive returns in the first two months of the quarter. We believe that a continued appetite for risk is reflected in the lower-quality sector (bonds rated Caa or below), returning 3.28% during the period. In the second quarter, we observed elevated concerns regarding the subprime mortgage market, possible hedge fund liquidations, and a large forward new-issue calendar, which resulted in increased volatility in June and a reversal of the first two months’ positive returns. After recording a positive return of 2.06% for April and May, the high-yield market was down -1.80% in June as measured by the Index.
The high yield primary market is volatile. During the second quarter, $57 billion of new issuance was priced, with leveraged buyout transactions accounting for a large percentage of this issuance. Year to date, issuance has exceeded $96 billion. We think that the high-yield market is poised to surpass the record amount of new issuance seen in 2006.
Portfolio Review
The economic data in the second quarter dashed investors’ hopes of another rate cut by the Federal Reserve Board (the “Fed”). The Fed remained on hold during the quarter, leaving the federal funds rate unchanged at 5.25%. The Treasury market took on a more bullish tone in the second half of June as the market started pricing in some probability of an easing by year-end. The yields of various Treasuries became sharply higher over the quarter. As a result, the slope of the yield curve continued its steepening trend from the first quarter to a more normal condition, where longer-maturity yields are greater than short ones.
The automotive sector outperformed the Index in the second quarter by 2.14%, as the resolution of the Delphi/United Auto Workers (UAW) talks, strong overseas sales, and a weak U.S. dollar buoyed the sector. The automotive sector accounts for 8.98% of the Index, but only 7.15% of the Fund. Currently, Ford Motor
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| RS HIGH YIELD BOND VIP SERIES | | 3 |
| | |
| | RS High Yield Bond VIP Series (continued) |
Credit Company is the Fund’s largest single holding, constituting 4.77% as of June 30, 2007.
We were concerned about the effects of the weak U.S. housing market on the automotive sector, and our fears turned out to be true, as North American new car sales slumped during the first half of the year to levels not seen since 1999. We have increased the Fund’s exposure to the automotive sector selectively, as we believe that the recent signs of stabilization of market share at General Motors and Ford’s re-financing remain strong positives. However, we expect that the Fund will stay underweighted in the sector, as we believe that there is still potential for a major UAW strike in September and continued low North American auto sales may lead to production cutbacks in the second half of 2007.
Paper was an underperforming sector in the second quarter, returning -0.75%. The Fund’s holdings in this sector reduced the Fund’s overall return by 0.05%. Contributing to the underperformance was the Fund’s exposure to Canadian paper companies, Abitibi Consolidated and Catalyst Paper. Costs for these companies increased materially during the quarter, stemming from an 8% rally in the Canadian dollar, while selling prices for a principle product - newsprint - continued a downward slide from the first quarter. However, we believe the positions the Fund holds are defensive in nature, given their high coupon and short maturities in 2010 and 2011. In addition, the proposed merger between Abitibi Consolidated and Bowater, two major newsprint producers, is expected to close in the third quarter, resulting in a credit enhancement opportunity through potential synergies and a platform for further newsprint capacity rationalization.
The Fund has an overweight position in Graphic Packaging 9.5% senior subordinated notes due 2013 that will become callable in August 2008. As the overall high- yield market corrected in the second half of June, the market determined that calling these bonds and refinancing at a materially lower coupon rate was less likely. We believe that this company offers stability throughout the economic cycle given its staggered contract and cost pass-through characteristics. Furthermore, we are encouraged by the company’s ability to generate free cash flow that continues to be directed toward debt reduction. As a result, we are currently comfortable holding our overweight position in this credit while collecting a 9.5% coupon.
Although the Fund is overweighted in paper, we do not view the overall sector as extremely attractive. Our focus is on opportunities within the sector that are event driven. We want to take advantage of consolidation activities while steering clear of companies producing lumber and other wood products that supply the housing industry. We are therefore looking to maximize returns without taking on material risk, hence the short maturity, and defensive dynamics of the Abitibi Consolidated and Catalyst Paper positions.
Transportation services was one of the top-performing sectors for the Fund, with a 1.41% return for the second quarter vs. a 0.22% return for the Index. The sector is dominated by petroleum and dry bulk shipping companies, whose fundamentals we think will remain stable and the outlook for which we believe remains positive. The transportation services sector outperformed Treasuries by 1.52% for the quarter. In our view, leveraged buyout speculation, mergers and debt refinancing activity were primary drivers of outperformance during the second quarter.
On May 31, 2007, OMI Corporation, a petroleum tanker company, was acquired by two competitors and offered to repurchase its outstanding debt at a five-point premium above the market price on the date of the announcement. The Fund had an overweight position in OMI relative to the Index.
Avis Budget Group, the Fund’s largest holding in the sector, remains the subject of speculation of a buyout by private equity. Because of covenant restrictions under the outstanding notes issued by the company last year, it is thought that the debt would likely be taken out to finance any transaction related to going private. This speculation has caused significant appreciation in the market value of the notes. The Fund had an overweight position in Avis relative to the Index.
On a credit quality basis, lower-rated securities outperformed higher-rated securities during the second
| | |
| 4 | | RS HIGH YIELD BOND VIP SERIES |
quarter, continuing the first-quarter trend. The lower quality Caa sector of the Index returned 1.28% on a nominal basis, outperforming the higher quality Ba and B sectors, which returned -0.54% and 0.36%, respectively. Year-to-date the Caa sector returned 5.51% vs.1.21% and 3.08% for the Ba and B sectors. During the second quarter, the Fund was underweighted in securities with a credit rating of Caa and lower relative to the Index (14.30% for the Fund vs. 20.17% for the Index). We believe this underweighting of the Caa sector hurt Fund performance by 0.05% in the second quarter. Given the historically tight credit spreads in high yield and the uncertainties in the credit cycle, however, we continue to feel it prudent to manage the portfolio with this conservative bias.
Outlook
We believe that monetary policy, inflation, labor markets, energy, and housing will remain the key drivers of the high-yield market for the second half of 2007. The release of mixed economic data in the first and second quarters coupled with the continued housing slowdown, escalation of the leveraged buyout phenomenon, increased mergers-and-acquisitions activity, decelerating corporate earnings growth, and subprime lending concerns point to a more cautious economic stance. Although we remain positive on the fundamentals given low default rates in the high-yield market at this time, data indicating a slowdown in housing and economic growth as well as subprime lending practices and their effect on the economy raise our level of concerns.
We believe that liquidity will not be as ample as before, but we expect to see continued participation from a diverse investment group such as hedge funds, international investors, and high-grade investors. However, the high level of issuance expected for the remainder of the year gives us caution. The level of leverage and the degree of covenants are important factors for us to monitor closely.
For the second half of the year, we think that the economic environment will affect the high-yield market’s performance and credit spreads. Lower freight rates, a decrease in paper container volume, and a slowdown in earnings and cash flow argue for slowing economic growth. Low default rates, inactive monetary policy and abundant liquidity provide a counterbalance from higher Treasury rates, tight spreads, and an elevated new-issue calendar. If the credit cycle turns and a slower economy takes hold in the second half of 2007, we believe both an increasing default rate and decelerating earnings growth may occur. While we currently remain positive on the fundamentals of the high-yield market, we are concerned that the slower growth in the economy and earnings could change this dynamic. We therefore continue to seek to structure the portfolio conservatively on a credit quality basis and are closely monitoring both individual credits and economic trends.
Thank you for your continued support.
Ho Wang
Portfolio Manager
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
Bond funds are subject to interest rate risk, credit risk, and prepayment risk. When interest rates rise, bond prices generally fall, and when interest rates fall, bond prices generally rise. Currently, interest rates are at relatively low levels. Please keep in mind that in this kind of environment, the risk that bond prices may fall when interest rates rise is potentially greater. High yield bond investing includes special risks. Investments in lower rated and unrated debt securities are subject to a greater loss of principal and interest than investments in higher rated securities. The values of mortgage-backed securities depend on the credit quality and adequacy of the underlying assets or collateral and may be highly volatile.
| | |
| RS HIGH YIELD BOND VIP SERIES | | 5 |
| | |
| | RS High Yield Bond VIP Series (continued) |
| | |
| Assets Under Management: $65,068,759 | | Data as of June 30, 2007 |
| | |
 | | Bond Quality1 |
| | |
| | Top Ten Holdings 2 |
| | | | | | |
| | | | |
| Company | | Coupon | | Maturity Date | | Percentage of Total Net Assets |
Lyondell Chemical Co. | | 10.875% | | 05/01/2009 | | 3.90% |
Dow Jones Credit Default Index | | 7.500% | | 06/29/2012 | | 2.40% |
General Motors Acceptance Corp. | | 6.750% | | 12/01/2014 | | 2.24% |
Ford Motor Credit Co. | | 7.250% | | 10/25/2011 | | 1.76% |
Charter Communications Holdings II LLC | | 10.250% | | 09/15/2010 | | 1.46% |
HCA, Inc. | | 9.250% | | 11/15/2016 | | 1.42% |
Block Communications, Inc. | | 8.250% | | 12/15/2015 | | 1.37% |
MGM Mirage, Inc. | | 7.500% | | 06/01/2016 | | 1.36% |
Harrahs Operating Co., Inc. | | 6.500% | | 06/01/2016 | | 1.33% |
IndyMac Bank FSB | | N/A | | N/A | | 1.24% |
Total | | | | | | 18.48% |
1 | Source: Standard and Poor’s Ratings or equivalent rating. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
| | |
| 6 | | RS HIGH YIELD BOND VIP SERIES |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | | | |
| | | | | | | |
| | | Inception
Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | Since
Inception |
RS High Yield Bond VIP Series | | 09/13/99 | | 2.60% | | 10.75% | | 7.69% | | 8.77% | | 5.42% |
Lehman Brothers U.S. Corporate High Yield Bond Index3 | | | | 2.87% | | 11.55% | | 9.03% | | 11.91% | | 6.82% |
3 | The Lehman Brothers Corporate High Yield Index is an unmanaged index that is generally considered to be representative of the investable universe of the U.S. dollar-denominated high-yield debt market. Unlike the Fund, the index does not incur fees or expenses. |
| | |
| | Results of a Hypothetical $10,000 Investment If invested on 09/13/99 |
The chart above shows the performance of a hypothetical $10,000 investment made in RS High Yield Bond VIP Series and the Lehman Brothers U.S. Corporate High Yield Bond Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian VC High Yield Bond Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.75%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect an expense limitation in effect during the periods shown; without such limitation, the performance shown would have been lower. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
| RS HIGH YIELD BOND VIP SERIES | | 7 |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Funds’ 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period* 01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,026.00 | | $3.77 | | 0.75% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,021.07 | | $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). |
| | |
| 8 | | RS HIGH YIELD BOND VIP SERIES |
| | |
| | Schedule of Investments – RS High Yield Bond VIP Series |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Corporate Bonds — 89.6% | |
| Aerospace & Defense — 2.1% | |
Alion Science and Technology Corp. | | | | | | | | | |
Sr. Nt.
10.25% due 2/1/2015 | | B3/CCC+ | | $ | 150,000 | | $ | 154,875 | |
Communications & Power Industries, Inc. | | | | | | | | | |
Sr. Sub. Nt.
8.00% due 2/1/2012 | | B2/B– | | | 370,000 | | | 373,700 | |
DRS Technologies, Inc. | | | | | | | | | |
Sr. Sub. Nt.
7.625% due 2/1/2018 | | B3/B | | | 442,000 | | | 446,420 | |
L-3 Communications Corp. | | | | | | | | | |
Sr. Sub. Nt. | | | | | | | | | |
5.875% due 1/15/2015 | | Ba3/BB+ | | | 130,000 | | | 120,575 | |
6.125% due 7/15/2013 | | Ba3/BB+ | | | 150,000 | | | 141,750 | |
6.375% due 10/15/2015 | | Ba3/BB+ | | | 150,000 | | | 141,750 | |
| | | | | | | | | |
| | | | | | | | 1,379,070 | |
| Automotive — 6.8% | |
American Axle & Manufacturing, Inc. | | | | | | | | | |
Sr. Nt.
7.875% due 3/1/2017 | | Ba3/BB | | | 100,000 | | | 98,250 | |
Ford Motor Credit Co. | | | | | | | | | |
Nt.
6.75% due 8/15/2008 | | B1/B | | | 700,000 | | | 696,146 | |
Sr. Nt. | | | | | | | | | |
7.25% due 10/25/2011 | | B1/B | | | 1,190,000 | | | 1,145,294 | |
8.00% due 12/15/2016 | | B1/B | | | 300,000 | | | 287,354 | |
9.75% due 9/15/2010 | | B1/B | | | 457,000 | | | 477,193 | |
9.875% due 8/10/2011 | | B1/B | | | 430,000 | | | 451,342 | |
General Motors Corp. | | | | | | | | | |
Sr. Deb.
8.375% due 7/15/2033 | | Caa1/B– | | | 810,000 | | | 739,125 | |
Goodyear Tire & Rubber Co. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
8.625% due 12/1/2011(1) | | Ba3/B | | | 72,000 | | | 75,780 | |
9.135% due 12/1/2009(1)(2) | | Ba3/B | | | 110,000 | | | 110,275 | |
TRW Automotive, Inc. | | | | | | | | | |
7.25% due 3/15/2017(1) | | Ba3/BB– | | | 338,000 | | | 321,945 | |
| | | | | | | | | |
| | | | | | | | 4,402,704 | |
| Building Materials — 1.4% | |
Mueller Water Products, Inc. | | | | | | | | | |
Sr. Sub. Nt.
7.375% due 6/1/2017(1) | | B3/B | | | 107,000 | | | 106,102 | |
Norcraft Cos. LP | | | | | | | | | |
Sr. Sub. Nt.
9.00% due 11/1/2011 | | B1/B– | | | 375,000 | | | 387,187 | |
U.S. Concrete, Inc. | | | | | | | | | |
Sr. Sub. Nt.
8.375% due 4/1/2014 | | B2/B– | | | 385,000 | | | 384,038 | |
| | | | | | | | | |
| | | | | | | | 877,327 | |
| Chemicals — 5.5% | |
Equistar Chemicals LP | | | | | | | | | |
Sr. Nt.
10.125% due 9/1/2008 | | B1/BB– | | | 311,000 | | | 323,440 | |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Chemicals (continued) | |
Huntsman International LLC | | | | | | | | | |
Sr. Sub. Nt.
7.875% due 11/15/2014 | | B2/B | | $ | 130,000 | | $ | 139,262 | |
Koppers, Inc. | | | | | | | | | |
Sr. Nt.
9.875% due 10/15/2013 | | B2/B | | | 298,000 | | | 318,115 | |
Lyondell Chemical Co. | | | | | | | | | |
Sr. Sub. Nt.
10.875% due 5/1/2009 | | B2/B | | | 2,538,000 | | | 2,538,000 | |
Momentive Performance Materials, Inc. | | | | | | | | | |
Sr. Nt.
9.75% due 12/1/2014(1) | | B3/B– | | | 260,000 | | | 262,600 | |
| | | | | | | | | |
| | | | | | | | 3,581,417 | |
| Construction Machinery — 1.8% | |
Ashtead Capital, Inc. | | | | | | | | | |
Nt.
9.00% due 8/15/2016(1) | | B3/B | | | 255,000 | | | 267,113 | |
Ashtead Holdings PLC | | | | | | | | | |
Sr. Nt.
8.625% due 8/1/2015(1) | | B3/B | | | 170,000 | | | 173,400 | |
Neff Corp. | | | | | | | | | |
Sr. Nt.
10.00% due 6/1/2015(1) | | Caa2/B– | | | 110,000 | | | 109,725 | |
Rental Service Corp. | | | | | | | | | |
Sr. Nt.
9.50% due 12/1/2014(1) | | Caa1/B– | | | 30,000 | | | 30,600 | |
Titan International, Inc. | | | | | | | | | |
Sr. Nt.
8.00% due 1/15/2012 | | B3/B | | | 120,000 | | | 123,300 | |
United Rentals NA, Inc. | | | | | | | | | |
Sr. Sub. Nt.
7.75% due 11/15/2013 | | B3/B | | | 448,000 | | | 448,560 | |
| | | | | | | | | |
| | | | | | | | 1,152,698 | |
| Consumer Products — 2.0% | |
Easton-Bell Sports, Inc. | | | | | | | | | |
Sr. Sub. Nt.
8.375% due 10/1/2012 | | B3/B– | | | 382,000 | | | 376,270 | |
Elizabeth Arden, Inc. | | | | | | | | | |
Sr. Sub. Nt.
7.75% due 1/15/2014 | | B1/B– | | | 555,000 | | | 559,162 | |
Jarden Corp. | | | | | | | | | |
Sr. Sub. Nt.
7.50% due 5/1/2017 | | B3/B– | | | 375,000 | | | 370,313 | |
| | | | | | | | | |
| | | | | | | | 1,305,745 | |
| Diversified Manufacturing — 0.3% | |
Baldor Electric Co. | | | | | | | | | |
Sr. Nt.
8.625% due 2/15/2017 | | B3/B | | | 120,000 | | | 126,900 | |
ESCO Corp. | | | | | | | | | |
Sr. Nt.
8.625% due 12/15/2013(1) | | B2/B | | | 65,000 | | | 68,250 | |
| | | | | | | | | |
| | | | | | | | 195,150 | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS HIGH YIELD BOND VIP SERIES | | 9 |
| | |
| | Schedule of Investments – RS High Yield Bond VIP Series (continued) |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Electric — 2.5% | | | | | | | | | |
Dynegy Holdings, Inc. | | | | | | | | | |
Sr. Nt.
7.75% due 6/1/2019(1) | | B2/B– | | $ | 340,000 | | $ | 316,200 | |
Edison Mission Energy | | | | | | | | | |
Sr. Nt.
7.00% due 5/15/2017(1) | | B1/BB– | | | 270,000 | | | 254,475 | |
NRG Energy, Inc. | | | | | | | | | |
Sr. Nt.
7.375% due 1/15/2017 | | B1/B | | | 260,000 | | | 260,975 | |
Reliant Energy, Inc. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
7.625% due 6/15/2014 | | B3/B– | | | 270,000 | | | 263,250 | |
7.875% due 6/15/2017 | | B3/B– | | | 135,000 | | | 131,287 | |
Sierra Pacific Resources | | | | | | | | | |
Sr. Nt.
8.625% due 3/15/2014 | | B1/B | | | 390,000 | | | 418,592 | |
| | | | | | | | | |
| | | | | | | | 1,644,779 | |
| Energy — 6.5% | |
Allis-Chalmers Energy, Inc. | | | | | | | | | |
Sr Nt.
9.00% due 1/15/2014 | | B2/B | | | 210,000 | | | 213,675 | |
Basic Energy Services, Inc. | | | | | | | | | |
Sr. Nt.
7.125% due 4/15/2016 | | B1/B | | | 170,000 | | | 162,350 | |
Belden & Blake Corp. | | | | | | | | | |
Sr. Sec. Nt.
8.75% due 7/15/2012 | | Caa2/B | | | 170,000 | | | 174,250 | |
Chaparral Energy, Inc. | | | | | | | | | |
Sr. Nt.
8.50% due 12/1/2015 | | Caa1/CCC+ | | | 665,000 | | | 650,037 | |
Chesapeake Energy Corp. | | | | | | | | | |
Sr. Nt.
7.625% due 7/15/2013 | | Ba2/BB | | | 255,000 | | | 261,375 | |
Cimarex Energy Co. | | | | | | | | | |
Sr. Nt.
7.125% due 5/1/2017 | | B1/BB– | | | 215,000 | | | 209,625 | |
Compagnie Generale de Geophysique-Veritas | | | | | | | | | |
Sr. Nt.
7.75% due 5/15/2017 | | Ba3/B+ | | | 65,000 | | | 65,813 | |
Complete Production Services, Inc. | | | | | | | | | |
Sr. Nt.
8.00% due 12/15/2016(1) | | B2/B | | | 130,000 | | | 131,300 | |
Encore Acquisition Co. | | | | | | | | | |
Sr. Sub. Nt.
7.25% due 12/1/2017 | | B1/B | | | 450,000 | | | 414,000 | |
Energy Partners Ltd. | | | | | | | | | |
Sr. Nt.
9.75% due 4/15/2014(1) | | Caa1/B– | | | 430,000 | | | 426,775 | |
Hanover Compressor Co. | | | | | | | | | |
Sr. Nt.
7.50% due 4/15/2013 | | B2/B | | | 85,000 | | | 85,425 | |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Energy (continued) | |
Hilcorp Energy I LP | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
7.75% due 11/1/2015(1) | | B3/B | | $ | 125,000 | | $ | 121,250 | |
9.00% due 6/1/2016(1) | | B3/B | | | 170,000 | | | 175,950 | |
Mariner Energy, Inc. | | | | | | | | | |
Sr. Nt.
8.00% due 5/15/2017 | | B3/B– | | | 215,000 | | | 213,388 | |
OPTI Canada, Inc. | | | | | | | | | |
Sr. Sec. Nt. | | | | | | | | | |
7.875% due 12/15/2014(1) | | B1/BB+ | | | 150,000 | | | 150,000 | |
8.25% due 12/15/2014(1) | | B1/BB+ | | | 65,000 | | | 65,975 | |
Pride International, Inc. | | | | | | | | | |
Sr. Nt.
7.375% due 7/15/2014 | | Ba2/BB– | | | 168,000 | | | 168,420 | |
Western Oil Sands, Inc. | | | | | | | | | |
8.375% due 5/1/2012 | | Ba2/BBB | | | 222,000 | | | 242,812 | |
Whiting Petroleum Corp. | | | | | | | | | |
Sr. Sub. Nt.
7.00% due 2/1/2014 | | B1/B | | | 300,000 | | | 282,000 | |
| | | | | | | | | |
| | | | | | | | 4,214,420 | |
| Energy-Refining — 0.4% | |
Petroplus Finance Ltd. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
6.75% due 5/1/2014(1) | | B1/BB– | | | 75,000 | | | 72,188 | |
7.00% due 5/1/2017(1) | | B1/BB– | | | 210,000 | | | 202,125 | |
| | | | | | | | | |
| | | | | | | | 274,313 | |
| Entertainment — 0.3% | |
Snoqualmie Entertainment Authority | | | | | | | | | |
Nt.
9.125% due 2/1/2015(1) | | B3/B | | | 215,000 | | | 220,375 | |
| | | | | | | | | |
| | | | | | | | 220,375 | |
| Environmental — 0.4% | |
Allied Waste NA, Inc. | | | | | | | | | |
Sr. Nt.
7.875% due 4/15/2013 | | B1/BB+ | | | 250,000 | | | 252,813 | |
| | | | | | | | | |
| | | | | | | | 252,813 | |
| Food & Beverage — 3.2% | |
Aramark Corp. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
8.50% due 2/1/2015(1) | | B3/B– | | | 228,000 | | | 231,990 | |
8.856% due 2/1/2015(1)(2) | | B3/B– | | | 108,000 | | | 109,620 | |
ASG Consolidated LLC | | | | | | | | | |
Sr. Disc. Nt.
0.00/11.50% due 11/1/2011(3) | | B3/B– | | | 420,000 | | | 390,600 | |
Constellation Brands, Inc. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
7.25% due 9/1/2016 | | Ba3/BB– | | | 510,000 | | | 497,250 | |
7.25% due 5/15/2017(1) | | Ba3/BB– | | | 270,000 | | | 263,250 | |
Michael Foods, Inc. | | | | | | | | | |
Sr. Sub. Nt.
8.00% due 11/15/2013 | | B3/B– | | | 580,000 | | | 585,800 | |
| | | | | | | | | |
| | | | | | | | 2,078,510 | |
The accompanying notes are an integral part of these financial statements.
| | |
| 10 | | RS HIGH YIELD BOND VIP SERIES |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Gaming — 7.1% | |
Boyd Gaming Corp. | | | | | | | | | |
Sr. Sub. Nt. | | | | | | | | | |
6.75% due 4/15/2014 | | Ba3/B+ | | $ | 510,000 | | $ | 499,800 | |
7.125% due 2/1/2016 | | Ba3/B+ | | | 340,000 | | | 329,800 | |
Buffalo Thunder Development Authority | | | | | | | | | |
Sr. Sec. Nt.
9.375% due 12/15/2014(1) | | B2/B | | | 110,000 | | | 110,000 | |
Fontainebleau Las Vegas Holdings LLC | | | | | | | | | |
Nt.
10.25% due 6/15/2015(1) | | Caa1/CCC+ | | | 135,000 | | | 132,975 | |
Great Canadian Gaming Corp. | | | | | | | | | |
Sr. Sub. Nt.
7.25% due 2/15/2015(1) | | B2/B+ | | | 110,000 | | | 109,450 | |
Harrahs Operating Co., Inc. | | | | | | | | | |
Nt.
6.50% due 6/1/2016 | | Baa3/BB | | | 1,040,000 | | | 868,400 | |
MGM Mirage, Inc. | | | | | | | | | |
Sr. Nt.
7.50% due 6/1/2016 | | Ba2/BB | | | 930,000 | | | 882,337 | |
Pokagon Gaming Authority | | | | | | | | | |
Sr. Nt.
10.375% due 6/15/2014(1) | | B3/B | | | 170,000 | | | 187,425 | |
Seminole Hard Rock Entertainment, Inc. | | | | | | | | | |
Sr. Sec. Nt.
7.86% due 3/15/2014(1)(2) | | B1/BB | | | 60,000 | | | 60,450 | |
Seneca Gaming Corp. | | | | | | | | | |
Sr. Nt.
7.25% due 5/1/2012 | | Ba2/BB | | | 685,000 | | | 694,419 | |
Station Casinos, Inc. | | | | | | | | | |
Sr. Sub. Nt.
6.875% due 3/1/2016 | | Ba3/B | | | 625,000 | | | 551,563 | |
Turning Stone Resort Casino Enterprise | | | | | | | | | |
Sr. Nt.
9.125% due 9/15/2014(1) | | B1/B+ | | | 170,000 | | | 172,975 | |
| | | | | | | | | |
| | | | | | | | 4,599,594 | |
| Health Care — 6.5% | |
Alliance Imaging, Inc. | | | | | | | | | |
Sr. Sub. Nt.
7.25% due 12/15/2012 | | B3/B– | | | 540,000 | | | 523,800 | |
Fresenius Medical Care Capital | | | | | | | | | |
Tr.
7.875% due 6/15/2011 | | B1/B+ | | | 310,000 | | | 320,850 | |
HCA, Inc. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
6.25% due 2/15/2013 | | Caa1/B– | | | 340,000 | | | 306,850 | |
6.50% due 2/15/2016 | | Caa1/B– | | | 430,000 | | | 363,888 | |
Sr. Sec. Nt. | | | | | | | | | |
9.125% due 11/15/2014(1) | | B2/BB– | | | 375,000 | | | 394,219 | |
9.25% due 11/15/2016(1) | | B2/BB– | | | 870,000 | | | 926,550 | |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Health Care (continued) | |
PTS Acquisition Corp. | | | | | | | | | |
Sr. Nt.
9.50% due 4/15/2015(1) | | Caa1/B– | | $ | 405,000 | | $ | 397,912 | |
Triad Hospitals, Inc. | | | | | | | | | |
Sr. Sub. Nt.
7.00% due 11/15/2013 | | B2/B+ | | | 700,000 | | | 735,839 | |
US Oncology, Inc. | | | | | | | | | |
Sr. Sub. Nt.
10.75% due 8/15/2014 | | B2/B– | | | 250,000 | | | 267,500 | |
| | | | | | | | | |
| | | | | | | | 4,237,408 | |
| Home Construction — 0.7% | |
K. Hovnanian Enterprises, Inc. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
6.25% due 1/15/2016 | | Ba3/BB | | | 170,000 | | | 144,500 | |
8.625% due 1/15/2017 | | Ba3/BB | | | 85,000 | | | 81,600 | |
Meritage Homes Corp. | | | | | | | | | |
Sr. Nt.
6.25% due 3/15/2015 | | Ba2/BB | | | 270,000 | | | 240,300 | |
| | | | | | | | | |
| | | | | | | | 466,400 | |
| Industrial – Other — 1.0% | |
Belden CDT, Inc. | | | | | | | | | |
Sr. Sub. Nt.
7.00% due 3/15/2017(1) | | Ba2/BB– | | | 135,000 | | | 132,975 | |
Education Management LLC | | | | | | | | | |
Sr. Nt.
8.75% due 6/1/2014 | | B2/CCC+ | | | 425,000 | | | 435,625 | |
Seitel, Inc. | | | | | | | | | |
Sr. Nt.
9.75% due 2/15/2014(1) | | B3/B– | | | 110,000 | | | 108,900 | |
| | | | | | | | | |
| | | | | | | | 677,500 | |
| Insurance — 0.8% | |
UnumProvident Finance Co. | | | | | | | | | |
Sr. Nt.
6.85% due 11/15/2015(1) | | Ba1/BB+ | | | 300,000 | | | 306,562 | |
USI Holdings Corp. | | | | | | | | | |
Sr. Sub. Nt.
9.75% due 5/15/2015(1) | | Caa1/CCC | | | 215,000 | | | 213,925 | |
| | | | | | | | | |
| | | | | | | | 520,487 | |
| Lodging — 1.0% | |
Host Marriott LP | | | | | | | | | |
Sr. Nt. Ser. O
6.375% due 3/15/2015 | | Ba1/BB | | | 675,000 | | | 648,000 | |
| | | | | | | | | |
| | | | | | | | 648,000 | |
| Media – Cable — 4.5% | |
Cablevision Systems Corp. | | | | | | | | | |
Sr. Nt.
8.00% due 4/15/2012 | | B3/B+ | | | 775,000 | | | 765,312 | |
Charter Communications Holdings II LLC | | | | | | | | | |
Sr. Nt.
10.25% due 9/15/2010 | | Caa2/CCC | | | 912,000 | | | 953,040 | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS HIGH YIELD BOND VIP SERIES | | 11 |
| | |
| | Schedule of Investments – RS High Yield Bond VIP Series (continued) |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Media – Cable (continued) | |
Charter Communications Operating LLC | | | | | | | | | |
Sr. Nt.
8.00% due 4/30/2012(1) | | B3/B+ | | $ | 278,000 | | $ | 281,475 | |
CSC Holdings, Inc. | | | | | | | | | |
Sr. Nt. Ser. B
7.625% due 4/1/2011 | | B2/B+ | | | 315,000 | | | 312,638 | |
Insight Communications, Inc. | | | | | | | | | |
Sr. Disc. Nt.
12.25% due 2/15/2011 | | B3/CCC+ | | | 368,000 | | | 384,560 | |
Local TV Finance LLC | | | | | | | | | |
Sr. Nt.
9.25% due 6/15/2015(1) | | Caa1/CCC+ | | | 215,000 | | | 212,850 | |
Virgin Media Finance PLC | | | | | | | | | |
Sr. Nt.
9.125% due 8/15/2016 | | B2/B– | | | 42,000 | | | 43,995 | |
| | | | | | | | | |
| | | | | | | | 2,953,870 | |
| Media – NonCable — 6.4% | |
Block Communications, Inc. | | | | | | | | | |
Sr. Nt.
8.25% due 12/15/2015(1) | | B2/B– | | | 880,000 | | | 888,800 | |
Bonten Media Acquisition Co. | | | | | | | | | |
Sr. Sub. Nt.
9.00% due 6/1/2015(1) | | Caa1/CCC+ | | | 215,000 | | | 209,625 | |
Dex Media East LLC | | | | | | | | | |
Sr. Sub. Nt.
12.125% due 11/15/2012 | | B2/B | | | 269,000 | | | 289,511 | |
EchoStar DBS Corp. | | | | | | | | | |
Sr. Nt.
6.375% due 10/1/2011 | | Ba3/BB– | | | 530,000 | | | 519,400 | |
Hughes Network Systems LLC | | | | | | | | | |
Sr. Nt.
9.50% due 4/15/2014 | | B1/B– | | | 85,000 | | | 88,825 | |
Idearc, Inc. | | | | | | | | | |
Sr. Nt.
8.00% due 11/15/2016 | | B2/B+ | | | 390,000 | | | 393,900 | |
Mediacom Broadband LLC | | | | | | | | | |
Sr. Nt.
8.50% due 10/15/2015(1) | | B3/B | | | 150,000 | | | 150,750 | |
R.H. Donnelley Corp. | | | | | | | | | |
Sr. Disc. Nt. Ser. A-1 | | | | | | | | | |
6.875% due 1/15/2013 | | B3/B | | | 119,000 | | | 112,753 | |
Sr. Disc. Nt. Ser. A-2 | | | | | | | | | |
6.875% due 1/15/2013 | | B3/B | | | 356,000 | | | 337,310 | |
R.H. Donnelley Financial Corp. I | | | | | | | | | |
Sr. Sub. Nt.
10.875% due 12/15/2012 | | B2/B | | | 285,000 | | | 303,881 | |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Media – NonCable (continued) | |
Reader’s Digest Association, Inc. | | | | | | | | | |
Sr. Sub. Nt.
9.00% due 2/15/2017(1) | | Caa1/CCC+ | | $ | 435,000 | | $ | 406,725 | |
Valassis Communications, Inc. | | | | | | | | | |
Sr. Nt.
8.25% due 3/1/2015(1) | | B3/B– | | | 500,000 | | | 487,500 | |
| | | | | | | | | |
| | | | | | | | 4,188,980 | |
| Metals & Mining — 0.4% | |
Freeport-McMoRan Copper & Gold, Inc. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
8.25% due 4/1/2015 | | Ba3/BB | | | 135,000 | | | 142,425 | |
8.375% due 4/1/2017 | | Ba3/BB | | | 135,000 | | | 144,113 | |
| | | | | | | | | |
| | | | | | | | 286,538 | |
| Natural Gas-Distributors — 0.8% | |
Amerigas Partners LP | | | | | | | | | |
Sr. Nt.
7.125% due 5/20/2016 | | B1/NR | | | 510,000 | | | 501,075 | |
| | | | | | | | | |
| | | | | | | | 501,075 | |
| Natural Gas-Pipelines — 2.0% | |
El Paso Performance-Linked | | | | | | | | | |
Tr. Nt.
7.75% due 7/15/2011(1) | | Ba3/BB | | | 170,000 | | | 175,100 | |
MarkWest Energy Partners LP | | | | | | | | | |
Sr. Nt. Ser. B
8.50% due 7/15/2016 | | B2/B | | | 510,000 | | | 518,925 | |
SemGroup LP | | | | | | | | | |
Sr. Nt.
8.75% due 11/15/2015(1) | | B1/NR | | | 600,000 | | | 603,000 | |
| | | | | | | | | |
| | | | | | | | 1,297,025 | |
| Noncaptive Consumer — 0.7% | |
ACE Cash Express, Inc. | | | | | | | | | |
Sr. Nt.
10.25% due 10/1/2014(1) | | Caa1/B– | | | 420,000 | | | 429,450 | |
| | | | | | | | | |
| | | | | | | | 429,450 | |
| Noncaptive Diversified — 2.2% | |
General Motors Acceptance Corp. | | | | | | | | | |
Nt.
6.75% due 12/1/2014 | | Ba1/BB+ | | | 1,525,000 | | | 1,460,425 | |
| | | | | | | | | |
| | | | | | | | 1,460,425 | |
| Packaging — 1.8% | |
Crown Americas LLC | | | | | | | | | |
Sr. Nt.
7.75% due 11/15/2015 | | B1/B | | | 600,000 | | | 603,000 | |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS HIGH YIELD BOND VIP SERIES |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Packaging (continued) | |
Owens-Brockway Glass Container, Inc. | | | | | | | | | |
Sr. Sec. Nt. | | | | | | | | | |
7.75% due 5/15/2011 | | Ba2/BB | | $ | 306,000 | | $ | 314,033 | |
8.875% due 2/15/2009 | | Ba2/BB | | | 248,000 | | | 252,340 | |
| | | | | | | | | |
| | | | | | | | 1,169,373 | |
| Paper & Forest Products — 4.2% | |
Abitibi-Consolidated, Inc. | | | | | | | | | |
Nt.
8.55% due 8/1/2010 | | B3/B | | | 585,000 | | | 558,675 | |
Bowater, Inc. | | | | | | | | | |
Nt.
6.50% due 6/15/2013 | | B3/B | | | 600,000 | | | 521,250 | |
Caraustar Inds., Inc. | | | | | | | | | |
Nt.
7.375% due 6/1/2009 | | Caa2/B+ | | | 510,000 | | | 484,500 | |
Catalyst Paper Corp. | | | | | | | | | |
Sr. Nt. Ser. D
8.625% due 6/15/2011 | | B2/B+ | | | 405,000 | | | 391,837 | |
Graphic Packaging International, Inc. | | | | | | | | | |
Sr. Sub. Nt.
9.50% due 8/15/2013 | | B3/B– | | | 764,000 | | | 793,605 | |
| | | | | | | | | |
| | | | | | | | 2,749,867 | |
| Retailers — 1.8% | |
Autonation, Inc. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
7.00% due 4/15/2014 | | Ba2/BB+ | | | 85,000 | | | 83,938 | |
7.356% due 4/15/2013(2) | | Ba2/BB+ | | | 40,000 | | | 39,900 | |
KAR Holdings, Inc. | | | | | | | | | |
Sr. Sub. Nt.
10.00% due 5/1/2015(1) | | Caa1/CCC | | | 430,000 | | | 419,250 | |
Michaels Stores, Inc. | | | | | | | | | |
Sr. Sub. Nt.
11.375% due 11/1/2016(1) | | Caa1/CCC | | | 260,000 | | | 271,700 | |
Rent-A-Center | | | | | | | | | |
Sr. Sub. Nt. Ser. B
7.50% due 5/1/2010 | | B2/B+ | | | 320,000 | | | 324,800 | |
| | | | | | | | | |
| | | | | | | | 1,139,588 | |
| Services — 2.4% | |
NCO Group, Inc. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
10.23% due 11/15/2013(1)(2) | | B3/B– | | | 250,000 | | | 250,625 | |
Sr. Sub. Nt. | | | | | | | | | |
11.875% due 11/15/2014(1) | | Caa1/B– | | | 130,000 | | | 134,225 | |
Realogy Corp. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
7.50% due 10/15/2016(1) | | Ba3/BB+ | | | 390,000 | | | 390,000 | |
Sr. Sub. Nt. | | | | | | | | | |
12.375% due 4/15/2015(1) | | Caa2/B– | | | 270,000 | | | 246,375 | |
Travelport LLC | | | | | | | | | |
Sr. Nt.
9.985% due 9/1/2014(2) | | B3/CCC+ | | | 510,000 | | | 529,125 | |
| | | | | | | | | |
| | | | | | | | 1,550,350 | |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Supermarkets — 0.9% | | | | | | | | | |
Delhaize America, Inc. | | | | | | | | | |
Debt.
9.00% due 4/15/2031 | | Baa3/BB+ | | $ | 314,000 | | $ | 379,359 | |
Stater Brothers Holdings | | | | | | | | | |
Sr. Nt.
7.75% due 4/15/2015(1) | | B2/B+ | | | 65,000 | | | 65,162 | |
Supervalu, Inc. | | | | | | | | | |
Sr. Nt.
7.50% due 11/15/2014 | | B1/B | | | 130,000 | | | 133,250 | |
| | | | | | | | | |
| | | | | | | | 577,771 | |
| Technology — 4.4% | | | | | | | | | |
Deluxe Corp. | | | | | | | | | |
Sr. Nt.
7.375% due 6/1/2015(1) | | Ba2/BB– | | | 43,000 | | | 42,785 | |
Freescale Semiconductor, Inc. | | | | | | | |
Sr. Nt. | | | | | | | | | |
8.875% due 12/15/2014(1) | | B1/B | | | 260,000 | | | 248,300 | |
9.125% due 12/15/2014(1) | | B1/B | | | 535,000 | | | 502,900 | |
9.235% due 12/15/2014(1)(2) | | B1/B | | | 130,000 | | | 125,450 | |
Sr. Sub. Nt. | | | | | | | | | |
10.125% due 12/15/2016(1) | | B2/B | | | 130,000 | | | 122,200 | |
Iron Mountain, Inc. | | | | | | | | | |
Sr. Sub. Nt.
8.625% due 4/1/2013 | | B3/B | | | 750,000 | | | 751,875 | |
Nortel Networks Ltd. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
9.606% due 7/15/2011(1)(2) | | B3/B– | | | 170,000 | | | 180,837 | |
10.75% due 7/15/2016(1) | | B3/B– | | | 170,000 | | | 187,850 | |
NXP BV / NXP Funding LLC | | | | | | | | | |
Sr. Sec. Nt. | | | | | | | | | |
7.875% due 10/15/2014 | | Ba2/BB+ | | | 100,000 | | | 98,500 | |
8.106% due 10/15/2013(2) | | Ba2/BB+ | | | 100,000 | | | 100,125 | |
Solectron Global Finance Ltd. | | | | | | | |
Sr. Sub. Nt.
8.00% due 3/15/2016 | | B3/B | | | 170,000 | | | 181,900 | |
SunGard Data Systems, Inc. | | | | | | | |
Sr. Nt.
9.125% due 8/15/2013 | | Caa1/B– | | | 280,000 | | | 286,650 | |
| | | | | | | | | |
| | | | | | | | 2,829,372 | |
| Tobacco — 0.8% | | | | | | | | | |
Reynolds American, Inc. | | | | | | | | | |
Sr. Sec. Nt.
7.25% due 6/1/2013 | | Ba1/BBB | | | 510,000 | | | 529,377 | |
| | | | | | | | | |
| | | | | | | | 529,377 | |
| Transportation — 0.8% | | | | | | | | | |
American Railcar Industries, Inc. | | | | | | | |
Sr. Nt.
7.50% due 3/1/2014 | | B1/BB– | | | 80,000 | | | 79,600 | |
Avis Budget Car Rental LLC | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
7.625% due 5/15/2014 | | Ba3/BB– | | | 85,000 | | | 85,850 | |
7.75% due 5/15/2016 | | Ba3/BB– | | | 255,000 | | | 260,100 | |
7.86% due 5/15/2014(2) | | Ba3/BB– | | | 85,000 | | | 86,275 | |
| | | | | | | | | |
| | | | | | | | 511,825 | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS HIGH YIELD BOND VIP SERIES | | 13 |
| | |
| | Schedule of Investments – RS High Yield Bond VIP Series (continued) |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| | | | | | | | | |
| Wireless Communications — 3.2% | |
Centennial Cellular Communications Corp. | | | | | | | | | |
Sr. Nt.
10.125% due 6/15/2013 | | B2/CCC | | $ | 215,000 | | $ | 230,587 | |
Inmarsat Finance PLC | | | | | | | | | |
Sr. Nt.
7.625% due 6/30/2012 | | Ba3/B+ | | | 222,000 | | | 229,492 | |
Intelsat Bermuda, Ltd. | | | | | | | | | |
Sr. Nt.
9.25% due 6/15/2016 | | B2/B | | | 85,000 | | | 90,313 | |
Intelsat Corp. | | | | | | | | | |
Sr. Nt.
9.00% due 6/15/2016 | | B2/B– | | | 425,000 | | | 445,187 | |
iPCS, Inc. | | | | | | | | | |
Sr. Sec. Nt.
8.605% due 5/1/2014(1)(2) | | Caa1/CCC | | | 430,000 | | | 431,075 | |
MetroPCS Wireless, Inc. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
9.25% due 11/1/2014(1) | | Caa1/CCC | | | 645,000 | | | 665,963 | |
| | | | | | | | | |
| | | | | | | | 2,092,617 | |
| Wireline Communications — 2.0% | |
Nordic Telephone Co. Holdings | | | | | | | | | |
Sr. Nt.
8.875% due 5/1/2016(1) | | B2/B | | | 170,000 | | | 180,200 | |
Qwest Corp. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
7.625% due 6/15/2015 | | Ba1/BBB– | | | 375,000 | | | 387,187 | |
7.875% due 9/1/2011 | | Ba1/BBB– | | | 340,000 | | | 354,450 | |
Windstream Corp. | | | | | | | | | |
Sr. Nt. | | | | | | | | | |
7.00% due 3/15/2019 | | Ba3/BB– | | | 110,000 | | | 105,050 | |
8.625% due 8/1/2016 | | Ba3/BB– | | | 255,000 | | | 269,663 | |
| | | | | | | | | |
| | | | | | | | 1,296,550 | |
| | | | | | | | | |
Total Corporate Bonds
(Cost $58,048,472) | | | | | | | | 58,292,763 | |
| | | |
| | | | | Shares | | Value | |
| Preferred Stocks — 1.2% | |
| Thrifts & Mortgage Finance — 1.2% | |
IndyMac Bank FSB(1) | | | | | 32,000 | | | 804,000 | |
| | | | | | | | | |
| | | | | | | | 804,000 | |
| | | | | | | | | |
Total Preferred Stocks
(Cost $800,000) | | | | | | | | 804,000 | |
| | | |
| | | Rating
Moody’s/
S&P | | Principal
Amount | | Value | |
| Indexed Securities — 2.4% | |
Dow Jones Credit Default Index
Series HY-8-T3
7.50% due 6/29/2012(1) | | B3/NR | | $ | 1,650,000 | | | 1,561,312 | |
| | | | | | | | | |
Total Indexed Securities
(Cost $1,640,088) | | | | | | | | 1,561,312 | |
| | | | | | | | | |
| June 30, 2007 (unaudited) | | | | Shares | | Value | |
| | | | | | | | | |
Other Investments – For Trustee Deferred
Compensation Plan — 0.0% | |
RS Core Equity Fund, Class Y(4) | | 1 | | $ | 55 | |
RS Emerging Growth Fund, Class Y(4) | | 5 | | | 207 | |
RS Emerging Markets Fund, Class A(4) | | 2 | | | 37 | |
RS Global Natural Resources Fund,
Class Y(4) | | 16 | | | 581 | |
RS Growth Fund, Class Y(4) | | 12 | | | 200 | |
RS Investors Fund, Class Y(4) | | 31 | | | 399 | |
RS MidCap Opportunities Fund, Class Y(4) | | 10 | | | 167 | |
RS Partners Fund, Class Y(4) | | 4 | | | 146 | |
RS Smaller Company Growth Fund,
Class Y(4) | | 5 | | | 120 | |
RS Value Fund, Class Y(4) | | 4 | | | 113 | |
| | | | | | | | | |
Total Other Investments
(Cost $1,894) | | | | | 2,025 | |
| | | |
| | | Principal
Amount | | | | Value | |
| Repurchase Agreement — 5.6% | |
State Street Bank and Trust Co.
Repurchase Agreement, 5.13%, dated 6/29/2007, maturity value of $3,647,559, due 7/2/2007, collateralized by $3,680,000 in FHLB, 6.05%, due 2/21/2017, with a value of $3,721,400 | | $ | 3,646,000 | | | | | 3,646,000 | |
| | | | | | | | | |
Total Repurchase Agreement
(Cost $3,646,000) | | | | | 3,646,000 | |
| | | | | | | | | |
Total Investments — 98.8%
(Cost $64,136,454) | | | | | 64,306,100 | |
| | | | | | | | | |
| Other Assets, Net — 1.2% | | | | | | | | 762,659 | |
| | | | | | | | | |
| Total Net Assets — 100.0% | | | | $ | 65,068,759 | |
(1) | Securities that may be resold in transactions exempt from registration under Rule 144A of the Securities Act of 1933, normally to certain qualified buyers. At June 30, 2007, the aggregate market value of these securities amounted to $18,197,065, representing 28.0% of net assets of which $16,263,803, or 25.0%, have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
(2) | Floating rate note. The rate shown is the rate in effect at June 30, 2007. |
(4) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
| | |
| 14 | | RS HIGH YIELD BOND VIP SERIES |
| | |
| | Financial Information — RS High Yield Bond VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 64,306,100 | |
Cash and cash equivalents | | | 455 | |
Interest receivable | | | 1,037,690 | |
Receivable for investments sold | | | 703,084 | |
Prepaid expenses | | | 1,542 | |
Receivable for fund shares subscribed | | | 564 | |
| | | | |
Total Assets | | | 66,049,435 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 923,227 | |
Payable to adviser | | | 32,473 | |
Payable for fund shares redeemed | | | 7,897 | |
Deferred trustees’ compensation | | | 2,025 | |
Accrued expenses/other liabilities | | | 15,054 | |
| | | | |
Total Liabilities | | | 980,676 | |
| | | | |
Total Net Assets | | $ | 65,068,759 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 67,064,735 | |
Accumulated undistributed net investment income | | | 2,376,889 | |
Accumulated net realized loss from investments | | | (4,542,511 | ) |
Net unrealized appreciation on investments | | | 169,646 | |
| | | | |
Total Net Assets | | $ | 65,068,759 | |
| | | | |
| |
Investments, at Cost | | $ | 64,136,454 | |
| | | | |
| |
Pricing of Shares | | | | |
Shares of beneficial interest outstanding with no par value | | | 7,486,577 | |
| |
Net Asset Value Per Share | | | $8.69 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 2,609,229 | |
| | | | |
Total Investment Income | | | 2,609,229 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 195,404 | |
Custodian fees | | | 28,792 | |
Professional fees | | | 9,251 | |
Shareholder reports | | | 6,795 | |
Trustees’ fees and expenses | | | 1,801 | |
Insurance expense | | | 1,642 | |
Administrative service fees | | | 977 | |
Other expense | | | 425 | |
| | | | |
Total Expenses before custody credits | | | 245,087 | |
Less: Custody credits | | | (799 | ) |
| | | | |
Total Expenses, Net | | | 244,288 | |
| | | | |
Net Investment Income | | | 2,364,941 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation (Depreciation) on Investments | | | | |
Net realized gain from investments | | | 723,510 | |
Net change in unrealized depreciation on investments | | | (1,405,889 | ) |
| | | | |
Net Loss on Investments | | | (682,379 | ) |
| | | | |
Net Increase in Net Assets
Resulting from Operations | | $ | 1,682,562 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS HIGH YIELD BOND VIP SERIES | | 15 |
| | |
| | Financial Information — RS High Yield Bond VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | | For the
Six Months Ended
06/30/07 | | | For the
Year Ended
12/31/06 | |
Operations | | | | | | | | |
Net investment income | | $ | 2,364,941 | | | $ | 4,518,057 | |
Net realized gain from investments | | | 723,510 | | | | 385,786 | |
Net change in unrealized appreciation/(depreciation) on investments | | | (1,405,889 | ) | | | 799,042 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 1,682,562 | | | | 5,702,885 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (4,517,672 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 3,316,382 | | | | 8,115,873 | |
Reinvestment of distributions | | | — | | | | 4,517,672 | |
Cost of shares redeemed | | | (4,288,053 | ) | | | (13,351,000 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Capital Share Transactions | | | (971,671 | ) | | | (717,455 | ) |
| | | | | | | | |
Net Increase in Net Assets | | | 710,891 | | | | 467,758 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 64,357,868 | | | | 63,890,110 | |
| | | | | | | | |
End of period | | $ | 65,068,759 | | | $ | 64,357,868 | |
| | | | | | | | |
| | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | | $2,376,889 | | | | $11,948 | |
| | | | | | | | |
| | |
Other Information | | | | | | | | |
| | |
Shares | | | | | | | | |
| | |
Sold | | | 381,804 | | | | 958,102 | |
Reinvested | | | — | | | | 540,016 | |
Redeemed | | | (493,161 | ) | | | (1,569,739 | ) |
| | | | | | | | |
Net Decrease | | | (111,357 | ) | | | (71,621 | ) |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 16 | | RS HIGH YIELD BOND VIP SERIES |
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| | |
| RS HIGH YIELD BOND VIP SERIES | | 17 |
| | |
| | Financial Information — RS High Yield Bond VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the past six reporting periods. 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 (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(Loss) | | | Total
Operations | | Distributions to
Shareholders
From Net
Investment
Income | | | Net Asset
Value, End of
Period | | Total
Return* |
| | | | | | | | |
Six Months Ended 06/30/071 | | $ | 8.47 | | $ | 0.32 | | $ | (0.10 | ) | | $ | 0.22 | | $ | — | | | $ | 8.69 | | 2.60% |
| | | | | | | | |
Year Ended 12/31/06 | | | 8.33 | | | 0.61 | | | 0.14 | | | | 0.75 | | | (0.61 | ) | | | 8.47 | | 9.17% |
| | | | | | | | |
Year Ended 12/31/05 | | | 8.60 | | | 0.55 | | | (0.27 | ) | | | 0.28 | | | (0.55 | ) | | | 8.33 | | 3.30% |
| | | | | | | | |
Year Ended 12/31/04 | | | 8.43 | | | 0.58 | | | 0.17 | | | | 0.75 | | | (0.58 | ) | | | 8.60 | | 9.22% |
| | | | | | | | |
Year Ended 12/31/03 | | | 7.61 | | | 0.53 | | | 0.82 | | | | 1.35 | | | (0.53 | ) | | | 8.43 | | 17.95% |
| | | | | | | | |
Year Ended 12/31/02 | | | 8.13 | | | 0.63 | | | (0.53 | ) | | | 0.10 | | | (0.62 | ) | | | 7.61 | | 1.29% |
The accompanying notes are an integral part of these financial statements.
| | |
| 18 | | RS HIGH YIELD BOND VIP SERIES |
| | | | | | | | |
Net Assets, End
of Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | |
Net Ratio of Net
Investment Income
to Average
Net Assets | | | Portfolio
Turnover Rate |
| | | |
| $65,069 | | 0.75% | | | 7.26% | | | 40% |
| | | |
| 64,358 | | 0.76% | a | | 6.94% | a | | 88% |
| | | |
| 63,890 | | 0.80% | | | 6.35% | | | 88% |
| | | |
| 63,340 | | 0.79% | | | 6.97% | | | 90% |
| | | |
| 54,424 | | 0.81% | | | 7.17% | | | 165% |
| | | |
| 35,683 | | 0.87% | | | 7.88% | | | 66% |
| | 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| | a | Includes the effect of expenses waived by GIS. |
| | |
| RS HIGH YIELD BOND VIP SERIES | | 19 |
The accompanying notes are an integral part of these financial statements.
| | |
| | Notes to Financial Statements — RS High Yield Bond VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS High Yield Bond VIP Series (the “Fund” or “HYBV”) is a series of the Trust. HYBV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of HYBV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Marketable securities 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 asked prices. Securities traded on the Nasdaq Stock Market, Inc. (“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 will generally be valued using the last reported sale price, or, if no sales are reported, at the mean between the closing bid and asked prices. Short-term investments that will mature in 60 days or less are valued at amortized cost, which approximates market value. Repurchase agreements are carried at cost, which approximates market value (see Note D).
Foreign securities are valued in the currencies of the markets where they trade and then converted to U.S. dollars using the prevailing exchange rates at the close of the New York Stock Exchange (“NYSE”). Forward foreign currency contracts are valued at the current cost of covering or offsetting such contracts. Investments by the Fund in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values of such investment companies.
Debt securities with more than 60 days to maturity for which quoted bid prices are, in the judgment of an independent pricing service (“Service”), readily available and representative of the bid side of the market are valued by the Service at the bid price. Debt securities with more than 60 days to maturity for which quoted prices are not, in the judgment of a Service, readily available and representative of the market value will be valued by the Service at estimated market value based on methods which include consideration of yields or prices of government securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions.
The Fund invests primarily in below investment grade securities (i.e. lower-quality debt), which are subject to certain 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 are generally more volatile and less liquid than investment grade debt. Lower quality debt securities can also be more sensitive to adverse economic conditions, including the issuer’s financial condition or conditions in its industry or in related markets generally.
Securities whose values have been 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 using methods approved by the Board of Trustees. In addition, if there has been a movement in the U.S. markets that exceeds a specified threshold or there is a foreign market holiday on a day when the NYSE is open, the values of the Fund’s investments in foreign securities generally will be
| | |
| 20 | | RS HIGH YIELD BOND VIP SERIES |
determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
Securities for which market quotations are not readily available or for which market quotations may be unreliable are valued at their fair values as determined in accordance with the guidelines and procedures adopted by the Funds’ Board of Trustees.
Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.
Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.
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.
Dividend income is generally recorded on ex-dividend date. Interest income, which includes accretion/discount, is accrued and recorded daily. Many expenses of the Trust can be directly attributed to a specific Fund. Expenses that cannot be directly attributed to a specific Fund are apportioned among all the series in the Trust, based on relative net assets.
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, custodian fees were reduced in the amount of $799. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement.
Futures Contracts
HYBV may enter into financial futures contracts. In entering into such contracts, HYBV is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by HYBV each day, depending on the daily fluctuations in the value of the contracts, and are recorded for financial statement purposes as variation margins paid or received by HYBV. The daily changes in the variation margin are recognized as unrealized gains or losses by HYBV. HYBV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
Dividend Distributions
Dividends from net investment income and net realized short-term and long-term capital gains for HYBV will be distributed at least annually. All dividends to shareholders are credited in the form of additional shares of HYBV at the net asset value recorded on the ex-dividend date.
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/ (losses) for financial statement and federal income tax purposes, the fiscal year in which amounts are distributed may differ from the year in which the income and realized gains/(losses) were recorded by the Funds.
Taxes
The Fund intends to continue complying with the requirements of the Internal Revenue Code to qualify as a regulated investment company, and to distribute all net investment income and realized net capital gains, if any to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
From time to time, however, the Fund may choose to pay an excise tax where the cost of making the required distribution exceeds the amount of the tax.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was:
| | | |
| | | Ordinary
Income |
| 2006 | | $ | 4,517,672 |
Income and capital gain distributions are determined in accordance with income tax regulation, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent
| | |
| RS HIGH YIELD BOND VIP SERIES | | 21 |
| | |
| | Notes to Financial Statements — RS High Yield Bond VIP Series (continued) |
June 30, 2007 (unaudited)
book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments and foreign currency translations may include temporary book and tax difference, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated loss on a tax basis were as follows:
| | | | | | | | |
Undistributed
Ordinary
Income | | Capital Loss
Carryforward | | | Unrealized
Appreciation |
| $ | 12,397 | | $ | (5,241,208 | ) | | $ | 1,550,720 |
During any particular year, net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed and, therefore, are normally distributed to shareholders annually.
Under current income tax law, net capital and currency losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the year December 31, 2006, the Fund had no such losses.
As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:
| | | | | | |
| | | Capital Loss
Carryforward | | | Expiration
Date |
| | $ | (2,355,192 | ) | | 2009 |
| | | (2,886,016 | ) | | 2010 |
| | | | | | |
| Total | | $ | (5,241,208 | ) | | |
| | | | | | |
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, HYBV pays RS Investment Management Co. LLC (“RS Investments”), an investment advisory fee calculated at an annual rate of 0.60% of HYBV’s average daily net assets.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments. As compensation for GIS’s services, RS Investments pays fees to GIS at an annual rate of 0.57% of the average daily net assets of HYBV. Payment of the sub-advisory fees does not represent a separate or additional expense to the Fund.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust through December 31, 2009, to limit HYBV’s total annual operating expenses (excluding interest expense associated with reverse repurchase agreements and securities lending) from exceeding 0.76% of the average daily net assets of HYBV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investment (“disinterested Trustees”) receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Investment Transactions |
Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $28,659,282 and $25,291,529, respectively, during the period ended June 30, 2007.
The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures, at June 30, 2007 aggregated $1,008,297 and $876,942,
| | |
| 22 | | RS HIGH YIELD BOND VIP SERIES |
respectively, resulting in net unrealized appreciation of $131,355. The cost of investments owned at June 30, 2007 for federal income tax purposes was $64,174,745.
| Note D. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, HYBV 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, HYBV maintains the right to sell the collateral and may claim any resulting loss against the seller. At June 30, 2007, the repurchase agreement held by the Fund had been entered into on June 29, 2007.
| Note E. | | Reverse Repurchase Agreements |
HYBV may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short- term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time HYBV enters into a reverse repurchase agreement, HYBV segregates on its books cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by HYBV may be unable to deliver the securities when HYBV seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in HYBV’s net asset value and may be viewed as a form of leverage.
| Note F. | | Dollar Roll Transactions |
HYBV may enter into dollar rolls (principally using TBAs) in which HYBV sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an agreed-upon price on a fixed date. The securities repurchased will bear the same interest as those sold, but generally will be collateralized at the time of delivery by different pools of mortgages with different prepayment histories than those securities sold. During the period between the sale and repurchase, the Fund will not be entitled to receive principal and interest payments on the securities sold. HYBV is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the “drop”), as well as by the interest earned on the cash proceeds of the initial sale. Dollar roll transactions involve the risk that the buyer of the securities sold by HYBV may be unable to deliver the replacement securities when it is required to do so. Dollar rolls may increase fluctuations in HYBV’s net asset value and may be viewed as a form of leverage.
| Note G. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for HYBV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 381,804 | | | 958,102 | | | $ | 3,316,382 | | | $ | 8,115,873 | |
Shares issued in reinvestment of dividends | | — | | | 540,016 | | | | — | | | | 4,517,672 | |
Shares repurchased | | (493,161 | ) | | (1,569,739 | ) | | | (4,288,053 | ) | | | (13,351,000 | ) |
| | |
Net decrease | | (111,357 | ) | | (71,621 | ) | | $ | (971,671 | ) | | $ | (717,455 | ) |
| | |
| | |
| RS HIGH YIELD BOND VIP SERIES | | 23 |
| | |
| | Notes to Financial Statements — RS High Yield Bond VIP Series (continued) |
June 30, 2007 (unaudited)
| Note H. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note J. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain Series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of under- takings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act,
| | |
| 24 | | RS HIGH YIELD BOND VIP SERIES |
receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments receive compensation and reimbursement of expenses.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
| | |
| RS HIGH YIELD BOND VIP SERIES | | 25 |
| | |
| | Notes to Financial Statements — RS High Yield Bond VIP Series (continued) |
June 30, 2007 (unaudited)
sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
| | |
| 26 | | RS HIGH YIELD BOND VIP SERIES |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capa-bilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution capabilities resulting from the combination may result in
| | |
| RS HIGH YIELD BOND VIP SERIES | | 27 |
| | |
| | Supplemental Information — unaudited (continued) |
increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
| | |
| 28 | | RS HIGH YIELD BOND VIP SERIES |
RS Variable Products Trust
RS Money Market VIP Series
| | |
| 6.30.07 | |  |
| | |
 [GRAPHIC]
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or Guardian Investor Services LLC. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
| | |
| | RS Money Market VIP Series |
| | |
 | | Alexander M. Grant (Guardian Investor Services) has managed RS Money Market VIP Series since 1986*. Mr. Grant has been managing director of Guardian Life since 1999 and has managed Guardian Life’s tax-exempt assets since 1993. He holds a B.A. in English from State University of New York at Buffalo. |
| * | Includes service as the portfolio manager of the Fund’s Predecessor Fund for periods prior to October 9, 2006, the commencement of the Fund. |
Fund Philosophy
RS Money Market VIP Series seeks as high a level of current income as is consistent with liquidity and preservation of capital by investing in money market instruments denominated in U.S. dollars.
Investment Process
The Fund normally invests in money market instruments, which are high quality, short-term instruments that pay a fixed, variable, or floating interest rate. Money market instruments may include, for example, bank certificates of deposit and other bank obligations, notes, commercial paper, U.S. Government securities, and repurchase agreements.
Performance
As of June 30, 2007, the effective seven-day net annualized yield for the RS Money Market VIP Series was 4.77%. The Fund produced a total return of 2.36% for the six-month period ended June 30, 2007.
In contrast, the effective seven-day annualized yield of Tier One money market funds as measured by iMoney Net, Inc. was 4.54%; total return for the same category was 2.25% for the six-month period ended June 30, 2007. iMoneyNet, Inc. is a research firm that tracks money market funds.
Portfolio Review
Money market fund rates are directly affected by the actions of the Federal Reserve Board (the “Fed”), and at the beginning of 2007 the federal funds target rate stood at 5.25%; this is the rate at which banks can borrow from each other overnight. Although the Fed does not set this rate, it can establish a target rate and,
through open market operations, move member banks in the direction of that target rate. The discount rate is the rate at which banks can borrow directly from the Fed. Throughout the year money market issuers altered their rate offerings in response to monetary policy and stock market expectations.
The first Federal Open Market Committee (FOMC) meeting of the year (January 30 and 31, 2007) saw the rates held at 5.25%, a level that has been maintained since June 2006. At that time the FOMC had a fairly positive outlook for future economic growth.
However, the downturn in the housing market continued for longer than the FOMC initially anticipated. Business investment also remained sluggish in the first quarter of 2007. Although consumer spending remained solid, the FOMC’s predominant policy concern remained inflation.
At the June 2007 FOMC meeting, the committee noted that although economic growth had been moderate in the first half of the year and it was expected to expand going forward, a strong job market still raised inflation fears as the Fed marked a full calendar year at the 5.25% level.
The Fund seeks to diversify its holdings across a range of instruments, including commercial paper, floating-rate taxable municipal bonds, repurchase agreements, certificates of deposit, short-maturity corporate bonds, and U.S. government agencies. Another factor affecting performance was the portfolio’s average maturity, which is currently managed to be around 51 days.
| | |
| RS MONEY MARKET VIP SERIES | | 3 |
| | |
| | RS Money Market VIP Series (continued) |
Outlook
Currently, the Fund is still pursuing a barbell strategy as the Fed looks likely to remain on hold in 2007. This view and investment strategy will of course be dependent on the inflation outlook, economic growth, housing market, and consumer spending.
Thank you for your continued support.
Alexander M. Grant, Jr.
Portfolio Manager
Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2007.
RS Money Market VIP Series is neither insured nor guaranteed by the FDIC or any other agency. Although the Fund seeks to preserve the value of an investment at $10.00 per unit, it is possible to lose money by investing in the Fund.
| | |
| 4 | | RS MONEY MARKET VIP SERIES |
Assets Under Management: $222,781,961
| | |
 | | Sector Allocation |
Data as of June 30, 2007
| | |
| | Portfolio Statistics |
| | |
| Average Maturity (days) | | 51 |
| Yields | | |
Effective 7-Day Yield | | 4.77% |
Current 7-Day Yield | | 4.66% |
| | |
| | Performance Update Average Annual Returns as of 06/30/07 |
| | | | | | | | | | | | | | |
| | | | | | | | |
| | | Inception Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | 10 Years | | Since
Inception |
RS Money Market VIP Series | | 11/10/81 | | 2.36% | |
4.82% | |
3.39% | |
2.33% | |
3.43% | |
5.43% |
Lehman Brothers 3 Month Treasury-Bill Index1 | | | | 2.56% | |
5.24% | |
3.78% | |
2.76% | |
3.83% | |
5.69% |
Since inception performance for the index is measured from 10/31/1981, the month end prior to the Fund’s commencement of operations.
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian Cash Fund; performance shown includes performance of the predecessor fund for periods prior to October 9, 2006. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. The Fund’s total gross annual operating expense ratio as of the most current prospectus is 0.59%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Performance results assume the reinvestment of dividends and capital gains. The return figures shown do not reflect the deduction of taxes that a contractowner/policyholder may pay on Fund distributions or redemption units. The actual total returns for owners of variable annuity contracts or variable life insurance policies that provide for investment in the Fund will be lower to reflect separate account and contract/policy charges. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 1-800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com
1 | The Lehman Brothers 3 month T-Bill Index is generally considered to be representative of the average yield of three-month Treasury Bills. Unlike the Fund, the Index does not incur fees or expenses. |
| | |
| RS MONEY MARKET VIP SERIES | | 5 |
| | |
| | Understanding Your Fund’s Expenses — unaudited |
By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. 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 first 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 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.
| | | | | | | | |
| | | | | |
| | | Beginning
Account Value 01/01/07 | | Ending
Account Value 06/30/07 | | Expenses Paid
During Period* 01/01/07-06/30/07 | | Expense Ratio
During Period*
01/01/07-06/30/07 |
Based on Actual Return | | $1,000.00 | | $1,023.60 | | $2.91 | | 0.58% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,021.92 | | $2.91 | | 0.58% |
| * | 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). |
| | |
| 6 | | RS MONEY MARKET VIP SERIES |
| | |
| | Schedule of Investments — RS Money Market VIP Series |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Corporate Bonds — 11.3% |
| Capital Markets — 2.2% |
Morgan Stanley Group, Inc. 3.625% due 4/1/2008 | | $ | 5,000,000 | | $ | 4,950,213 |
| | | | | | |
| | | | | | 4,950,213 |
| Conglomerates — 3.0% | | | | | | |
General Electric Capital Corp. | | | | | | |
3.45% due 7/16/2007 | | | 1,320,000 | | | 1,319,012 |
4.25% due 1/15/2008 | | | 2,061,000 | | | 2,049,343 |
5.406% due 7/15/2007(1) | | | 3,245,000 | | | 3,246,535 |
| | | | | | |
| | | | | | 6,614,890 |
| Diversified Financial Services — 2.6% |
HSBC Finance Corp.
4.625% due 1/15/2008 | | | 1,000,000 | | | 996,239 |
Lehman Brothers Holdings, Inc. 4.00% due 1/22/2008 | | | 5,000,000 | | | 4,963,609 |
| | | | | | |
| | | | | | 5,959,848 |
| Financial – Banks — 2.3% | | | | | | |
Bank of America Corp.
5.28% due 7/2/2007(1) | | | 5,000,000 | | | 5,000,000 |
| | | | | | |
| | | | | | 5,000,000 |
| Retailers — 1.2% | | | | | | |
Wal-Mart Stores, Inc.
4.375% due 7/12/2007 | | | 2,725,000 | | | 2,724,251 |
| | | | | | |
| | | | | | 2,724,251 |
| | | | | | |
Total Corporate Bonds (Cost $25,249,202) | | | | | | 25,249,202 |
| Certificates of Deposit — 5.7% | | | |
Abbey National North America 5.28% due 9/10/2007 | | | 5,000,000 | | | 5,000,096 |
Banque Nationale de Paris/
New York
5.26% due 7/3/2007(1) | | | | | | |
| | | 2,620,000 | | | 2,619,794 |
5.263% due 7/30/2007(1) | | | 5,000,000 | | | 4,998,766 |
| | | | | | |
Total Certificates of Deposit (Cost $12,618,656) | | | | | | 12,618,656 |
| U.S. Government Securities — 6.7% | | | |
| U.S. Government Agency Securities — 6.7% | | | |
FHLB | | | | | | |
5.25% due 9/4/2007 - 11/30/2007 | | | 10,000,000 | | | 10,000,000 |
FNMA | | | | | | |
5.12% due 12/14/2007 | | | 5,000,000 | | | 4,881,955 |
| | | | | | |
Total U.S. Government Securities (Cost $14,881,955) | | | 14,881,955 |
| Commercial Paper — 54.7% | | | | | | |
| Agricultural — 2.3% | | | | | | |
Cargill Global Funding
5.28% due 7/10/2007(2) | | | 5,000,000 | | | 4,993,400 |
| | | | | | |
| | | | | | 4,993,400 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Commercial Paper (continued) | | | | | | |
| Asset Backed — 8.9% | | | | | | |
Barton Capital LLC
5.27% due 7/6/2007(2) | | $ | 5,000,000 | | $ | 4,996,340 |
Govco, Inc.
5.26% due 9/25/2007(2) | | | 5,000,000 | | | 4,937,172 |
Sheffield Receivables Corp.
5.27% due 7/10/2007(2) | | | 5,000,000 | | | 4,993,413 |
Surrey Funding Corp.
5.30% due 7/25/2007(2) | | | 5,000,000 | | | 4,982,333 |
| | | | | | |
| | | | | | 19,909,258 |
| Automotive — 6.7% | | | | | | |
American Honda Finance Corp. 5.23% due 8/28/2007 | | | 5,000,000 | | | 4,957,869 |
BMW US Capital LLC
5.33% due 7/2/2007(2) | | | 5,000,000 | | | 4,999,260 |
Toyota Motor Credit Corp.
5.24% due 9/24/2007 | | | 5,000,000 | | | 4,938,139 |
| | | | | | |
| | | | | | 14,895,268 |
| Chemicals — 4.5% | | | | | | |
Air Products & Chemicals, Inc.
5.27% due 7/6/2007(2) | | | 5,000,000 | | | 4,996,340 |
Ecolab, Inc.
5.25% due 7/11/2007(2) | | | 5,000,000 | | | 4,992,709 |
| | | | | | |
| | | | | | 9,989,049 |
| Diversified Financial Services — 9.0% | | | |
CIT Group, Inc.
5.25% due 7/10/2007(2) | | | 5,000,000 | | | 4,993,438 |
Cooperative Association of Tractor Dealers, Inc.
5.35% due 7/2/2007 | | | 5,000,000 | | | 4,999,257 |
Credit Suisse Group
5.24% due 8/27/2007 | | | 5,000,000 | | | 4,958,517 |
NYSE Euronext, Inc.
5.25% due 7/23/2007(2) | | | 5,000,000 | | | 4,983,958 |
| | | | | | |
| | | | | | 19,935,170 |
| Diversified Manufacturing — 4.4% | | | | | | |
Eaton Corp.
5.34% due 7/2/2007(2) | | | 5,000,000 | | | 4,999,258 |
Leggett & Platt, Inc.
5.35% due 7/2/2007(2) | | | 4,700,000 | | | 4,699,302 |
| | | | | | |
| | | | | | 9,698,560 |
| Financial – Banks — 6.7% | | | | | | |
Depfa Bank PLC
5.23% due 7/25/2007(2) | | | 5,000,000 | | | 4,982,567 |
Deutsche Bank Financial LLC
5.26% due 7/25/2007 | | | 5,000,000 | | | 4,982,466 |
UBS Finance Delaware LLC
5.245% due 7/23/2007 | | | 5,000,000 | | | 4,983,974 |
| | | | | | |
| | | | | | 14,949,007 |
| Food & Beverage — 2.2% | | | | | | |
Nestle Capital Corp.
5.20% due 8/3/2007(2) | | | 5,000,000 | | | 4,976,167 |
| | | | | | |
| | | | | | 4,976,167 |
The accompanying notes are an integral part of these financial statements.
| | |
| RS MONEY MARKET VIP SERIES | | 7 |
| | |
| | Schedule of Investments – RS Money Market VIP Series (continued) |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Commercial Paper (continued) | | | |
| Metals – Miscellaneous — 1.1% | | | | | | |
Rio Tinto Ltd.
5.37% due 7/2/2007(2) | | $ | 2,500,000 | | $ | 2,499,627 |
| | | | | | |
| | | | | | 2,499,627 |
| Oil & Gas Services — 2.2% | | | |
Koch Resources LLC
5.25% due 7/13/2007(2) | | | 5,000,000 | | | 4,991,250 |
| | | | | | |
| | | | | | 4,991,250 |
| Personal Products — 2.3% | | | | | | |
L’Oreal USA, Inc.
5.26% due 7/2/2007(2) | | | 5,000,000 | | | 4,999,269 |
| | | | | | |
| | | | | | 4,999,269 |
| Pharmaceuticals — 2.2% | | | | | | |
Abbott Laboratories
5.26% due 7/13/2007(2) | | | 5,000,000 | | | 4,991,233 |
| | | | | | |
| | | | | | 4,991,233 |
| Utilities – Electric & Water — 2.2% |
Florida Power & Light Co.
5.32% due 7/10/2007 | | | 5,000,000 | | | 4,993,350 |
| | | | | | |
| | | | | | 4,993,350 |
| | | | | | |
Total Commercial Paper
(Cost $121,820,608) | | | | | | 121,820,608 |
| | | | | | |
| | | Principal
Amount | | Value |
| Taxable Municipal Securities — 21.0% |
| California — 1.9% | | | | | | |
California Housing Fin. Agency Rev. Multi-Fam.
5.35% due 7/4/2007(1) | | | 2,195,000 | | | 2,195,000 |
Sacramento Cnty., CA
5.35% due 7/4/2007(1) | | | 2,000,000 | | | 2,000,000 |
| | | | | | |
| | | | | | 4,195,000 |
| Colorado — 3.6% | | | | | | |
Colorado Housing & Fin. Auth. Single Fam. Mtg.
5.35% due 7/4/2007 | | | 8,030,000 | | | 8,030,000 |
| | | | | | |
| | | | | | 8,030,000 |
| Connecticut — 1.1% | | | | | | |
Connecticut St. Housing & Fin. Auth. AMBAC insured
5.32% due 7/5/2007(1) | | | 2,500,000 | | | 2,500,000 |
| | | | | | |
| | | | | | 2,500,000 |
| Michigan — 1.5% | | | | | | |
Michigan St. Housing Dev. Auth. 5.35% due 7/4/2007(1) | | | 3,450,000 | | | 3,450,000 |
| | | | | | |
| | | | | | 3,450,000 |
| New York — 9.7% | | | | | | |
New York City Trans. Fin. Auth. Rev. Future Tax Sec’d.
5.35% due 7/4/2007(1) | | | 11,940,000 | | | 11,940,000 |
New York St. Dormitory Auth. Rev. St. Personal Income 5.36% due 7/5/2007(1) | | | 4,650,000 | | | 4,650,000 |
Port Auth. of New York & New Jersey Ser. YY
5.50% due 8/15/2007 | | | 5,000,000 | | | 5,000,284 |
| | | | | | |
| | | | | | 21,590,284 |
| | | | | | |
| June 30, 2007 (unaudited) | | Principal
Amount | | Value |
| | | | | | |
| Taxable Municipal Securities (continued) |
| Utah — 3.2% | | | | | | |
Utah Housing Corp. Single Fam. Mtg. Rev.
Ser. D-2, Class I
5.35% due 7/4/2007(1) | | $ | 1,390,000 | | $ | 1,390,000 |
Ser. E-2, Class I
5.35% due 7/4/2007(1) | | | 2,100,000 | | | 2,100,000 |
Utah St. Housing Fin. Agency Single Fam. Mtg.
Ser. F-3, Class I
5.35% due 7/4/2007(1) | | | 2,030,000 | | | 2,030,000 |
Ser. G-3, Class I
5.35% due 7/4/2007(1) | | | 1,640,000 | | | 1,640,000 |
| | | | | | |
| | | | | | 7,160,000 |
| | | | | | |
Total Taxable Municipal Securities
(Cost $46,925,284) | | | 46,925,284 |
| | | | | | |
| | | Shares | | Value |
| Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3) | | | 4 | | | 185 |
RS Emerging Growth Fund, Class Y(3) | | | 17 | | | 699 |
RS Emerging Markets Fund, Class A(3) | | | 5 | | | 121 |
RS Global Natural Resources Fund, Class Y(3) | | | 54 | | | 1,964 |
RS Growth Fund, Class Y(3) | | | 40 | | | 676 |
RS Investors Fund, Class Y(3) | | | 105 | | | 1,352 |
RS MidCap Opportunities Fund, Class Y(3) | | | 35 | | | 563 |
RS Partners Fund, Class Y(3) | | | 13 | | | 493 |
RS Smaller Company Growth Fund, Class Y(3) | | | 18 | | | 405 |
RS Value Fund, Class Y(3) | | | 12 | | | 383 |
| | | | | | |
Total Other Investments (Cost $6,396) | | | | | | 6,841 |
| | | | | | |
| Total Investments — 99.4% (Cost $221,502,101) | | | | | | 221,502,546 |
| | | | | | |
| Other Assets, Net — 0.6% | | | | | | 1,279,415 |
| | | | | | |
| Total Net Assets — 100.0% | | | | | $ | 222,781,961 |
(1) | Floating rate note. The rate shown is the rate in effect at June 30, 2007. The due date shown is the next reset date. |
(2) | Securities that may be resold in transactions exempt from registration under Rule 144A of the Securities Act of 1933, normally to certain qualified buyers. The aggregate market value as of June 30, 2007 was $87,007,036 and as a percentage of net assets was 39.1%. These securities have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
(3) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See Note B in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
| | |
| 8 | | RS MONEY MARKET VIP SERIES |
| | |
[GRAPHIC]
| | Financial Information — RS Money Market VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2007 (unaudited) |
| | | |
| |
Assets | | | |
Investments, at value | | $ | 221,502,546 |
Cash | | | 11,515 |
Interest receivable | | | 1,130,098 |
Receivable for fund shares subscribed | | | 413,866 |
Prepaid expenses | | | 4,999 |
| | | |
Total Assets | | | 223,063,024 |
| | | |
Liabilities | | | |
Payable for fund shares redeemed | | | 148,404 |
Payable to adviser | | | 89,977 |
Deferred trustees’ compensation | | | 6,841 |
Payable for investments purchased | | | 2,181 |
Accrued expenses/other liabilities | | | 33,660 |
| | | |
Total Liabilities | | | 281,063 |
| | | |
Total Net Assets | | $ | 222,781,961 |
| | | |
Net Assets Consist of: | | | |
Paid-in capital | | | 222,781,516 |
Unrealized appreciation on investments | | | 445 |
| | | |
Total Net Assets | | $ | 222,781,961 |
| | | |
Investments, at Cost | | $ | 221,502,101 |
| | | |
Pricing of Shares | | | |
Shares of Beneficial Interest Outstanding with no Par Value | | | 22,278,148 |
| |
Net Asset Value Per Share | | | $10.00 |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2007 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 5,742,822 | |
| | | | |
Total Investment Income | | | 5,742,822 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 542,918 | |
Custodian fees | | | 35,491 | |
Professional fees | | | 22,556 | |
Shareholder reports | | | 13,853 | |
Trustees’ fees and expenses | | | 6,088 | |
Insurance expense | | | 5,575 | |
Administrative service fees | | | 3,162 | |
Registration fees | | | 282 | |
Other expenses | | | 874 | |
| | | | |
Total Expenses before Custody Credits | | | 630,799 | |
Less: Custody credits | | | (2,305 | ) |
| | | | |
Expenses Net of Custody Credits | | | 628,494 | |
| | | | |
Net Investment Income | | | 5,114,328 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/Depreciation on Investments | | | | |
Net change in unrealized appreciation on deferred trustees’ compensation holdings | | | 445 | |
| | | | |
Net Gain on Investments | | | 445 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 5,114,773 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| RS MONEY MARKET VIP SERIES | | 9 |
| | |
| | Financial Information — RS Money Market VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| |
| | | RS Money Market VIP Series | |
| | |
| | | For the
Six Months Ended 06/30/07 | | | For the
Year Ended 12/31/06 | |
| Operations | | | | | | | | |
Net investment income | | $ | 5,114,328 | | | $ | 9,937,769 | |
Net change in unrealized appreciation/(depreciation) on deferred trustees’ compensation holdings | | | 445 | | | | — | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 5,114,773 | | | | 9,937,769 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | (5,114,328 | ) | | | (9,937,769 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 69,416,897 | | | | 163,408,649 | |
Reinvestment of distributions | | | 5,114,328 | | | | 9,937,769 | |
Cost of shares redeemed | | | (72,019,569 | ) | | | (170,587,606 | ) |
| | | | | | | | |
| | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 2,511,656 | | | | 2,758,812 | |
| | | | | | | | |
| | |
Net Increase in Net Assets | | | 2,512,101 | | | | 2,758,812 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 220,269,860 | | | | 217,511,048 | |
| | | | | | | | |
End of period | | $ | 222,781,961 | | | $ | 220,269,860 | |
| | | | | | | | |
| | |
Other Information | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 6,941,690 | | | | 16,340,865 | |
Reinvested | | | 511,434 | | | | 993,777 | |
Redeemed | | | (7,201,962 | ) | | | (17,058,761 | ) |
| | | | | | | | |
Net Increase | | | 251,162 | | | | 275,881 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| 10 | | RS MONEY MARKET VIP SERIES |
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| | |
| | Financial Information — RS Money Market VIP Series (continued) |
The financial highlights table is intended to help you understand the Fund’s financial performance for the six reporting periods. 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) or an investment in the Fund (assuming reinvestment of all dividends and distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | |
| | | Net Asset Value,
Beginning of
Period | | Net Investment
Income | | Net Realized
and Unrealized
Gain/(Loss) | | Total
Operations | | Dividends to
Shareholders
From Net
Investment
Income | |
| | | | | | |
Six Months Ended 6/30/071 | | $ | 10.00 | | $ | 0.23 | | $ | — | | $ | 0.23 | | $ | (0.23 | ) |
| | | | | | |
Year Ended 12/31/06 | | | 10.00 | | | 0.44 | | | — | | | 0.44 | | | (0.44 | ) |
| | | | | | |
Year Ended 12/31/05 | | | 10.00 | | | 0.27 | | | — | | | 0.27 | | | (0.27 | ) |
| | | | | | |
Year Ended 12/31/04 | | | 10.00 | | | 0.08 | | | — | | | 0.08 | | | (0.08 | ) |
| | | | | | |
Year Ended 12/31/03 | | | 10.00 | | | 0.07 | | | — | | | 0.07 | | | (0.07 | ) |
| | | | | | |
Year Ended 12/31/02 | | | 10.00 | | | 0.12 | | | — | | | 0.12 | | | (0.12 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
| 12 | | RS MONEY MARKET VIP SERIES |
| | | | | | | | | | | | | | |
Net Asset
Value, End of
Period | | Total
Return* | | | Net Assets, End
of Period (000s) | | Net Ratio of
Expenses to
Average Net
Assets | | |
Net Ratio of Net
Investment Income
to Average
Net Assets | | | Portfolio
Turnover Rate |
| | | | | |
| $10.00 | | 2.36 | % | | $ | 222,782 | | 0.58 | % | | 4.71 | % | | N/A |
| | | | | |
| 10.00 | | 4.52 | % | | | 220,270 | | 0.59 | % | | 4.45 | % | | N/A |
| | | | | |
| 10.00 | | 2.69 | % | | | 217,511 | | 0.58 | % | | 2.60 | % | | N/A |
| | | | | |
| 10.00 | | 0.85 | % | | | 295,800 | | 0.57 | % | | 0.84 | % | | N/A |
| | | | | |
| 10.00 | | 0.66 | % | | | 356,271 | | 0.56 | % | | 0.67 | % | | N/A |
| | | | | |
| 10.00 | | 1.25 | % | | | 492,713 | | 0.55 | % | | 1.24 | % | | N/A |
| | 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| | * | Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts. Inclusion of such charges would reduce the total return for all periods shown. |
The accompanying notes are an integral part of these financial statements.
| | |
| RS MONEY MARKET VIP SERIES | | 13 |
| | |
| | Notes to Financial Statements — RS Money Market VIP Series |
June 30, 2007 (unaudited)
| Note A. | | Organization and Accounting Policies |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers seventeen series. RS Money Market VIP Series (the “Fund” or “MMV”) is a series of the Trust. MMV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
Class I shares of MMV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.
The following accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with generally accepted accounting principles 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.
Significant accounting policies of the Fund are as follows:
Investment Valuations
Repurchase agreements are carried at cost, which approximates market value (see Note C). MMV values its investments based on amortized cost in accordance with Rule 2a-7 under the Investment Company Act of 1940.
Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Interest income which includes accretion/discount, is accrued and recorded daily.
MMV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, MMV’s custodian fees were reduced by $2,305. MMV could have employed the uninvested assets to produce income if MMV had not entered into such arrangement.
Dividend Distributions
Dividends from net investment income, which includes any net realized capital gains or losses, are declared and accrued daily and paid monthly on the last business day of each month. All dividends and distributions are credited in the form of additional shares of MMV.
Taxes
MMV intends to continue complying with the requirements of the Internal Revenue Code to qualify as a regulated investment company, and to distribute all net investment income and realized net capital gains, if any to shareholders. Therefore, the Fund does not expect to be subject to income tax, and no provision for such tax has been made.
The tax character of dividends paid to shareholders during the year ended December 31, 2006 was:
| | | |
| | | Ordinary
Income |
| 2006 | | $ | 9,937,769 |
Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of income and gains on various investment securities held by the Fund, timing differences, and differing characterizations of distributions made by the Fund. Permanent book and tax basis differences relating to shareholder distributions will result in reclassifications to paid-in capital. Undistributed net investment income and accumulated undistributed net realized gain/(loss) on investments may include temporary book and tax differences, which will reverse in a subsequent period.
As of December 31, 2006, the components of accumulated loss on a tax basis were as follows:
| | | | | |
Undistributed
Ordinary
Income | | Capital Loss
Carryforward | |
| $ | 12,724 | | $ | (11,147 | ) |
| | |
| 14 | | RS MONEY MARKET VIP SERIES |
As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:
| | | | | | |
| | | Capital Loss
Carryforward | | | Expiration
Date |
| | $ | (7,909 | ) | | 2011 |
| | | (3,238 | ) | | 2012 |
| | | | | | |
Total | | $ | (11,147 | ) | | |
| | | | | | |
| Note B. | | Advisory Fees and Expense Limitation |
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, MMV pays RS Investment Management Co. LLC (“RS Investments”), investment advisory fees at an annual rate of 0.50% on the first $500 million of its average daily net assets and at an annual rate of 0.45% of its average daily assets in excess of $500 million.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Investor Services LLC (“GIS”), which holds a majority interest in RS Investments. As compensation for GIS’s services, RS Investments pays fees to GIS at annual rate of 0.475% of the average daily net assets of MMV. Payment of the sub-advisory fees does not represent a separate or additional expense to MMV.
An expense limitation has been imposed pursuant to a written agreement between RS Investments and the Trust in effect through December 31, 2009, to limit MMV’s total annual operating expenses (excluding interest expense associated with securities lending) from exceeding 0.59% of the average daily net assets of MMV.
Trustees and officers of the Fund who are interested persons of RS Investments, as defined in the 1940 Act, receive no compensation from the Fund for acting as such. Trustees of the Fund who are not interested persons of RS Investments (“disinterested Trustees”), receive compensation and reimbursement of expenses.
Under a Deferred Compensation Plan (the “Plan”), a disinterested Trustee may elect to defer receipt of all, or a portion, of his/her annual compensation. The amount of the Fund’s deferred compensation obligation to a Trustee is determined by adjusting the amount of the deferred compensation to reflect the investment return of one or more RS Funds designated for the purpose by the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in the Fund until distributed in accordance with the Plan. Trustees fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
| Note C. | | Repurchase Agreements |
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, MMV 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, MMV maintains the right to sell the collateral and may claim any resulting loss against the seller.
| | |
| RS MONEY MARKET VIP SERIES | | 15 |
| | |
| | Notes to Financial Statements — RS Money Market VIP Series (continued) |
June 30, 2007 (unaudited)
| Note D. | | Shares of Beneficial Interest |
There is an unlimited number of shares of beneficial interest authorized for MMV Class I. Transactions in shares of beneficial interest were as follows:
| | | | | | | | | | | | | | |
| | | Period Ended June 30, 2007 | | | Year Ended
December 31, 2006 | | | Period Ended
June 30, 2007 | | | Year Ended
December 31, 2006 | |
| | | Shares | | | Amount | |
Shares sold | | 6,941,690 | | | 16,340,865 | | | $ | 69,416,897 | | | $ | 163,408,649 | |
Shares issued in reinvestment of dividends | | 511,434 | | | 993,777 | | | | 5,114,328 | | | | 9,937,769 | |
Shares repurchased | | (7,201,962 | ) | | (17,058,761 | ) | | | (72,019,569 | ) | | | (170.587,606 | ) |
| | |
Net increase | | 251,162 | | | 275,881 | | | $ | 2,511,656 | | | $ | 2,758,812 | |
| | |
| Note E. | | Temporary Borrowings |
The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing; all the funds that are parties to the facility share in a commitment fee that is allocated among the funds on the basis of their respective sizes. The Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit specified in the Fund’s Statement of Additional Information or the Prospectus. For the six months ended June 30, 2007, the Fund did not borrow from the facility.
Under the Trust’s organizational documents, 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. However, based on experience, the Fund expects the risk of loss to be remote.
| Note G. | | New Accounting Pronouncements |
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for any related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semiannual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Trust has concluded that the adoption of FIN 48 did not result in any material impact to the Fund’s financial statements, as applied to open tax years ended December 31, 2004 through December 31, 2006.
In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Trust believes the adoption of SFAS 157 will have no material impact on its financial statements.
On October 6, 2004, RS Investment Management, L.P. (“RSIM L.P.”), the investment adviser to the RS Family of Funds prior to GIS’s acquisition of a majority of the outstanding interests in RS Investments, entered into settlement agreements with the Securities and Exchange Commission (the “SEC”) and the Office of the New York State Attorney General (the “NYAG”). The settlement agreements relate to certain investors’ frequent trading of shares of RS Emerging Growth Fund, a
| | |
| 16 | | RS MONEY MARKET VIP SERIES |
series of RS Investment Trust, during 2000 through 2003. In its settlement with the SEC, RSIM L.P. consented to the entry of an order by the SEC (the “SEC Order”) instituting and settling administrative and cease-and-desist proceedings against it. Under the terms of the settlement agreements, RS Investments has paid disgorgement of $11.5 million and a civil money penalty of $13.5 million for a total payment of $25 million, all of which will be distributed to certain current and former shareholders of certain Series of RS Investment Trust in a manner to be determined by an independent consultant. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain funds in the aggregate amount of approximately $5 million over a period of five years. In addition, RS Investments has made a number of under- takings to the SEC and the NYAG relating to compliance, ethics, and legal oversight and mutual fund governance and disclosure.
G. Randall Hecht, the former co-president of RS Investment Trust and the former chairman of the Board of Trustees of RS Investment Trust, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Hecht agreed, among other things, to pay a civil money penalty, to not serve as a Trustee of RS Investment Trust for a period of five years, and to limit his duties with RS Investments (of which he was chairman) for 12 months.
Steven M. Cohen, the former treasurer of RS Investment Trust and the former chief financial officer of RS Investments, was also named a respondent in the SEC Order and consented to its entry. As part of the settlement agreement with the SEC, Mr. Cohen agreed to, among other things, a civil money penalty and suspensions from association with any investment adviser or registered investment company for nine months and from serving as an officer or a director of any investment company or investment adviser for an additional two years. In addition, in accordance with the settlements, Mr. Cohen resigned as an officer and employee of RS Investments.
RSIM L.P. and Messrs. Hecht and Cohen neither admit nor deny the findings set forth in the SEC Order, and RSIM L.P. neither admits nor denies the findings in its settlement agreement with the NYAG. A copy of the SEC Order is available on the SEC’s Web site at www.sec.gov, and a copy of the settlement agreement with the NYAG is available on the NYAG’s Web site at www.oag.state.ny.us.
RSIM L.P. and not any of the RS funds will bear all the costs of complying with the settlements, including payments of disgorgement and civil penalties (except those paid by Messrs. Hecht and Cohen individually), and the associated legal fees relating to these regulatory proceedings.
It is possible that these matters and/or related developments may result in increased Series redemptions and reduced sales of Series shares, which could result in increased costs and expenses, or may otherwise adversely affect the Series.
After the announcement of those settlements, three related civil lawsuits commenced. These lawsuits were consolidated into one proceeding in the U.S. District Court for the District of Maryland on April 19, 2005 (In re Mutual Funds Investment Litigation, Case No. 04-MD- 15863-JFM). The district court appointed a lead plaintiff, and a consolidated complaint was filed. The consolidated complaint, brought on behalf of a purported class of investors in RS funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint names RS Investments, RS Investment Management, Inc., RSIM L.P., RS Investment Trust, and certain current or former Trustees, subadvisers, employees, and officers of RS Investment Trust or RSIM L.P. as defendants. It generally tracks the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleges a variety of theories for recovery, including, among others, that defendants violated Sections 34(b), 36(a), 36(b), and 48(a) of the 1940 Act and breached fiduciary duties to investors. The consolidated lawsuit further alleges that defendants
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| | Notes to Financial Statements — RS Money Market VIP Series (continued) |
June 30, 2007 (unaudited)
violated, or caused to be violated, Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
On May 27, 2005, the defendants moved to dismiss the consolidated action. On November 3, 2005, the Court issued a ruling dismissing all claims against RS Investment Trust. As for the claims against the other RS defendants, the Court dismissed the claims arising under: sections 34(b) and 36(a) of the Investment Company Act of 1940; sections 11, 12(a)(2), and 15 of the Securities Act of 1933; and state law. The Court allowed plaintiffs to proceed against some of the RS defendants with their claims arising under sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sections 36(b) and 48(a) of the Investment Company Act of 1940. Although initially the Court deferred any ruling on the claims against the named independent trustees, on July 24, 2006, the Court dismissed all remaining claims against the former and current independent trustees of RS Investment Trust. The litigation is currently in the discovery phase.
Additional lawsuits arising out of the same circumstances and presenting similar or different or additional allegations may be filed against certain RS Funds, RS Investments, or their affiliates in the future. RS Investments does not believe that the pending consolidated action will materially affect its ability to continue to provide to the funds the services it has agreed to provide. It is not possible at this time to predict whether the litigation will have any material adverse effect on any of the Series.
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[GRAPHIC]
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Series of RS Variable Products Trust
The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.
Each of the Funds was then newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.
The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.
RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their
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| RS MONEY MARKET VIP SERIES | | 19 |
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| | Supplemental Information — unaudited (continued) |
clients at improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.
The Trustees noted at the time that, because the Funds would be new Funds and because of the then upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.
The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were then being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.
Portfolio Holding and Proxy Voting Procedure
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 on Form N-Q. The Fund’s Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the 12-month period ended June 30, 2007, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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| 20 | | RS MONEY MARKET VIP SERIES |
Not required.
| Item 3. | Audit Committee Financial Expert. |
Not required.
| Item 4. | Principal Accountant Fees and Services. |
Not required.
| Item 5. | Audit Committee of Listed Registrants. |
Not applicable to the registrant.
| Item 6. | Schedule of Investments. |
Schedules of Investments are included as part of the report to shareholders filed under Item 1 of this Form N-CSR.
| 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 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 Rules 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 second fiscal quarter of 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.
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| (a)(1) | | Not applicable. |
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| (a)(2) | | The certifications required by Rule 30a-2(a) of the 1940 Act are attached hereto. |
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| (a)(3) | | Not applicable. |
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| (b) | | The certifications required by Rule 30a-2(b) of the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are 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.
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| RS Investment Trust |
| |
| By: | | /s/ Terry R. Otton |
| | Terry R. Otton, President |
| | (Principal Executive Officer) |
Date: September 6, 2007
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.
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| |
| By: | | /s/ Terry R. Otton |
| | Terry R. Otton, President |
| | (Principal Executive Officer) |
Date: September 6, 2007
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| |
| By: | | /s/ James E. Klescewski |
| | James E. Klescewski, Treasurer |
| | (Principal Financial Officer) |
Date: September 6, 2007
