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: 800-221-3253
Date of fiscal year end: December 31
Date of reporting period: June 30, 2008
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, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Item 1. | Reports to Stockholders. |
The Report to Shareholders is attached herewith.
RS Variable Products Trust
RS Core Equity VIP Series
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06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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 |
| | |
| | Manind V. Govil, CFA Manind V. Govil (RS Investments) has managed RS Core Equity VIP Series since 2005.* Mr. Govil joined RS Investments in October 2006 in connection with GIS’s acquisition of an interest in RS Investments. Prior to that, Mr. Govil served as the head of equity investments at 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.S. degree from the University of Bombay, India and an M.B.A. from the University of Cincinnati. |
* | 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. |
The Statement of Additional Information provides further information about the portfolio manager, including information regarding his compensation, other accounts he manages, and his ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | During a difficult six-month period for the equity markets, the Fund had a negative return but nonetheless outperformed its benchmark, the S&P 500® Index3. |
Ø | | The Fund’s relative performance for the period benefited from stock selection in a number of sectors, including financials, health care, information technology (IT), and industrials. |
Ø | | Poor performance by several holdings in the utilities and telecommunications services sectors dampened returns. |
Market Overview
U.S. stocks fell sharply during the first quarter, with investors spooked by a weakening economy and growing concerns about the health of the financial system. The market began to recover some lost ground early in the second quarter, however, as the Federal Reserve Board took aggressive action to restore market liquidity, cutting the target federal funds rate by 225 basis points by mid-April. Nonetheless this resurgence proved short-lived, as markets again succumbed to investor unease over surging energy and food prices, an ailing housing market, and a softening economy. For the six-month period ended June 30, 2008, the S&P 500® Index declined 11.91%, the Dow Jones Industrial Average4 declined 13.38%, and the Nasdaq Composite5 declined 13.55%.
Performance
The RS Core Equity VIP Series declined 4.81% during the period, outperforming the benchmark S&P 500® Index, which declined 11.91%.
Portfolio Review
The Fund’s relative performance for the period benefited from stock selection in the financials sector, especially in the diversified financial services and insurance areas. Relative returns were also aided by stock selection in the health care sector, especially from overweight exposure to outperforming biotechnology names including Celegene, which appears to be benefiting from its drug pipeline and its Revlimid cancer drug franchise.
Stock selection in the IT sector also contributed to the Fund’s relative performance. Top contributors in this area included IT services holdings such as electronic payments processor MasterCard, one of our strongest individual performers for the period, and video game maker
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RS Core Equity VIP Series | | 3 |
| | |
| | RS Core Equity VIP Series (continued) |
Nintendo. Nintendo is benefiting from its highly popular Wii video game platform, which is taking market share and helping expand the demographics of video gaming beyond the core young male audience to include entire families. Nintendo also has portable gaming devices and, we believe, a promising library of proprietary game software.
The Fund also capitalized on its investments in a number of individual energy holdings, including global provider of energy services Halliburton, our top-performing stock for the period, and oil and gas exploration company Devon Energy.
Performance was hindered by the Fund’s only investment in the utilities sector, global power producer AES. While AES has a solid track record of managing utilities worldwide, its stock price declined as higher financing costs and a near-freeze in credit availability delayed some of its expansion projects. Additionally, underperforming telecommunications services companies, such as AT&T and Mexico’s wireless provider America Movil, weighed on returns.
Additional major detractors included wireless communications handset maker Nokia and government- sponsored mortgage financing agency Freddie Mac, which has been severely affected by the mortgage-lending fallout and resulting liquidity crisis. Meanwhile, aircraft manufacturing giant Boeing suffered from concerns over the health of the U.S. airline industry.
Outlook
As a core offering, the RS Core Equity VIP Series seeks to deliver solid long-term results across a range of market environments. We believe that over long periods of time, our consistent focus on fundamental research and disciplined stock selection will help deliver solid investment results. Of course, while our investment process emphasizes bottom-up analysis of individual companies, we cannot ignore the weakening U.S. economy. Our investment actions during this time have favored companies that we believe will prove more resilient in a slowing economy. We wish to emphasize as well that we continue hold ourselves to the highest standards of professionalism and integrity.
Finally, I wanted to mention that as of August 1, it will have been three years since I became the portfolio manager of the Fund. In that time I’ve hired an investment team of experienced analysts who adhere to a time-tested investment process, which has delivered strong performance for the Fund. We are proud of the accomplishment of beating the benchmark by over 6.7 percentage points on an annualized basis for the three year period ended 6/30/08.
Thank you for your investment and ongoing support.
Manind V. Govil
Portfolio Manager
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case 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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4 | | RS Core Equity VIP Series |
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Total Net Assets: $928,264,846 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 |
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| | Top Ten Holdings2 |
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| |
Company | | Percentage of Total Assets |
Halliburton Co. | | 6.48% |
MasterCard, Inc. | | 4.12% |
Abbott Laboratories | | 3.72% |
The AES Corp. | | 3.37% |
Republic Services, Inc. | | 3.35% |
Enterprise Products Partners, L.P. | | 3.26% |
People’s United Financial, Inc. | | 3.15% |
Aon Corp. | | 2.93% |
Nokia Oyj | | 2.70% |
Celgene Corp. | | 2.69% |
Total | | 35.77% |
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 is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
4 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
5 | The Nasdaq Composite Index is an unmanaged index that measures all Nasdaq domestic and non-U.S.-based common stocks listed on the Nasdaq stock market. |
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RS Core Equity VIP Series | | 5 |
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| | RS Core Equity VIP Series (continued) |
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| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | | | |
| | | | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Year | | 5 Year | | 10 Year | | Since Inception |
RS Core Equity VIP Series | | 04/13/83 | | -4.81% | | -4.11% | | 11.18% | | 9.68% | | 1.96% | | 11.48% |
S&P 500® Index3 | | | | -11.91% | | -13.12% | | 4.40% | | 7.58% | | 2.88% | | 11.60% |
Since inception performance for the index is measured from 3/31/1983, the month end prior to the Fund’s commencement of operations.
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made 10 years ago in RS Core Equity 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 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 0.57%. 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 for 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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6 | | RS Core Equity VIP Series |
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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 (12b-1) fees; and other Fund expenses. The example below is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $951.90 | | $2.77 | | 0.57% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,022.03 | | $2.87 | | 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 182/366 (to reflect the one-half year period). |
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RS Core Equity VIP Series | | 7 |
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| | Schedule of Investments – RS Core Equity VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 99.2% |
Aerospace & Defense — 3.8% |
General Dynamics Corp. | | 145,500 | | $ | 12,251,100 |
The Boeing Co. | | 350,400 | | | 23,028,288 |
| | | | | |
| | | | | 35,279,388 |
Airlines — 0.4% |
AMR Corp.(1) | | 717,150 | | | 3,671,808 |
| | | | | |
| | | | | 3,671,808 |
Biotechnology — 5.2% |
Celgene Corp.(1) | | 391,500 | | | 25,005,105 |
Cephalon, Inc.(1) | | 209,754 | | | 13,988,494 |
Gilead Sciences, Inc.(1) | | 175,200 | | | 9,276,840 |
| | | | | |
| | | | | 48,270,439 |
Capital Markets — 2.5% |
The Goldman Sachs Group, Inc. | | 134,100 | | | 23,454,090 |
| | | | | |
| | | | | 23,454,090 |
Commercial Services & Supplies — 3.3% |
Republic Services, Inc. | | 1,047,100 | | | 31,098,870 |
| | | | | |
| | | | | 31,098,870 |
Communications Equipment — 4.7% |
Nokia Oyj, ADR(2) | | 1,022,400 | | | 25,048,800 |
QUALCOMM, Inc. | | 425,400 | | | 18,874,998 |
| | | | | |
| | | | | 43,923,798 |
Computers & Peripherals — 2.2% |
Apple, Inc.(1) | | 58,900 | | | 9,862,216 |
EMC Corp.(1) | | 748,700 | | | 10,998,403 |
| | | | | |
| | | | | 20,860,619 |
Construction & Engineering — 2.4% |
KBR, Inc. | | 626,800 | | | 21,881,588 |
| | | | | |
| | | | | 21,881,588 |
Consumer Finance — 0.4% |
SLM Corp.(1) | | 197,300 | | | 3,817,755 |
| | | | | |
| | | | | 3,817,755 |
Diversified Financial Services — 3.6% |
Interactive Brokers Group, Inc., Class A(1) | | 515,280 | | | 16,555,946 |
JPMorgan Chase & Co. | | 483,000 | | | 16,571,730 |
| | | | | |
| | | | | 33,127,676 |
Diversified Telecommunication Services — 2.2% |
AT&T, Inc. | | 617,936 | | | 20,818,264 |
| | | | | |
| | | | | 20,818,264 |
Electrical Equipment — 0.8% |
Rockwell Automation, Inc. | | 175,700 | | | 7,683,361 |
| | | | | |
| | | | | 7,683,361 |
Electronic Equipment & Instruments — 0.5% |
Tyco Electronics Ltd. | | 132,875 | | | 4,759,583 |
| | | | | |
| | | | | 4,759,583 |
Energy Equipment & Services — 6.5% |
Halliburton Co. | | 1,132,900 | | | 60,123,003 |
| | | | | |
| | | | | 60,123,003 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Food Products — 4.2% |
Campbell Soup Co. | | 515,800 | | $ | 17,258,668 |
General Mills, Inc. | | 362,800 | | | 22,047,356 |
| | | | | |
| | | | | 39,306,024 |
Health Care Equipment & Supplies — 1.7% |
Covidien Ltd. | | 233,375 | | | 11,176,329 |
Hologic, Inc.(1) | | 215,300 | | | 4,693,540 |
| | | | | |
| | | | | 15,869,869 |
Health Care Providers & Services — 2.9% |
Cardinal Health, Inc. | | 289,300 | | | 14,922,094 |
Medco Health Solutions, Inc.(1) | | 249,000 | | | 11,752,800 |
| | | | | |
| | | | | 26,674,894 |
Hotels, Restaurants & Leisure — 1.7% |
McDonald’s Corp. | | 283,100 | | | 15,915,882 |
| | | | | |
| | | | | 15,915,882 |
Household Durables — 1.5% |
Newell Rubbermaid, Inc. | | 815,400 | | | 13,690,566 |
| | | | | |
| | | | | 13,690,566 |
Independent Power Producers & Energy Traders — 3.4% |
The AES Corp.(1) | | 1,626,200 | | | 31,239,302 |
| | | | | |
| | | | | 31,239,302 |
Industrial Conglomerates — 2.1% |
Tyco International Ltd. | | 476,900 | | | 19,095,076 |
| | | | | |
| | | | | 19,095,076 |
Information Technology Services — 5.8% |
Fidelity National Information Services, Inc. | | 232,534 | | | 8,582,830 |
MasterCard, Inc., Class A | | 144,200 | | | 38,287,984 |
Western Union Co. | | 290,000 | | | 7,168,800 |
| | | | | |
| | | | | 54,039,614 |
Insurance — 7.1% |
Aon Corp. | | 591,300 | | | 27,164,322 |
The Chubb Corp. | | 483,800 | | | 23,711,038 |
W. R. Berkley Corp. | | 632,800 | | | 15,288,448 |
| | | | | |
| | | | | 66,163,808 |
Internet Software & Services — 1.4% |
eBay, Inc.(1) | | 276,600 | | | 7,559,478 |
Google, Inc., Class A(1) | | 10,800 | | | 5,685,336 |
| | | | | |
| | | | | 13,244,814 |
Media — 3.1% |
Grupo Televisa S.A., ADR(2) | | 595,600 | | | 14,068,072 |
The McGraw-Hill Companies, Inc. | | 364,500 | | | 14,623,740 |
| | | | | |
| | | | | 28,691,812 |
Oil, Gas & Consumable Fuels — 5.9% |
Devon Energy Corp. | | 60,700 | | | 7,293,712 |
Enterprise Products Partners, L.P. | | 1,024,980 | | | 30,277,909 |
Kinder Morgan Energy Partners, L.P. | | 302,600 | | | 16,863,898 |
| | | | | |
| | | | | 54,435,519 |
The accompanying notes are an integral part of these financial statements.
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8 | | RS Core Equity VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Pharmaceuticals — 5.3% |
Abbott Laboratories | | 652,000 | | $ | 34,536,440 |
Schering-Plough Corp. | | 736,500 | | | 14,501,685 |
| | | | | |
| | | | | 49,038,125 |
Software — 2.3% |
Nintendo Co., Ltd., ADR(2) | | 300,800 | | | 21,010,880 |
| | | | | |
| | | | | 21,010,880 |
Specialty Retail — 2.1% |
Best Buy Co., Inc. | | 213,600 | | | 8,458,560 |
The Home Depot, Inc. | | 471,300 | | | 11,037,846 |
| | | | | |
| | | | | 19,496,406 |
Thrifts & Mortgage Finance — 4.0% |
Freddie Mac | | 457,900 | | | 7,509,560 |
People’s United Financial, Inc. | | 1,875,800 | | | 29,262,480 |
| | | | | |
| | | | | 36,772,040 |
Tobacco — 3.9% |
Altria Group, Inc. | | 611,000 | | | 12,562,160 |
Philip Morris International, Inc. | | 486,500 | | | 24,028,235 |
| | | | | |
| | | | | 36,590,395 |
Wireless Telecommunication Services — 2.3% |
America Movil SAB de C.V., ADR, Series L(2) | | 401,700 | | | 21,189,675 |
| | | | | |
| | | | | 21,189,675 |
| | | | | |
Total Common Stocks (Cost $874,925,510) | | | | | 921,234,943 |
| | |
| | Shares | | Value |
Other Investments—For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3) | | 188 | | | 7,610 |
RS Emerging Growth Fund, Class Y(3) | | 256 | | | 8,863 |
RS Emerging Markets Fund, Class A(3) | | 251 | | | 6,078 |
RS Equity Dividend Fund, Class Y(3) | | 113 | | | 953 |
RS Global Natural Resources Fund, Class Y(3) | | 130 | | | 5,683 |
RS Growth Fund, Class Y(3) | | 389 | | | 4,805 |
RS Investment Quality Bond Fund, Class A(3) | | 101 | | | 974 |
RS Investors Fund, Class Y(3) | | 353 | | | 3,349 |
RS MidCap Opportunities Fund, Class Y(3) | | 181 | | | 2,188 |
RS Partners Fund, Class Y(3) | | 172 | | | 5,119 |
RS S&P 500 Index Fund, Class A(3) | | 105 | | | 929 |
RS Smaller Company Growth Fund, Class Y(3) | | 102 | | | 1,709 |
RS Technology Fund, Class Y(3) | | 186 | | | 2,731 |
RS Value Fund, Class Y(3) | | 351 | | | 9,004 |
| | | | | |
Total Other Investments (Cost $63,587) | | | | | 59,995 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Short-Term Investments — 0.4% |
State Street Institutional Liquid Reserves(4) | | 3,672,806 | | $ | 3,672,806 |
| | | | | |
Total Short-Term Investment (Cost $3,672,806) | | | | | 3,672,806 |
| | | | | |
Total Investments — 99.6% (Cost $878,661,903) | | | | | 924,967,744 |
| | | | | |
Other Assets, Net — 0.4% | | | | | 3,297,102 |
| | | | | |
Total Net Assets — 100.0% | | | | $ | 928,264,846 |
(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 2b in Notes to Financial Statements. |
(4) | Money Market Fund registered under the Investment Company Act of 1940. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 – Quoted Prices | | $ | 924,967,744 |
Level 2 – Significant Other Observable Inputs | | | — |
Level 3 – Significant Unobservable Inputs | | | — |
Total | | $ | 924,967,744 |
The accompanying notes are an integral part of these financial statements.
| | |
RS Core Equity VIP Series | | 9 |
| | |
| | Financial Information — RS Core Equity VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 924,967,744 | |
Receivable for investments sold | | | 3,964,828 | |
Dividends/interest receivable | | | 928,920 | |
Receivable for fund shares subscribed | | | 229,345 | |
Due from distributor | | | 8,175 | |
Prepaid expenses | | | 26,085 | |
| | | | |
Total Assets | | | 930,125,097 | |
| | | | |
Liabilities | | | | |
Payable for fund shares redeemed | | | 1,041,535 | |
Payable to adviser | | | 398,505 | |
Accrued shareholder reports expense | | | 216,948 | |
Trustees’ deferred compensation | | | 59,995 | |
Payable for investments purchased | | | 12,309 | |
Accrued expenses/other liabilities | | | 130,959 | |
| | | | |
Total Liabilities | | | 1,860,251 | |
| | | | |
Total Net Assets | | $ | 928,264,846 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 1,122,908,574 | |
Accumulated undistributed net investment income | | | 5,970,443 | |
Accumulated net realized loss from investments | | | (246,920,012 | ) |
Net unrealized appreciation on investments | | | 46,305,841 | |
| | | | |
Total Net Assets | | $ | 928,264,846 | |
| | | | |
Investments, at Cost | | $ | 878,661,903 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 25,379,026 | |
| |
Net Asset Value Per Share | | | $36.58 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 90,570 | |
Dividends | | | 8,486,475 | |
Withholding taxes on foreign dividends | | | (137,483 | ) |
| | | | |
Total Investment Income | | | 8,439,562 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 2,475,906 | |
Shareholder reports | | | 117,421 | |
Professional fees | | | 103,842 | |
Custodian fees | | | 48,617 | |
Administrative service fees | | | 74,427 | |
Trustees’ fees and expenses | | | 33,209 | |
Insurance expense | | | 17,681 | |
Other expense | | | 13,378 | |
| | | | |
Total Expenses | | | 2,884,481 | |
Less: Fee waiver by distributor | | | (61,840 | ) |
| | | | |
Total Expenses, Net | | | 2,822,641 | |
| | | | |
Net Investment Income | | | 5,616,921 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation (Depreciation) on Investments | | | | |
Net realized gain from investments | | | 13,188,495 | |
Net change in unrealized depreciation on investments | | | (69,393,254 | ) |
| | | | |
Net Loss on Investments | | | (56,204,759 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (50,587,838 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Core Equity VIP Series |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 5,616,921 | | | $ | 10,183,566 | |
Net realized gain from investments and foreign currency transactions | | | 13,188,495 | | | | 159,843,003 | |
Net change in unrealized depreciation on investments and on translation of assets and liabilities in foreign currency | | | (69,393,254 | ) | | | (17,240,939 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (50,587,838 | ) | | | 152,785,630 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (9,822,651 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (9,822,651 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 26,269,061 | | | | 54,330,025 | |
Reinvestment of distributions | | | — | | | | 9,822,651 | |
Cost of shares redeemed | | | (130,204,748 | ) | | | (173,192,410 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Capital Share Transactions | | | (103,935,687 | ) | | | (109,039,734 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | (154,523,525 | ) | | | 33,923,245 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 1,082,788,371 | | | | 1,048,865,126 | |
| | | | | | | | |
End of period | | $ | 928,264,846 | | | $ | 1,082,788,371 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 5,970,443 | | | $ | 353,522 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 705,831 | | | | 1,452,212 | |
Reinvested | | | — | | | | 257,609 | |
Redeemed | | | (3,504,978 | ) | | | (4,683,847 | ) |
| | | | | | | | |
Net Decrease | | | (2,799,147 | ) | | | (2,974,026 | ) |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS Core Equity VIP Series | | 11 |
| | |
| | Financial Information — RS Core Equity 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 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 From Net Investment Income | | Distributions From Net Realized Capital Gains | | Total Distributions |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 38.43 | | $ | 0.22 | | $ | (2.07 | ) | | $ | (1.85 | ) | | $ | — | | $ | — | | $ | — |
| | | | | | | |
Year Ended 12/31/07 | | | 33.67 | | | 0.36 | | | 4.75 | | | | 5.11 | | | | (0.35) | | | — | | | (0.35) |
| | | | | | | |
Year Ended 12/31/06 | | | 29.29 | | | 0.39 | | | 4.59 | | | | 4.98 | | | | (0.60) | | | — | | | (0.60) |
| | | | | | | |
Year Ended 12/31/05 | | | 28.42 | | | 0.50 | | | 0.70 | | | | 1.20 | | | | (0.33) | | | — | | | (0.33) |
| | | | | | | |
Year Ended 12/31/04 | | | 27.30 | | | 0.39 | | | 1.23 | | | | 1.62 | | | | (0.50) | | | — | | | (0.50) |
| | | | | | | |
Year Ended 12/31/03 | | | 22.71 | | | 0.28 | | | 4.57 | | | | 4.85 | | | | (0.26) | | | — | | | (0.26) |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS Core Equity VIP Series |
| | | | | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return3 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets2 | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Income to Average Net Assets2 | | | Gross Ratio of Net Investment Income to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$36.58 | | (4.81 | )% | | $ | 928,265 | | 0.57 | % | | 0.58 | % | | 1.13 | % | | 1.12 | % | | 23 | % |
| | | | | | | |
38.43 | | 15.19 | % | | | 1,082,788 | | 0.57 | % | | 0.57 | % | | 0.93 | % | | 0.93 | % | | 60 | % |
| | | | | | | |
33.67 | | 17.26 | % | | | 1,048,865 | | 0.57 | % | | 0.57 | % | | 1.17 | % | | 1.17 | % | | 85 | % |
| | | | | | | |
29.29 | | 4.30 | % | | | 1,035,234 | | 0.56 | % | | 0.56 | % | | 1.67 | % | | 1.67 | % | | 103 | % |
| | | | | | | |
28.42 | | 6.00 | % | | | 1,261,203 | | 0.54 | % | | 0.54 | % | | 1.29 | % | | 1.29 | % | | 76 | % |
| | | | | | | |
27.30 | | 21.45 | % | | | 1,454,546 | | 0.54 | % | | 0.54 | % | | 1.06 | % | | 1.06 | % | | 77 | % |
Distributions reflect actual per-share amounts distributed for the period.
| 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, if applicable. |
| 3 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’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.
| | |
RS Core Equity VIP Series | | 13 |
| | |
| | Notes to Financial Statements — RS Core Equity VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Core Equity VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
In its normal course of business, the Fund may invest a significant portion of its assets in companies concentrated within a number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hier-
| | |
14 | | RS Core Equity VIP Series |
archy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 – quoted prices in active markets for identical investments |
Ø | | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income,
| | |
RS Core Equity VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS Core Equity VIP Series (unaudited) (continued) |
which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
| | | | | | |
Amount Outstanding at 06/30/08 | | Average Borrowing* | | Average Interest Rate* | |
$ — | | $ | 301,464 | | 2.56 | % |
* | For the six months ended June 30, 2008. |
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.50%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
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 the Fund’s total annual fund operating expenses to 0.57% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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
| | |
16 | | RS Core Equity VIP Series |
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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
|
Undistributed Ordinary Income |
$411,975 |
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.
Capital loss carryovers available to the Fund at December 31, 2007 were as follows:
| | |
Expiring | | Amount |
2010 | | $164,712,479 |
2011 | | 95,938,938 |
| | |
Total | | $260,651,417 |
During the year ended December 31, 2007, the Fund utilized capital loss carryovers of $158,879,718.
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, 2007, which is the most recently completed tax year, the Fund had no such losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $878,203,554. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $137,074,417 and $(90,310,227), respectively, resulting in net unrealized appreciation of $46,764,190.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $231,054,396 and $326,742,573, respectively, for the six months ended June 30,2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies
| | |
RS Core Equity VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Core Equity VIP Series (unaudited) (continued) |
may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
| | |
18 | | RS Core Equity VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between
October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint
originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
| | |
RS Core Equity VIP Series | | 19 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 — 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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20 | | RS Core Equity VIP Series |
capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at
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RS Core Equity VIP Series | | 21 |
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| | Supplemental Information — unaudited (continued) |
rates generally lower than it charges to other advisory clients.
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also consid ered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as
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22 | | RS Core Equity VIP Series |
well as other RS Investments clients’) portfolio transactions and from third parties with which these broker- dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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
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RS Core Equity VIP Series | | 23 |
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| | Supplemental Information — unaudited (continued) |
Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 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 Core Equity VIP Series |
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| | Trustees and Officers Information Table |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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RS Core Equity VIP Series | | 25 |
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| | Supplemental Information — unaudited (continued) |
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| | Trustees and Officers Information Table (continued) |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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26 | | RS Core Equity VIP Series |
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| | Trustees and Officers Information Table (continued) |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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RS Core Equity VIP Series | | 27 |
RS Variable Products Trust
RS Small Cap Core Equity VIP Series
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06.30.08 | | |
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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, 2008. 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.
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| | RS Small Cap Core Equity VIP Series |
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| | Matthew P. Ziehl, CFA 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 a managing director at 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. |
* | Includes service as a portfolio manager or co-portfolio manager, as applicable, of the Fund’s predecessor fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
The Statement of Additional Information provides further information about the portfolio manager, including information regarding his compensation, other accounts he manages, and his ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | RS Small Cap Core Equity VIP Series underperformed its benchmark during a challenging period for the equity markets. |
Ø | | Performance relative to the Russell 2000® Index3 was hindered by stock selection in the energy, industrials and consumer staples sectors. |
Ø | | Stock selection and below-benchmark weightings in the consumer discretionary and financials sectors aided the Fund’s relative returns. |
Market Overview
U.S. stocks fell sharply during the first quarter, with investors spooked by a weakening economy and growing concerns about the health of the financial system. The market began to recover some lost ground early in the second quarter, however, as the Federal Reserve took aggressive action to restore market liquidity, cutting the Federal Funds rate by 225 basis points by mid-April. Nonetheless, this resurgence proved short-lived as markets again succumbed to investor unease over surging energy and food prices, an ailing housing market and a softening economy. For the six-month period ending June 30, 2008, the S&P 500® Index4 declined 11.91%, the Dow Jones Industrial Average5 declined 13.38% and the Russell 2000® Index declined 9.37%.
Performance
RS Small Cap Core Equity VIP Series declined 11.17% in the six-month period ending June 30, 2008, underperforming its benchmark, the Russell 2000® Index, which declined 9.37%.
Portfolio Review
During a period when most sectors of the market suffered declines, energy shares were one bright spot. Unfortunately, while the Fund benefited from a modest overweighting in the energy sector and from solid gains by a few individual holdings, overall stock selection in this area detracted from the Fund’s relative performance. Two energy holdings in particular suffered sharp declines, Targa Resources Partners LP, a U.S. provider of midstream natural gas, and Holly Corporation, a petroleum refiner.
The Fund’s relative performance also suffered from stock selection in the industrials sector, largely due to its overweight exposure to ailing aerospace-related holdings, including aircraft services and parts supplier AAR Corp. Aircraft-related stocks have been pressured by concerns over the health of a U.S. airline industry
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RS Small Cap Core Equity VIP Series | | 3 |
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| | RS Small Cap Core Equity VIP Series (continued) |
squeezed by soaring fuel costs and weaker customer demand. The Fund’s stock selection in the trailing consumer staples area also detracted from performance, with notable weakness in organic foods distributor United Natural Foods Inc.
Among the stocks that weighed heaviest on Fund performance for the period were TheStreet.com, an internet based financial information company, and Blue Coat Systems Inc., which supplies computer applications that help screen out unwanted emails and potential computer viruses. We had trimmed our investment in TheStreet.com late in 2007 after its strong performance last year. Shares of the company subsequently sank in the first quarter due to concerns over its failure to reach a contract with its founder and major shareholder, as well as because of investor uncertainty in measuring changes in site traffic after a redesign of the website. We believe the market overreacted to these developments and that the stock remains attractively valued. Shares of Blue Coat Systems, meanwhile, sank after it reported lower than expected profits in May, reflecting weakness in its North American Market.
On a positive note, relative Fund performance benefited from both stock selection and an underweighting in the consumer discretionary sector, as we continued to largely avoid consumer durables, media and specialty retailing names. The Fund also benefited from its focus on more value-oriented restaurant stocks, which we think should perform better in a weak economy. One standout was pizza restaurant chain Papa John’s International Inc.
Meanwhile, the Fund’s relative performance also benefited from its stock selection and below-benchmark weighting in the beleaguered financials sector, notably in the commercial banking industry. Relative stock selection in the health care sector was also generally positive, with strong performance by genetic and molecular testing equipment provider Sequenom Inc.
Top positive contributors from other sectors included GMX Resources Inc., a natural gas exploration and production company that has been expanding its proven gas reserves through drilling operations in east Texas, and Gardner Denver, Inc., which supplies compressor and vacuum equipment used in industrial applications and oil and gas drilling. The Fund’s modest cash position also aided relative performance.
Outlook
While we do not attempt to make formal economic or market forecasts, we recognize that the U.S. economy has continued to weaken under the weight of a spreading credit crisis. Additionally, a lack of credit availability has reduced confidence and capital spending plans for corporations, as well as for consumers. While we have been encouraged by the Fed’s aggressive response to these pressures, we recognize that it could take time for banks to repair their loan portfolios. We believe our management of the Fund reflects this challenging environment. As we consider each potential investment, we are seeking businesses with limited economic sensitivity, strong balance sheets and cash flows that we think will allow management teams to execute business plans independent of their ability to raise external debt or equity capital.
Thank you for your investment and your ongoing support.
Matthew P. Ziehl
Portfolio Manager
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4 | | RS Small Cap Core Equity VIP Series |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. Small cap investing entails special risks. 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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RS Small Cap Core Equity VIP Series | | 5 |
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| | RS Small Cap Core Equity VIP Series (continued) |
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Total Net Assets: $153,419,585 | | Data as of June 30, 2008 |
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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 |
Digital Realty Trust, Inc. | | 3.17% |
Psychiatric Solutions, Inc. | | 3.12% |
Savient Pharmaceuticals, Inc. | | 2.75% |
FactSet Research Systems, Inc. | | 2.72% |
Jack in the Box, Inc. | | 2.54% |
Hanover Insurance Group, Inc. | | 2.52% |
CACI International, Inc. | | 2.17% |
Holly Corp. | | 2.15% |
NeuStar, Inc. | | 2.13% |
Targa Resources Partners, L.P. | | 1.97% |
Total | | 25.24% |
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. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
4 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
5 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
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6 | | RS Small Cap Core Equity VIP Series |
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| | Performance Update Average Annual Returns as of 06/30/08 |
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| | 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 | | -11.17% | | -16.45% | | 4.46% | | 9.61% | | 4.89% | | 7.90% |
Russell 2000® Index3 | | | | -9.37% | | -16.19% | | 3.79% | | 10.29% | | 5.53% | | 7.71% |
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| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made 10 years ago in RS Small Cap Core Equity VIP Series and in 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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RS Small Cap Core Equity 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $888.30 | | $3.99 | | 0.85% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,020.64 | | $4.27 | | 0.85% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
8 | | RS Small Cap Core Equity VIP Series |
| | |
| | Schedule of Investments – RS Small Cap Core Equity VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 97.7% |
Aerospace & Defense — 3.3% |
AAR Corp.(1) | | 144,200 | | $ | 1,951,026 |
BE Aerospace, Inc.(1) | | 68,200 | | | 1,588,378 |
Ceradyne, Inc.(1) | | 42,200 | | | 1,447,460 |
| | | | | |
| | | | | 4,986,864 |
Biotechnology — 4.1% |
Achillion Pharmaceuticals, Inc.(1) | | 61,500 | | | 137,145 |
AspenBio Pharma, Inc.(1) | | 121,600 | | | 775,808 |
Omrix Biopharmaceuticals, Inc.(1) | | 74,022 | | | 1,165,106 |
Savient Pharmaceuticals, Inc.(1) | | 166,900 | | | 4,222,570 |
| | | | | |
| | | | | 6,300,629 |
Capital Markets — 1.5% |
Apollo Investment Corp. | | 156,355 | | | 2,240,567 |
| | | | | |
| | | | | 2,240,567 |
Chemicals — 1.7% |
Cytec Industries, Inc. | | 48,100 | | | 2,624,336 |
| | | | | |
| | | | | 2,624,336 |
Commercial Banks — 3.4% |
Hancock Holding Co. | | 38,300 | | | 1,504,807 |
IBERIABANK Corp. | | 39,300 | | | 1,747,671 |
PrivateBancorp, Inc. | | 67,100 | | | 2,038,498 |
| | | | | |
| | | | | 5,290,976 |
Commercial Services & Supplies — 1.0% |
Waste Connections, Inc.(1) | | 50,000 | | | 1,596,500 |
| | | | | |
| | | | | 1,596,500 |
Communications Equipment — 3.3% |
Blue Coat Systems, Inc.(1) | | 71,780 | | | 1,012,816 |
Comtech Telecommunications Corp.(1) | | 34,400 | | | 1,685,600 |
Foundry Networks, Inc.(1) | | 195,100 | | | 2,306,082 |
| | | | | |
| | | | | 5,004,498 |
Construction & Engineering — 2.4% |
Aecom Technology Corp.(1) | | 76,600 | | | 2,491,798 |
Perini Corp.(1) | | 33,700 | | | 1,113,785 |
| | | | | |
| | | | | 3,605,583 |
Containers & Packaging — 1.3% |
Packaging Corp. of America | | 89,200 | | | 1,918,692 |
| | | | | |
| | | | | 1,918,692 |
Diversified Consumer Services — 1.2% |
Capella Education Co.(1) | | 32,100 | | | 1,914,765 |
| | | | | |
| | | | | 1,914,765 |
Diversified Telecommunication Services — 1.6% |
PAETEC Holding Corp.(1) | | 377,480 | | | 2,396,998 |
| | | | | |
| | | | | 2,396,998 |
Electric Utilities — 1.1% |
Cleco Corp. | | 74,900 | | | 1,747,417 |
| | | | | |
| | | | | 1,747,417 |
Electrical Equipment — 1.8% |
Regal-Beloit Corp. | | 66,900 | | | 2,826,525 |
| | | | | |
| | | | | 2,826,525 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Electronic Equipment & Instruments — 0.4% |
Universal Display Corp.(1) | | 48,800 | | $ | 601,216 |
| | | | | |
| | | | | 601,216 |
Energy Equipment & Services — 1.2% |
Dril-Quip, Inc.(1) | | 28,800 | | | 1,814,400 |
| | | | | |
| | | | | 1,814,400 |
Food Products — 3.8% |
B&G Foods, Inc., Class A | | 261,550 | | | 2,442,877 |
Ralcorp Holdings, Inc.(1) | | 52,600 | | | 2,600,544 |
Zhongpin, Inc.(1) | | 67,600 | | | 845,000 |
| | | | | |
| | | | | 5,888,421 |
Health Care Equipment & Supplies — 5.1% |
Immucor, Inc.(1) | | 77,100 | | | 1,995,348 |
Meridian Bioscience, Inc. | | 43,800 | | | 1,179,096 |
NuVasive, Inc.(1) | | 64,700 | | | 2,889,502 |
Volcano Corp.(1) | | 147,800 | | | 1,803,160 |
| | | | | |
| | | | | 7,867,106 |
Health Care Providers & Services — 7.1% |
Air Methods Corp.(1) | | 40,900 | | | 1,022,500 |
Brookdale Senior Living, Inc. | | 85,400 | | | 1,738,744 |
HMS Holdings Corp.(1) | | 44,700 | | | 959,709 |
Pediatrix Medical Group, Inc.(1) | | 49,300 | | | 2,427,039 |
Psychiatric Solutions, Inc.(1) | | 126,600 | | | 4,790,544 |
| | | | | |
| | | | | 10,938,536 |
Hotels, Restaurants & Leisure — 5.4% |
Chipotle Mexican Grill, Inc., Class B(1) | | 17,800 | | | 1,341,408 |
Jack in the Box, Inc.(1) | | 174,200 | | | 3,903,822 |
Papa John’s International, Inc.(1) | | 56,300 | | | 1,497,017 |
WMS Industries, Inc.(1) | | 49,500 | | | 1,473,615 |
| | | | | |
| | | | | 8,215,862 |
Information Technology Services — 4.3% |
CACI International, Inc., Class A(1) | | 72,700 | | | 3,327,479 |
NeuStar, Inc., Class A(1) | | 151,700 | | | 3,270,652 |
| | | | | |
| | | | | 6,598,131 |
Insurance — 4.2% |
AmTrust Financial Services, Inc. | | 205,500 | | | 2,589,300 |
Hanover Insurance Group, Inc. | | 91,000 | | | 3,867,500 |
| | | | | |
| | | | | 6,456,800 |
Internet Software & Services — 1.1% |
TheStreet.com, Inc. | | 255,281 | | | 1,661,879 |
| | | | | |
| | | | | 1,661,879 |
Life Sciences Tools & Services — 1.8% |
Sequenom, Inc.(1) | | 174,600 | | | 2,786,616 |
| | | | | |
| | | | | 2,786,616 |
Machinery — 3.1% |
EnPro Industries, Inc.(1) | | 62,551 | | | 2,335,654 |
FreightCar America, Inc. | | 21,800 | | | 773,900 |
Gardner Denver, Inc.(1) | | 29,050 | | | 1,650,040 |
| | | | | |
| | | | | 4,759,594 |
The accompanying notes are an integral part of these financial statements.
| | |
RS Small Cap Core Equity VIP Series | | 9 |
| | |
| | Schedule of Investments – RS Small Cap Core Equity VIP Series (continued) |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Oil, Gas & Consumable Fuels — 9.9% |
GeoMet, Inc.(1) | | 205,091 | | $ | 1,944,263 |
GMX Resources, Inc.(1) | | 29,485 | | | 2,184,839 |
Holly Corp. | | 89,200 | | | 3,293,264 |
SemGroup Energy Partners, L.P. | | 112,780 | | | 2,857,845 |
Targa Resources Partners, L.P. | | 130,893 | | | 3,017,084 |
Teekay LNG Partners, L.P. | | 72,500 | | | 1,908,925 |
| | | | | |
| | | | | 15,206,220 |
Pharmaceuticals — 0.5% |
Biodel, Inc.(1) | | 54,523 | | | 708,799 |
| | | | | |
| | | | | 708,799 |
Real Estate Investment Trusts — 6.7% |
CapLease, Inc. | | 232,400 | | | 1,740,676 |
Chimera Investment Corp. | | 216,613 | | | 1,951,683 |
Digital Realty Trust, Inc. | | 118,880 | | | 4,863,381 |
Healthcare Realty Trust, Inc. | | 71,500 | | | 1,699,555 |
| | | | | |
| | | | | 10,255,295 |
Semiconductors & Semiconductor Equipment — 5.2% |
Atheros Communications(1) | | 53,800 | | | 1,614,000 |
Cavium Networks, Inc.(1) | | 74,300 | | | 1,560,300 |
Netlogic Microsystems, Inc.(1) | | 22,700 | | | 753,640 |
Silicon Motion Technology Corp., ADR(1)(2) | | 125,200 | | | 1,809,140 |
Varian Semiconductor Equipment Associates, Inc.(1) | | 64,300 | | | 2,238,926 |
| | | | | |
| | | | | 7,976,006 |
Software — 6.8% |
Blackboard, Inc.(1) | | 60,500 | | | 2,312,915 |
FactSet Research Systems, Inc. | | 74,000 | | | 4,170,640 |
Informatica Corp.(1) | | 148,400 | | | 2,231,936 |
Take-Two Interactive Software, Inc.(1) | | 64,800 | | | 1,656,936 |
| | | | | |
| | | | | 10,372,427 |
Specialty Retail — 0.7% |
OfficeMax, Inc. | | 80,800 | | | 1,123,120 |
| | | | | |
| | | | | 1,123,120 |
Textiles, Apparel & Luxury Goods — 2.7% |
Phillips-Van Heusen Corp. | | 46,000 | | | 1,684,520 |
Quiksilver, Inc.(1) | | 252,600 | | | 2,480,532 |
| | | | | |
| | | | | 4,165,052 |
| | | | | |
Total Common Stocks (Cost $154,786,447) | | | | | 149,849,830 |
| | |
| | Shares | | Value |
Exchange-Traded Funds — 1.1% |
Equity — 1.1% |
iShares Russell 2000 Index Fund | | 25,200 | | | 1,739,556 |
| | | | | |
| | | | | 1,739,556 |
| | | | | |
Total Exchange-Traded Funds (Cost $1,851,502) | | | | | 1,739,556 |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value | |
| | | | | | |
Other Investments — For Trustee Deferred Compensation Plan — 0.0% | |
RS Core Equity Fund, Class Y(3) | | 37 | | $ | 1,492 | |
RS Emerging Growth Fund, Class Y(3) | | 49 | | | 1,699 | |
RS Emerging Markets Fund, Class A(3) | | 50 | | | 1,200 | |
RS Equity Dividend Fund, Class Y(3) | | 20 | | | 168 | |
RS Global Natural Resources Fund, Class Y(3) | | 25 | | | 1,073 | |
RS Growth Fund, Class Y(3) | | 82 | | | 1,009 | |
RS Investment Quality Bond Fund, Class A(3) | | 18 | | | 171 | |
RS Investors Fund, Class Y(3) | | 78 | | | 740 | |
RS MidCap Opportunities Fund, Class Y(3) | | 40 | | | 480 | |
RS Partners Fund, Class Y(3) | | 32 | | | 964 | |
RS S&P 500 Index Fund, Class A(3) | | 19 | | | 163 | |
RS Smaller Company Growth Fund, Class Y(3) | | 18 | | | 300 | |
RS Technology Fund, Class Y(3) | | 38 | | | 553 | |
RS Value Fund, Class Y(3) | | 69 | | | 1,770 | |
| | | | | | |
Total Other Investments (Cost $12,176) | | | | | 11,782 | |
| | |
| | Shares | | Value | |
Short-Term Investments — 1.7% | |
State Street Institutional Liquid Reserves(4) | | 2,606,642 | | | 2,606,642 | |
| | | | | | |
Total Short-Term Investments (Cost $2,606,642) | | | | | 2,606,642 | |
| | | | | | |
Total Investments — 100.5% (Cost $159,256,767) | | | | | 154,207,810 | |
| | | | | | |
Other Liabilities, Net — (0.5)% | | | | | (788,225 | ) |
| | | | | | |
Total Net Assets — 100.0% | | | | $ | 153,419,585 | |
(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 2b in Notes to Financial Statements. |
(4) | Money Market Fund registered under the Investment Company Act of 1940. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
| |
Valuation Inputs | | Investments in Securities |
Level 1 — Quoted Prices | | $ | 154,207,810 |
Level 2 — Significant Other Observable Inputs | | | — |
Level 3 — Significant Unobservable Inputs | | | — |
Total | | $ | 154,207,810 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Small Cap Core Equity VIP Series |
| | |
| | Financial Information — RS Small Cap Core Equity VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 154,207,810 | |
Receivable for investments sold | | | 1,035,449 | |
Dividends/interest receivable | | | 207,833 | |
Receivable for fund shares subscribed | | | 66,403 | |
Due from distributor | | | 2,138 | |
Prepaid expenses | | | 3,947 | |
| | | | |
Total Assets | | | 155,523,580 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 1,880,466 | |
Payable for fund shares redeemed | | | 42,816 | |
Payable to adviser | | | 100,599 | |
Trustees’ deferred compensation | | | 11,782 | |
Accrued expenses/other liabilities | | | 68,332 | |
| | | | |
Total Liabilities | | | 2,103,995 | |
| | | | |
Total Net Assets | | $ | 153,419,585 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 173,888,561 | |
Accumulated undistributed net investment income | | | 201,013 | |
Accumulated net realized loss from investments | | | (15,621,032 | ) |
Net unrealized depreciation on investments | | | (5,048,957 | ) |
| | | | |
Total Net Assets | | $ | 153,419,585 | |
| | | | |
Investments, at Cost | | $ | 159,256,767 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 14,609,942 | |
| |
Net Asset Value Per Share | | | $10.50 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 43,453 | |
Dividends | | | 904,104 | |
| | | | |
Total Investment Income | | | 947,557 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 646,884 | |
Custodian fees | | | 17,069 | |
Professional fees | | | 23,898 | |
Shareholder reports | | | 28,615 | |
Trustees’ fees and expenses | | | 6,177 | |
Insurance expense | | | 4,171 | |
Administrative service fees | | | 14,187 | |
Other expense | | | 2,468 | |
| | | | |
Total Expenses | | | 743,469 | |
Less: Fee waiver by distributor | | | (10,308 | ) |
Less: Custody credits | | | (1 | ) |
| | | | |
Total Expenses, Net | | | 733,160 | |
| | | | |
Net Investment Income | | | 214,397 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized loss from investments | | | (15,630,492 | ) |
Net change in unrealized depreciation on investments | | | (6,237,177 | ) |
| | | | |
Net Loss on Investments | | | (21,867,669 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (21,653,272 | ) |
| | | | |
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 (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 214,397 | | | $ | 1,564,386 | |
Net realized gain/(loss) from investments | | | (15,630,492 | ) | | | 43,133,865 | |
Net change in unrealized depreciation on investments | | | (6,237,177 | ) | | | (30,562,080 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (21,653,272 | ) | | | 14,136,171 | |
| | | | | | | | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (1,748,917 | ) |
Net realized gain on investments | | | — | | | | (49,000,572 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (50,749,489 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 2,520,318 | | | | 10,309,306 | |
Reinvestment of distributions | | | — | | | | 50,749,489 | |
Cost of shares redeemed | | | (30,534,292 | ) | | | (54,368,338 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (28,013,974 | ) | | | 6,690,457 | |
| | | | | | | | |
Net Decrease in Net Assets | | | (49,667,246 | ) | | | (29,922,861 | ) |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 203,086,831 | | | | 233,009,692 | |
| | | | | | | | |
End of period | | $ | 153,419,585 | | | $ | 203,086,831 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income/(Loss) Included in Net Assets | | $ | 201,013 | | | $ | (13,384 | ) |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 234,936 | | | | 637,341 | |
Reinvested | | | — | | | | 4,337,563 | |
Redeemed | | | (2,812,117 | ) | | | (3,290,572 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (2,577,181 | ) | | | 1,684,332 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS Small Cap Core Equity VIP Series |
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| | |
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 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 distributions).
| | |
| | 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 Operations | | | Distributions From Net Investment Income | | | Distributions From Net Realized Capital Gains | | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 11.82 | | $ | 0.01 | | | $ | (1.33 | ) | | $ | (1.32 | ) | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 15.03 | | | 0.13 | | | | 0.60 | | | | 0.73 | | | | (0.14 | ) | | | (3.80 | ) | | | (3.94 | ) |
| | | | | | | |
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 | | | | — | | | | — | | | | — | |
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 Return2 | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | Gross Ratio of Expenses to Average Net Assets | | Net Ratio of Net Investment Income/ (Loss) to Average Net Assets3 | | Gross Ratio of Net Investment Income/ (Loss) to Average Net Assets | | Portfolio Turnover Rate |
| | | | | | | |
$10.50 | | (11.17)% | | $ | 153,420 | | 0.85% | | 0.86% | | 0.25% | | 0.24% | | 57% |
| | | | | | | |
11.82 | | 5.13% | | | 203,087 | | 0.85% | | 0.85% | | 0.68% | | 0.68% | | 149% |
| | | | | | | |
15.03 | | 17.17% | | | 233,010 | | 0.85% | | 0.85% | | 0.12% | | 0.12% | | 136% |
| | | | | | | |
14.13 | | 0.16% | | | 239,079 | | 0.84% | | 0.84% | | 0.24% | | 0.24% | | 133% |
| | | | | | | |
17.22 | | 15.17% | | | 304,309 | | 0.82% | | 0.82% | | (0.28)% | | (0.28)% | | 125% |
| | | | | | | |
17.83 | | 43.44% | | | 303,927 | | 0.83% | | 0.83% | | (0.24)% | | (0.24)% | | 107% |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratio for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income/(Loss) to Average Net Assets include the effect of custody credits, if applicable. |
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 (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Small Cap Core Equity VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
In its normal course of business, the Fund may invest a significant portion of its assets in companies concentrated within a number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable
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16 | | RS Small Cap Core Equity VIP Series |
market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 – quoted prices in active markets for identical investments |
Ø | | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income,
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RS Small Cap Core Equity VIP Series | | 17 |
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| | Notes to Financial Statements — RS Small Cap Core Equity VIP Series (unaudited) (continued) |
which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.75%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
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 the Fund’s total annual fund operating expenses to 0.85% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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
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18 | | RS Small Cap Core Equity VIP Series |
compensation obligation to a Trustee by investing in one or more of such designated RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
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Ordinary Income Total | | Long-Term Capital Gain Total |
$ | 20,005,742 | | $ | 30,743,747 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
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Undistributed Long-Term Capital Gains |
$ | 886,741 |
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.
During the year ended December 31, 2007, the Fund did not utilize capital loss carryovers and no capital loss carryovers are available for use in future offsets.
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, 2007, which is the most recently completed tax year, the Fund had no such losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $161,657,614. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $14,014,902 and $(21,464,706), respectively, resulting in net unrealized depreciation of $(7,449,804).
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $98,738,373 and $124,685,825, respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest
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RS Small Cap Core Equity VIP Series | | 19 |
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| | Notes to Financial Statements — RS Small Cap Core Equity VIP Series (unaudited) (continued) |
accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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.
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20 | | RS Small Cap Core Equity VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS Small Cap Core Equity VIP Series | | 21 |
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| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 - 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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22 | | RS Small Cap Core Equity VIP Series |
capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
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RS Small Cap Core Equity VIP Series | | 23 |
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| | Supplemental Information — unaudited (continued) |
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio transactions and from third parties with which these
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24 | | RS Small Cap Core Equity VIP Series |
broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 800-221-3253.
| | |
RS Small Cap Core Equity VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
| | |
26 | | RS Small Cap Core Equity VIP Series |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
| | |
RS Small Cap Core Equity VIP Series | | 27 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
| | |
28 | | RS Small Cap Core Equity VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
| | |
RS Small Cap Core Equity VIP Series | | 29 |
RS Variable Products Trust
RS Large Cap Value VIP Series
| | |
06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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.
| | |
| | RS Large Cap Value VIP Series |
RS Investments (RS) is the investment adviser for the RS Funds. UBS Global Asset Management (Americas) Inc. (UBS) serves as investment subadviser for 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.
| | |
| | John Leonard, CFA John Leonard (UBS) has been a member of the investment management team of RS Large Cap Value VIP Series since 2003.* Mr. Leonard is the head of Global Equities at UBS Global AM and is responsible for overseeing the other members of the team, leading the portfolio construction process and reviewing the overall composition of the Fund’s portfolio to ensure compliance with its stated investment objective and strategies. Mr. Leonard is also a managing director of UBS Global AM and has been an investment professional with UBS Global AM since 1991. Prior to joining UBS Global AM in 1991, Mr. Leonard worked as an investment manager at a real estate management company. He holds an A.B. from Dartmouth College and an M.B.A. from the University of Chicago. |
| |
| | Thomas M. Cole, CFA Thomas M. Cole (UBS) has been a member of the investment management team of RS Large Cap Value VIP Series since 2003.* Mr. Cole is the director of research for the Fund’s investment team, responsible for overseeing 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. Cole is also Head of North American Equities and a managing director of UBS Global AM, where he has been an investment professional since 1995. He received a B.B.A. and an M.B.A. from the University of Wisconsin. |
| |
| | Thomas Digenan, CFA Thomas Digenan (UBS) has been a member of the investment management team of RS Large Cap Value VIP Series since 2003.* Mr. Digenan, together with Mr. Hazen, is the primary strategist for the investment team, responsible for providing cross-industry and risk management assessments for portfolio construction for the Fund. Mr. Digenan has been a North American equity strategist at UBS Global AM since 2001 and is an executive director of UBS Global AM. Prior to joining UBS Global AM in 1993, he was a senior manager in the tax department at KPMG Peat Marwick. Mr. Digenan earned a B.S. at Marquette University and an M.S.T. from DePaul University. |
| | |
RS Large Cap Value VIP Series | | 3 |
| | |
| | RS Large Cap Value VIP Series (continued) |
| | |
| |
| | Scott Hazen, CFA Scott Hazen (UBS) has been a member of the investment management team of RS Large Cap Value VIP Series since 2004.* Mr. Hazen, together with Mr. Digenan, is the primary strategist for the investment team, responsible for providing cross-industry and risk management assessments for portfolio construction for the Fund. Mr. Hazen has been a North American equity strategist at UBS Global AM since 2004 and is an executive director of UBS Global AM. From 1992 to 2004, Mr. Hazen was a client service and relationship management professional with UBS Global AM. Mr. Hazen earned a B.B.A. from the University of Notre Dame and an M.B.A. from the University of Chicago. |
* | Includes service as a portfolio manager or co-portfolio manager, as applicable, of the Fund’s predecessor fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | During a challenging period for large-cap value shares, the Fund delivered negative performance while also underperforming its benchmark, the Russell 1000® Value Index3. |
Ø | | The Fund’s strategy of underweighting higher-valuation energy shares hurt performance, as these stocks continued to benefit from soaring oil prices. Additionally, the Fund’s overweighting in the struggling banking industry was also detrimental. |
Ø | | Overall stock selection had a positive impact on the Fund’s relative returns, due in part to gains by individual holdings in the energy and transportation sectors. |
Market Overview
Financial markets were volatile in the first half of 2008, as investors reacted to economic uncertainty, elevated inflation, and a broadening credit crisis. The Federal Reserve Board acted aggressively to calm financial markets and restore liquidity, cutting the target federal funds rate by 225 basis points by the end of April. These moves helped spark a modest equity market resurgence in April and May, but this rebound faltered in June as inflation and economic concerns again took center stage. For the six-month period ended June 30, 2008, the S&P 500® Index4 declined 11.91%, while the Dow Jones Industrial Average5 declined 13.38%. Value shares generally underperformed growth stocks during the period, while mid-cap shares outpaced large-cap and small-cap stocks.
Performance
The RS Large Cap Value VIP Series declined 13.97% during the period, underperforming the benchmark Russell 1000® Value Index, which declined 13.57%.
Portfolio Review
The Fund’s allocation strategy reflects the significant mispricings we are seeing within the U.S. equity market. In particular, our evaluation of alpha, dispersion, and other metrics leads us to believe that energy and materials stocks are overvalued while bank shares are underpriced. We positioned the Fund to take advantage of these pricing dislocations—underweighting energy shares while overweighting banking stocks. We maintain conviction in this positioning despite short-term irrational pricing movements that contributed to the Fund’s recent negative performance relative to the benchmark.
Our underweighting in energy was the largest detractor from the Fund’s performance year to date. Oil prices have been volatile and remain near historic highs and
| | |
4 | | RS Large Cap Value VIP Series |
well above our normal assumptions. We expect that prices may normalize at lower levels as energy demand adjusts to current costs, non-OPEC supply continues to grow, and major OPEC capacity expansions come online. This could lead to a period of underperformance for energy shares. For this reason we continue to underweight this sector while focusing on oil services names that are benefiting from the industry’s increased infrastructure investment.
In the financials sector, we continued our strategy of underweighting smaller, more regional banks, brokers, and real estate names while emphasizing larger, more diversified global banking franchises trading at what we believe to be attractive valuations. Nonetheless, a number of our financials holdings were caught in an often-indiscriminate sell-off in institutions with any credit exposure. The Fund’s negative contributors in the financials area included Fifth Third Bancorp, Bank of New York Mellon, Hartford Financial Services, and Wells Fargo. Until the market gains more clarity on how individual companies are affected by the subprime mortgage fallout and resulting credit deterioration, we may see more overreactions that depress stock prices. Over time, however, we believe that prices will move to reflect the underlying fundamentals of the companies we own.
Fund performance also suffered from weakness in a number of consumer-related shares, including truck manufacturing and financing company PACCAR, motorcycle manufacturer Harley-Davidson, and yellow pages publisher R.H. Donnelley. Other detractors included pharmaceutical company Merck, home improvement distributor Masco, and diversified industrial conglomerate General Electric.
On a positive note, while the Fund’s underweight allocation to energy shares overall dampened returns, several individual holdings in this area made solid contributions to performance. These included coal producer Peabody Energy as well as energy services providers such as Halliburton and offshore contract drilling company ENSCO.
The Fund also benefited from its investments in several transportation holdings, including railroad company Burlington Northern Santa Fe and value-oriented Southwest Airlines, which proved relatively resilient in a difficult environment for airline stocks. Positive contributors from other sectors included Symantec, a provider of security and storage software and services, and pharmaceutical company Wyeth.
Outlook
In our view the U.S. equity market is currently trading at a significant discount to fair value. At the same time, we continue to see a wide dispersion of expected returns across the stock market. We believe that this combination has created opportunities for our bottom-up, value-oriented investment approach. We continue to monitor the market closely, as we look to capitalize on further discrepancies between prices and intrinsic values.
We thank you for your investment and continued support.
| | |
John Leonard | | Thomas M. Cole |
Co-Portfolio Manager | | Co-Portfolio Manager |
| |
Thomas Digenan | | Scott Hazen |
Co-Portfolio Manager | | Co-Portfolio Manager |
| | |
RS Large Cap Value VIP Series | | 5 |
| | |
| | RS Large Cap Value VIP Series (continued) |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.
| | |
6 | | RS Large Cap Value VIP Series |
| | |
Total Net Assets: $54,614,345 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| |
Company | | Percentage of Total Net Assets |
Chevron Corp. | | 4.85% |
General Electric Co. | | 4.77% |
Wyeth | | 3.69% |
Halliburton Co. | | 3.59% |
Wells Fargo & Co. | | 3.46% |
Citigroup, Inc. | | 3.11% |
Exxon Mobil Corp. | | 2.95% |
Baker Hughes, Inc. | | 2.85% |
Marathon Oil Corp. | | 2.58% |
Johnson & Johnson | | 2.40% |
Total | | 34.25% |
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 Russel 1000® Value Index is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russel 1000® Index (which consists of the 1,000 largest U.S. companies based on total market capitalization) with lower price-to-book ratios and lower forecasted growth values. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
4 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
5 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
| | |
RS Large Cap Value VIP Series | | 7 |
| | |
| | RS Large Cap Value VIP Series (continued) |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | |
| | | | | | |
| | Inception Date | | Year-to-Date | | 1-Year | | 3-Year | | 5-Year | | Since Inception |
RS Large Cap Value VIP Series | | 02/03/03 | | -13.97% | | -19.20% | | 3.14% | | 8.10% | | 10.10% |
Russell 1000® Value Index3 | | | | -13.57% | | -18.78% | | 3.53% | | 8.92% | | 10.82% |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 02/03/03 in RS Large Cap Value VIP Series and the Russell 1000® Value 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 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 0.94%. 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 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 (12b-1) fees; and other Fund expenses. The example below is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $860.30 | | $4.30 | | 0.93% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,020.24 | | $4.67 | | 0.93% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (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, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 97.2% |
Air Freight & Logistics — 2.2% |
FedEx Corp. | | 15,300 | | $ | 1,205,487 |
| | | | | |
| | | | | 1,205,487 |
Airlines — 1.0% |
Southwest Airlines Co. | | 42,100 | | | 548,984 |
| | | | | |
| | | | | 548,984 |
Auto Components — 3.7% |
BorgWarner, Inc. | | 23,100 | | | 1,025,178 |
Johnson Controls, Inc. | | 35,400 | | | 1,015,272 |
| | | | | |
| | | | | 2,040,450 |
Automobiles — 0.8% |
Harley-Davidson, Inc. | | 12,000 | | | 435,120 |
| | | | | |
| | | | | 435,120 |
Beverages — 0.7% |
Constellation Brands, Inc., Class A(1) | | 20,100 | | | 399,186 |
| | | | | |
| | | | | 399,186 |
Biotechnology — 0.6% |
Cephalon, Inc.(1) | | 4,700 | | | 313,443 |
| | | | | |
| | | | | 313,443 |
Building Products — 1.2% |
Masco Corp. | | 39,900 | | | 627,627 |
| | | | | |
| | | | | 627,627 |
Capital Markets — 3.1% |
Bank of New York Mellon Corp. | | 15,018 | | | 568,131 |
Morgan Stanley | | 31,400 | | | 1,132,598 |
| | | | | |
| | | | | 1,700,729 |
Commercial Banks — 6.0% |
City National Corp. | | 5,100 | | | 214,557 |
Fifth Third Bancorp | | 43,000 | | | 437,740 |
SunTrust Banks, Inc. | | 20,300 | | | 735,266 |
Wells Fargo & Co. | | 79,500 | | | 1,888,125 |
| | | | | |
| | | | | 3,275,688 |
Consumer Finance — 1.0% |
Discover Financial Services | | 43,150 | | | 568,286 |
| | | | | |
| | | | | 568,286 |
Diversified Financial Services — 6.2% |
Bank of America Corp. | | 20,158 | | | 481,171 |
Citigroup, Inc. | | 101,500 | | | 1,701,140 |
JPMorgan Chase & Co. | | 34,400 | | | 1,180,264 |
| | | | | |
| | | | | 3,362,575 |
Diversified Telecommunication Services — 2.2% |
AT&T, Inc. | | 35,500 | | | 1,195,995 |
| | | | | |
| | | | | 1,195,995 |
Electric Utilities — 5.4% |
American Electric Power, Inc. | | 27,200 | | | 1,094,256 |
Exelon Corp. | | 6,600 | | | 593,736 |
Northeast Utilities | | 27,800 | | | 709,734 |
Pepco Holdings, Inc. | | 21,700 | | | 556,605 |
| | | | | |
| | | | | 2,954,331 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Energy Equipment & Services — 6.4% |
Baker Hughes, Inc. | | 17,800 | | $ | 1,554,652 |
Halliburton Co. | | 36,900 | | | 1,958,283 |
| | | | | |
| | | | | 3,512,935 |
Health Care Equipment & Supplies — 0.9% |
Covidien Ltd. | | 10,300 | | | 493,267 |
| | | | | |
| | | | | 493,267 |
Health Care Providers & Services — 2.1% |
Medco Health Solutions, Inc.(1) | | 24,300 | | | 1,146,960 |
| | | | | |
| | | | | 1,146,960 |
Hotels, Restaurants & Leisure — 1.5% |
Carnival Corp. | | 25,000 | | | 824,000 |
| | | | | |
| | | | | 824,000 |
Household Durables — 1.3% |
Fortune Brands, Inc. | | 11,000 | | | 686,510 |
| | | | | |
| | | | | 686,510 |
Industrial Conglomerates — 4.8% |
General Electric Co. | | 97,600 | | | 2,604,944 |
| | | | | |
| | | | | 2,604,944 |
Insurance — 6.0% |
AFLAC, Inc. | | 14,200 | | | 891,760 |
MetLife, Inc. | | 11,700 | | | 617,409 |
Principal Financial Group, Inc. | | 19,000 | | | 797,430 |
The Hartford Financial Services Group, Inc. | | 15,300 | | | 987,921 |
| | | | | |
| | | | | 3,294,520 |
Machinery — 3.8% |
Illinois Tool Works, Inc. | | 26,000 | | | 1,235,260 |
PACCAR, Inc. | | 19,750 | | | 826,142 |
| | | | | |
| | | | | 2,061,402 |
Media — 5.8% |
Comcast Corp., Class A | | 62,200 | | | 1,179,934 |
News Corp., Class A | | 49,200 | | | 739,968 |
Omnicom Group, Inc. | | 14,700 | | | 659,736 |
The Interpublic Group of Companies, Inc.(1) | | 68,000 | | | 584,800 |
| | | | | |
| | | | | 3,164,438 |
Multi-Utilities — 1.9% |
NiSource, Inc. | | 20,700 | | | 370,944 |
Sempra Energy | | 11,700 | | | 660,465 |
| | | | | |
| | | | | 1,031,409 |
Oil, Gas & Consumable Fuels — 12.7% |
Chevron Corp. | | 26,700 | | | 2,646,771 |
Exxon Mobil Corp. | | 18,300 | | | 1,612,779 |
Marathon Oil Corp. | | 27,200 | | | 1,410,864 |
Peabody Energy Corp. | | 14,400 | | | 1,267,920 |
| | | | | |
| | | | | 6,938,334 |
Pharmaceuticals — 8.1% |
Johnson & Johnson | | 20,400 | | | 1,312,536 |
Merck & Co., Inc. | | 29,300 | | | 1,104,317 |
Wyeth | | 42,000 | | | 2,014,320 |
| | | | | |
| | | | | 4,431,173 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Large Cap Value VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Road & Rail — 2.2% |
Burlington Northern Santa Fe Corp. | | 11,800 | | $ | 1,178,702 |
| | | | | |
| | | | | 1,178,702 |
Software — 2.2% |
Symantec Corp.(1) | | 63,100 | | | 1,220,985 |
| | | | | |
| | | | | 1,220,985 |
Thrifts & Mortgage Finance — 1.1% |
Freddie Mac | | 37,500 | | | 615,000 |
| | | | | |
| | | | | 615,000 |
Wireless Telecommunication Services — 2.3% |
Sprint Nextel Corp. | | 129,774 | | | 1,232,853 |
| | | | | |
| | | | | 1,232,853 |
| | | | | |
Total Common Stocks (Cost $51,400,804) | | | | | 53,065,333 |
| | |
| | Shares | | Value |
Exchange – Traded Funds — 1.5% |
S&P Depositary Receipts Trust, Series I | | 6,400 | | | 819,072 |
| | | | | |
Total Exchange – Traded Funds (Cost $821,727) | | | | | 819,072 |
| | |
| | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(2) | | 12 | | | 476 |
RS Emerging Growth Fund, Class Y(2) | | 16 | | | 549 |
RS Emerging Markets Fund, Class A(2) | | 16 | | | 382 |
RS Equity Dividend Fund, Class Y(2) | | 7 | | | 57 |
RS Global Natural Resources Fund, Class Y(2) | | 8 | | | 351 |
RS Growth Fund, Class Y(2) | | 25 | | | 310 |
RS Investment Quality Bond Fund, Class A(2) | | 6 | | | 57 |
RS Investors Fund, Class Y(2) | | 23 | | | 220 |
RS MidCap Opportunities Fund, Class Y(2) | | 12 | | | 144 |
RS Partners Fund, Class Y(2) | | 11 | | | 316 |
RS S&P 500 Index Fund, Class A(2) | | 6 | | | 56 |
RS Smaller Company Growth Fund, Class Y(2) | | 6 | | | 102 |
RS Technology Fund, Class Y(2) | | 12 | | | 173 |
RS Value Fund, Class Y(2) | | 22 | | | 564 |
| | | | | |
Total Other Investments (Cost $3,871) | | | | | 3,757 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Repurchase Agreements — 0.4% |
State Street Bank and Trust Co. Repurchase Agreement, 2.10% dated 6/30/2008, maturity value of $220,013, due 7/1/2008, collateralized by FNMA, 5.55%, due 7/10/2028, with a value of $228,563 | | $ | 220,000 | | $ | 220,000 |
| | | | | | |
Total Repurchase Agreements (Cost $220,000) | | | 220,000 |
| | | | | | |
Total Investments — 99.1% (Cost $52,446,402) | | | 54,108,162 |
| | | | | | |
Other Assets, Net — 0.9% | | | 506,183 |
| | | | | | |
Total Net Assets — 100.0% | | $ | 54,614,345 |
(1) | Non-income producing security. |
(2) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 — Quoted Prices | | $ | 54,108,162 |
Level 2 — Significant Other Observable Inputs | | | — |
Level 3 — Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 54,108,162 |
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, 2008 (unaudited) |
| | | |
| |
Assets | | | |
Investments, at value | | $ | 54,108,162 |
Cash and cash equivalents | | | 444 |
Receivable for investments sold | | | 1,305,107 |
Dividends/interest receivable | | | 85,205 |
Receivable for fund shares subscribed | | | 18,599 |
Prepaid expenses | | | 1,465 |
| | | |
Total Assets | | | 55,518,982 |
| | | |
Liabilities | | | |
Payable for investments purchased | | | 822,476 |
Payable to adviser | | | 36,807 |
Payable for fund shares redeemed | | | 54 |
Trustees’ deferred compensation | | | 3,757 |
Accrued expenses/other liabilities | | | 41,543 |
| | | |
Total Liabilities | | | 904,637 |
| | | |
Total Net Assets | | $ | 54,614,345 |
| | | |
Net Assets Consist of: | | | |
Paid-in capital | | $ | 48,994,473 |
Accumulated undistributed net investment income | | | 472,867 |
Accumulated net realized gain from investments | | | 3,485,245 |
Net unrealized appreciation on investments | | | 1,661,760 |
| | | |
Total Net Assets | | $ | 54,614,345 |
| | | |
Investments, at Cost | | $ | 52,446,402 |
| | | |
Pricing of Shares | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 5,036,179 |
| |
Net Asset Value Per Share | | | $10.84 |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 9,484 | |
Dividends | | | 730,113 | |
| | | | |
Total Investment Income | | | 739,597 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 230,125 | |
Shareholder reports | | | 13,601 | |
Custodian fees | | | 12,842 | |
Professional fees | | | 9,219 | |
Administrative service fees | | | 4,545 | |
Trustees’ fees and expenses | | | 1,969 | |
Other expense | | | 2,006 | |
| | | | |
Total Expenses | | | 274,307 | |
| | | | |
Net Investment Income | | | 465,290 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized gain from investments | | | 2,137,689 | |
Net change in unrealized depreciation on investments | | | (11,572,642 | ) |
| | | | |
Net Loss on Investments | | | (9,434,953 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (8,969,663 | ) |
| | | | |
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 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 465,290 | | | $ | 917,693 | |
Net realized gain from investments | | | 2,137,689 | | | | 4,839,716 | |
Net change in unrealized depreciation on investments | | | (11,572,642 | ) | | | (5,299,766 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (8,969,663 | ) | | | 457,643 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (956,695 | ) |
Net realized gain on investments | | | — | | | | (4,521,620 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (5,478,315 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 1,328,695 | | | | 7,236,010 | |
Reinvestment of distributions | | | — | | | | 5,478,314 | |
Cost of shares redeemed | | | (2,480,777 | ) | | | (13,589,810 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Capital Share Transactions | | | (1,152,082 | ) | | | (875,486 | ) |
| | | | | | | | |
Net Decrease in Net Assets | | | (10,121,745 | ) | | | (5,896,158 | ) |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 64,736,090 | | | | 70,632,248 | |
| | | | | | | | |
End of period | | $ | 54,614,345 | | | $ | 64,736,090 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 472,867 | | | $ | 7,577 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 114,378 | | | | 507,917 | |
Reinvested | | | — | | | | 436,172 | |
Redeemed | | | (215,119 | ) | | | (956,508 | ) |
| | | | | | | | |
Net Decrease | | | (100,741 | ) | | | (12,419 | ) |
| | | | | | | | |
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 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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 12.60 | | $ | 0.09 | | $ | (1.85 | ) | | $ | (1.76 | ) | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 13.72 | | | 0.19 | | | (0.15 | ) | | | 0.04 | | | | (0.20 | ) | | | (0.96 | ) | | | (1.16 | ) |
| | | | | | | |
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 02/03/034 to 12/31/031 | | | 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 Return2 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Income to Average Net Assets3 | | | Gross Ratio of Net Investment Income to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$10.84 | | (13.97 | )% | | $ | 54,614 | | 0.93 | % | | 0.93 | % | | 1.58 | % | | 1.58 | % | | 25 | % |
| | | | | | | |
12.60 | | 0.36 | % | | | 64,736 | | 0.98 | % | | 0.98 | % | | 1.30 | % | | 1.30 | % | | 34 | % |
| | | | | | | |
13.72 | | 18.29 | % | | | 70,632 | | 0.98 | % | | 0.99 | % | | 1.23 | % | | 1.22 | % | | 41 | % |
| | | | | | | |
12.47 | | 9.63 | % | | | 58,104 | | 1.02 | % | | 1.02 | % | | 1.21 | % | | 1.21 | % | | 40 | % |
| | | | | | | |
13.35 | | 13.74 | % | | | 73,895 | | 0.97 | % | | 0.97 | % | | 1.12 | % | | 1.12 | % | | 41 | % |
| | | | | | | |
12.82 | | 32.07 | % | | | 58,493 | | 1.08 | % | | 1.08 | % | | 1.27 | % | | 1.27 | % | | 48 | % |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations, and custody credits, if applicable. |
| 4 | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
| | |
RS Large Cap Value VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS Large Cap Value VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Large Cap Value VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
In its normal course of business, the Fund may invest a significant portion of its assets in companies concentrated within a number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous
| | |
16 | | RS Large Cap Value VIP Series |
market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 – quoted prices in active markets for identical investments |
Ø | | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from
| | |
RS Large Cap Value VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Large Cap Value VIP Series (unaudited) (continued) |
foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.78%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory Agreement with UBS Global Asset Management (Americas), Inc. (“UBS Global AM”). UBS Global AM is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision and direction of the Board of Trustees of the Trust and review by RS Investments. As compensation for UBS Global AM’s services, RS Investments pays fees to UBS Global AM at an annual rate of 0.38% of the Fund’s average daily net assets. Payment of the sub-advisory fee 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 the Fund’s total annual fund operating expenses to 0.98% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust who are interested persons of RS Investments, as defined in the 1940 Act,
| | |
18 | | RS Large Cap Value VIP Series |
receive no compensation from the Fund for acting as such. Trustees of the Trust 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | |
Ordinary Income Total | | Long-Term Capital Gain Total |
$ | 1,509,087 | | $ | 3,969,228 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | |
Undistributed Ordinary Income | | Undistributed Long-Term Capital Gains |
$ | 45,566 | | $ | 1,519,363 |
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.
During the year ended December 31, 2007, the Fund did not utilize capital loss carryovers and no capital loss carryovers are available for use in future offsets.
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, 2007, which is the most recently completed tax year, the Fund had no such losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $52,805,057. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $8,721,338 and $(7,418,233), respectively, resulting in net unrealized appreciation of $1,303,105.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $14,759,246 and $15,026,114, respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to,
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RS Large Cap Value VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS Large Cap Value VIP Series (unaudited) (continued) |
currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
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20 | | RS Large Cap Value VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS Large Cap Value VIP Series | | 21 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 – 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management
* The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting.
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22 | | RS Large Cap Value VIP Series |
capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement,
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RS Large Cap Value VIP Series | | 23 |
| | |
| | Supplemental Information — unaudited (continued) |
showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker- dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS
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24 | | RS Large Cap Value VIP Series |
Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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RS Large Cap Value VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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26 | | RS Large Cap Value VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS Large Cap Value VIP Series | | 27 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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28 | | RS Large Cap Value VIP Series |
RS Variable Products Trust
RS Partners VIP Series
| | |
06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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.
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| | RS Partners VIP Series |
| | |
| | MacKenzie B. Davis, CFA MacKenzie B. Davis (RS Investments) has been a co-portfolio manager of RS Partners VIP Series since 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. |
| |
| | David J. Kelley David J. Kelley (RS Investments) has been a co-portfolio manager of RS Partners VIP Series since 2006. Prior to joining RS Investments as an analyst in the RS Value Group in 2002, 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. |
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| | Andrew P. Pilara, Jr. Andrew P. Pilara, Jr. (RS Investments) has managed RS Partners VIP Series since 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 more than 30 years, with experience in portfolio management, research, trading, and sales. Mr. Pilara holds a B.A. in economics from Saint Mary’s College. |
| |
| | Joseph A. Wolf Joseph A. Wolf (RS Investments) has been a co-portfolio manager of RS Partners VIP Series since 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. |
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.
| | |
| | RS Partners VIP Series (continued) |
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.
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | The first half of 2008 was challenging for the equity markets, as the repricing of risk triggered a sell-off that spread from the financial services sector to affect stock prices in a wide array of businesses, often with little regard for underlying fundamentals. |
Ø | | Although the RS Partners VIP Series was down during the six-month period, it outperformed its benchmark by 792 basis points. |
Ø | | Relative performance benefited primarily from strong stock selection in the consumer discretionary and financial services sectors. The Fund’s outperformance for the period was mitigated somewhat by the poor contribution from its materials and processing holdings. |
Market Overview
The financial markets were extremely volatile during the first half of 2008, as investors reacted to the economic uncertainty associated with an accelerating credit crisis. The Federal Reserve Board acted aggressively to calm financial markets and restore liquidity, cutting the target federal funds rate by 225 basis points through the end of April. These moves helped spark a modest equity market resurgence in April and May, but this rebound faltered in June as inflation and economic concerns again took center stage. For the six-month period ended June 30, 2008, the S&P 500® Index4 dropped by 11.91%, while the Dow Jones Industrial Average5 fell by 13.38%. Value shares generally underperformed growth stocks during the period, with mid-cap shares outpacing both large-cap and small-cap stocks.
Performance
The RS Partners VIP Series declined 1.92% in the six-month period ended June 30, 2008, outperforming the benchmark Russell 2000® Value Index3, which declined 9.84%.
Portfolio Review
The Fund’s outperformance relative to its benchmark was supported by superior stock selection in the consumer discretionary sector, where we found investment opportunities in niche business services companies. In fact, one of the Fund’s best-performing holdings for the period was commercial services company Coinstar, which owns and operates a wide variety of coin-counting and bulk vending machines in retail locations across the United States, Canada, and the United Kingdom.
A number of energy holdings also delivered healthy performances during the period. These included Peabody Energy, the world’s largest private-sector coal producer, and Key Energy Services, the second-largest oil well services provider in the United States.
Upstream aluminum processor Century Aluminum was another positive contributor. In addition to its significant U.S. smelting capacity, Century Aluminum has a growing production presence in Iceland, where it benefits from access to very low-cost geothermal and hydropowered electricity. Other factors that assisted relative performance were an underweight allocation and strong stock selection in the financial services sector and solid stock selection in the technology sector.
In contrast, the Fund’s superior relative performance was mitigated somewhat by a few holdings in the materials and processing sector, including specialty steel manufacturer Allegheny Technologies.
Financial services, the weakest sector for the index, was a strong contributor to the Fund’s relative performance during the period. This was due to the Fund’s underweighting in the sector, relative to the benchmark, and
to sector holdings that performed better than the index. That said, several of our financial services investments weighed on absolute returns during the period, including MoneyGram International, a global provider of money transfer and electronic payment services.
Outlook
Although our absolute performance during the first half of 2008 was down for the period, we take some solace in the Fund’s relative performance during a very challenging period. We recognize that the market has been undergoing a necessary but painful adjustment to correct excesses resulting from several years of an expanding credit bubble. We believe that this process will create perhaps some of the largest discrepancies between stock prices and business values that have been seen in many years, which could present some promising long-term investment opportunities for the Fund. While we are neither equipped nor inclined to make predictions about the short-term outlook for the U.S. equity market, history has taught us that fundamentals do, in fact, matter over time and that stock prices will ultimately follow returns on invested capital. For this reason we have used the recent volatility to replace more-vulnerable business models from the portfolio with what we believe to be higher-quality franchises. Above all, we remain patient in our efforts to deploy our shareholders’ capital, as we seek out durable, predictable, and structurally advantaged businesses that fit within our process and philosophy.
We thank you for your investment and continued support.
| | |
Andrew Pilara Co-Portfolio Manager | | MacKenzie Davis
Co-Portfolio Manager |
| |
David Kelley Co-Portfolio Manager | | Joe Wolf
Co-Portfolio Manager |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. Investing in small- and mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Investing in a more limited number of issuers and sectors can be subject to greater market fluctuation. Overweighting investments in certain sectors or industries increases the risk of loss due to general declines in the prices of stocks in those sectors or industries. Foreign securities are subject to political, regulatory, economic, and exchange-rate risks not present in domestic investments. The value of a debt security is affected by changes in interest rates and is subject to any credit risk of the issuer or guarantor of the security. Investments in companies in natural resources industries may involve risks including changes in commodities prices, changes in demand for various natural resources, changes in energy prices, and international political and economic developments.
| | |
| | RS Partners VIP Series (continued) |
| | |
Total Net Assets: $20,066,050 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| |
Company | | Percentage of Total Net Assets |
Key Energy Services, Inc. | | 5.71% |
Peabody Energy Corp. | | 5.18% |
Scientific Games Corp. | | 4.86% |
Century Aluminum Co. | | 3.96% |
Allegheny Technologies, Inc. | | 3.89% |
ACI Worldwide, Inc. | | 3.69% |
The Cooper Cos., Inc. | | 3.68% |
Corinthian Colleges, Inc. | | 3.62% |
Liberty Global, Inc. | | 3.45% |
Lions Gate Entertainment Corp. | | 3.37% |
Total | | 41.41% |
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 or expenses. |
4 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
5 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | |
| | | | | | |
| | Inception Date | | Year-to-Date | | 1-Year | | 3-Year | | 5-Year | | Since Inception |
RS Partners VIP Series | | 02/03/03 | | -1.92% | | -13.37% | | 3.34% | | 8.86% | | 10.99% |
Russell 2000® Value Index3 | | | | -9.84% | | -21.63% | | 1.39% | | 10.02% | | 13.03% |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 02/03/03 in RS Partners VIP Series and the Russell 2000® Value 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 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 1.50%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
| | 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expenses Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $980.80 | | $6.70 | | 1.36% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,018.10 | | $6.82 | | 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 182/366 (to reflect the one-half year period). |
| | |
| | Schedule of Investments – RS Partners VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 91.9% |
Aluminum — 4.0% |
Century Aluminum Co.(1) | | 11,960 | | $ | 795,220 |
| | | | | |
| | | | | 795,220 |
Auto Parts – After Market — 1.0% |
Commercial Vehicle Group, Inc.(1) | | 21,800 | | | 203,830 |
| | | | | |
| | | | | 203,830 |
Banks – Outside New York City — 2.1% |
Hancock Holding Co. | | 10,900 | | | 428,261 |
| | | | | |
| | | | | 428,261 |
Cable Television Services — 3.4% |
Liberty Global, Inc., Class A(1) | | 3,600 | | | 113,148 |
Liberty Global, Inc., Series C(1) | | 19,100 | | | 579,876 |
| | | | | |
| | | | | 693,024 |
Casinos & Gambling — 4.9% |
Scientific Games Corp., Class A(1) | | 32,937 | | | 975,594 |
| | | | | |
| | | | | 975,594 |
Coal — 5.2% |
Peabody Energy Corp. | | 11,800 | | | 1,038,990 |
| | | | | |
| | | | | 1,038,990 |
Computer Services, Software & Systems — 3.7% |
ACI Worldwide, Inc.(1) | | 42,094 | | | 740,433 |
| | | | | |
| | | | | 740,433 |
Diversified Financial Services — 1.7% |
Euronet Worldwide, Inc.(1) | | 19,647 | | | 332,034 |
| | | | | |
| | | | | 332,034 |
Education Services — 4.1% |
Career Education Corp.(1) | | 6,300 | | | 92,043 |
Corinthian Colleges, Inc.(1) | | 62,600 | | | 726,786 |
| | | | | |
| | | | | 818,829 |
Electronics – Medical Systems — 2.6% |
Advanced Medical Optics, Inc.(1) | | 28,100 | | | 526,594 |
| | | | | |
| | | | | 526,594 |
Electronics – Semi-Conductors/Components — 1.5% |
Atmel Corp.(1) | | 85,000 | | | 295,800 |
| | | | | |
| | | | | 295,800 |
Entertainment — 6.3% |
Lions Gate Entertainment Corp.(1) | | 65,300 | | | 676,508 |
Live Nation, Inc.(1) | | 54,827 | | | 580,070 |
| | | | | |
| | | | | 1,256,578 |
Financial Miscellaneous — 0.5% |
First American Corp. | | 1,556 | | | 41,078 |
MoneyGram International, Inc. | | 67,700 | | | 61,066 |
| | | | | |
| | | | | 102,144 |
Financial Data Processing Services & Systems — 1.7% |
Jack Henry & Associates, Inc. | | 16,236 | | | 351,347 |
| | | | | |
| | | | | 351,347 |
Foods — 1.9% |
NBTY, Inc.(1) | | 11,612 | | | 372,281 |
| | | | | |
| | | | | 372,281 |
Health Care Management Services — 0.9% |
Allscripts Healthcare Solutions, Inc.(1) | | 14,176 | | | 175,924 |
| | | | | |
| | | | | 175,924 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Insurance – Multi-Line — 1.1% |
Hanover Insurance Group, Inc. | | 5,400 | | $ | 229,500 |
| | | | | |
| | | | | 229,500 |
Insurance – Property–Casualty — 3.3% |
Employers Holdings, Inc. | | 32,110 | | | 664,677 |
| | | | | |
| | | | | 664,677 |
Machinery – Oil Well Equipment & Services — 5.7% |
Key Energy Services, Inc.(1) | | 59,000 | | | 1,145,780 |
| | | | | |
| | | | | 1,145,780 |
Medical & Dental Instruments & Supplies — 3.7% |
The Cooper Cos., Inc. | | 19,900 | | | 739,285 |
| | | | | |
| | | | | 739,285 |
Medical Services — 2.8% |
Magellan Health Services, Inc.(1) | | 15,400 | | | 570,262 |
| | | | | |
| | | | | 570,262 |
Metal Fabricating — 1.2% |
The Timken Co. | | 7,039 | | | 231,865 |
| | | | | |
| | | | | 231,865 |
Metals & Minerals Miscellaneous — 2.1% |
A.M. Castle & Co. | | 14,560 | | | 416,562 |
| | | | | |
| | | | | 416,562 |
Oil – Crude Producers — 0.6% |
Berry Petroleum Co., Class A | | 2,200 | | | 129,536 |
| | | | | |
| | | | | 129,536 |
Real Estate — 3.0% |
Meruelo Maddux Properties, Inc.(1) | | 47,940 | | | 104,509 |
MI Developments, Inc., Class A | | 22,500 | | | 506,025 |
| | | | | |
| | | | | 610,534 |
Real Estate Investment Trusts — 3.0% |
BioMed Realty Trust, Inc. | | 13,600 | | | 333,608 |
CapLease, Inc. | | 15,110 | | | 113,174 |
DuPont Fabros Technology, Inc. | | 7,860 | | | 146,510 |
| | | | | |
| | | | | 593,292 |
Rental & Leasing Services – Consumer — 2.4% |
Aaron Rents, Inc. | | 21,922 | | | 489,518 |
| | | | | |
| | | | | 489,518 |
Restaurants — 1.4% |
Triarc Cos., Inc., Class B | | 43,398 | | | 274,709 |
| | | | | |
| | | | | 274,709 |
Services – Commercial — 4.3% |
Coinstar, Inc.(1) | | 19,511 | | | 638,205 |
Copart, Inc.(1) | | 5,374 | | | 230,115 |
| | | | | |
| | | | | 868,320 |
Shoes — 2.2% |
Iconix Brand Group, Inc.(1) | | 36,522 | | | 441,186 |
| | | | | |
| | | | | 441,186 |
Steel — 3.9% |
Allegheny Technologies, Inc. | | 13,161 | | | 780,184 |
| | | | | |
| | | | | 780,184 |
The accompanying notes are an integral part of these financial statements.
| | |
| | Schedule of Investments – RS Partners VIP Series (continued) |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value | |
| | | | | | |
Textiles Apparel Manufacturers — 2.7% | |
Carter’s, Inc.(1) | | 39,306 | | $ | 543,209 | |
| | | | | | |
| | | | | 543,209 | |
Utilities – Electrical — 3.0% | |
NorthWestern Corp. | | 23,400 | | | 594,828 | |
| | | | | | |
| | | | | 594,828 | |
| | | | | | |
Total Common Stocks (Cost $19,777,473) | | | | | 18,430,130 | |
| | |
| | Shares | | Value | |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% | |
RS Core Equity Fund, Class Y(2) | | 4 | | | 154 | |
RS Emerging Growth Fund, Class Y(2) | | 5 | | | 178 | |
RS Emerging Markets Fund, Class A(2) | | 5 | | | 123 | |
RS Equity Dividend Fund, Class Y(2) | | 2 | | | 19 | |
RS Global Natural Resources Fund, Class Y(2) | | 3 | | | 113 | |
RS Growth Fund, Class Y(2) | | 8 | | | 98 | |
RS Investment Quality Bond Fund, Class A(2) | | 2 | | | 19 | |
RS Investors Fund, Class Y(2) | | 7 | | | 70 | |
RS MidCap Opportunities Fund, Class Y(2) | | 4 | | | 45 | |
RS Partners Fund, Class Y(2) | | 3 | | | 102 | |
RS S&P 500 Index Fund, Class A(2) | | 2 | | | 19 | |
RS Smaller Company Growth Fund, Class Y(2) | | 2 | | | 34 | |
RS Technology Fund, Class Y(2) | | 4 | | | 55 | |
RS Value Fund, Class Y(2) | | 7 | | | 182 | |
| | | | | | |
Total Other Investments (Cost $1,246) | | | 1,211 | |
| | |
| | Shares | | Value | |
Short-Term Investments — 9.5% | |
State Street Institutional Liquid Reserves(3) | | 1,912,804 | | | 1,912,804 | |
| | | | | | |
Total Short-Term Investments (Cost $1,912,804) | | | 1,912,804 | |
| | | | |
Total Investments — 101.4% (Cost $21,691,523) | | | 20,344,145 | |
| | | | |
Other Liabilities, Net — (1.4)% | | | (278,095 | ) |
| | | | |
Total Net Assets — 100.0% | | $ | 20,066,050 | |
(1) | Non-income producing security. |
(2) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
(3) | Money Market Fund registered under the Investment Company Act of 1940. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 — Quoted Prices | | $ | 20,344,145 |
Level 2 — Significant Other Observable Inputs | | | — |
Level 3 — Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 20,344,145 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Partners VIP Series |
| | |
| | Financial Information – RS Partners VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 20,344,145 | |
Foreign currency, at value | | | 195 | |
Receivable for investments sold | | | 18,913 | |
Dividends/interest receivable | | | 14,438 | |
Receivable for fund shares subscribed | | | 917 | |
Prepaid expenses | | | 481 | |
| | | | |
Total Assets | | | 20,379,089 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 233,620 | |
Payable for fund shares redeemed | | | 23,617 | |
Payable to adviser | | | 17,283 | |
Accrued shareholder reports expense | | | 15,707 | |
Trustees’ deferred compensation | | | 1,211 | |
Accrued expenses/other liabilities | | | 21,601 | |
| | | | |
Total Liabilities | | | 313,039 | |
| | | | |
Total Net Assets | | $ | 20,066,050 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 20,431,675 | |
Accumulated undistributed net investment loss | | | (41,449 | ) |
Accumulated net realized gain from investments | | | 1,023,200 | |
Net unrealized depreciation on investments and translation of assets and liabilities in foreign currencies | | | (1,347,376 | ) |
| | | | |
Total Net Assets | | $ | 20,066,050 | |
| | | | |
Investments, at Cost | | $ | 21,691,523 | |
| | | | |
Foreign Currency, at Cost | | $ | 193 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 1,868,512 | |
| |
Net Asset Value Per Share | | | $10.74 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 30,866 | |
Dividends | | | 65,617 | |
Withholding taxes on foreign dividends | | | (1,076 | ) |
| | | | |
Total Investment Income | | | 95,407 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 99,751 | |
Custodian fees | | | 22,294 | |
Shareholder reports | | | 8,104 | |
Professional fees | | | 4,815 | |
Administrative service fees | | | 1,469 | |
Trustees’ fees and expenses | | | 636 | |
Insurance expense | | | 378 | |
Other expense | | | 245 | |
| | | | |
Total Expenses | | | 137,692 | |
Less: Fee waiver by distributor | | | (2,030 | ) |
| | | | |
Total Expenses, Net | | | 135,662 | |
| | | | |
Net Investment Loss | | | (40,255 | ) |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | | | | |
Net realized gain from investments | | | 691,594 | |
Net change in unrealized depreciation on investments | | | (1,083,523 | ) |
Net change in unrealized depreciation on translation of assets and liabilities in foreign currencies | | | (7 | ) |
| | | | |
Net Loss on Investments and Foreign Currency Transactions | | | (391,936 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (432,191 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS Partners VIP Series | | 11 |
| | |
| | Financial Information – RS Partners VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment loss | | $ | (40,255 | ) | | $ | (29,604 | ) |
Net realized gain from investments and foreign currency transactions | | | 691,594 | | | | 1,046,959 | |
Net change in unrealized depreciation on investments and translation of assets and liabilities in foreign currencies | | | (1,083,530 | ) | | | (1,427,864 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Operations | | | (432,191 | ) | | | (410,509 | ) |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | — | |
Net realized gain on investments | | | — | | | | (943,956 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (943,956 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 2,472,418 | | | | 3,465,047 | |
Reinvestment of distributions | | | — | | | | 943,956 | |
Cost of shares redeemed | | | (2,790,253 | ) | | | (4,576,269 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Capital Share Transactions | | | (317,835 | ) | | | (167,266 | ) |
| | | | | | | | |
Net Decrease in Net Assets | | | (750,026 | ) | | | (1,521,731 | ) |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 20,816,076 | | | | 22,337,807 | |
| | | | | | | | |
End of period | | $ | 20,066,050 | | | $ | 20,816,076 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Loss Included in Net Assets | | $ | (41,449 | ) | | $ | (1,194 | ) |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 236,081 | | | | 285,012 | |
Reinvested | | | — | | | | 86,920 | |
Redeemed | | | (268,291 | ) | | | (379,172 | ) |
| | | | | | | | |
Net Decrease | | | (32,210 | ) | | | (7,240 | ) |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
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12 | | RS Partners VIP Series |
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RS Partners VIP Series | | 13 |
| | |
| | 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 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 distributions).
| | | | | | | | | | | | | | | | |
| | 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 Operations | | | Distributions From Net Investment Income | | | Distributions From Net Realized Capital Gains | | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 10.95 | | $ | (0.02 | ) | | $ | (0.19 | ) | | $ | (0.21 | ) | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 11.71 | | | (0.02 | ) | | | (0.22 | ) | | | (0.24 | ) | | | — | | | | (0.52 | ) | | | (0.52 | ) |
| | | | | | | |
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 02/03/034 to 12/31/031 | | | 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.
| | |
14 | | RS Partners VIP Series |
| | | | | | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Income/ (Loss) to Average Net Assets3 | | | Gross Ratio of Net Investment Income/ (Loss) to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$ | 10.74 | | (1.92 | )% | | $ | 20,066 | | 1.36 | % | | 1.38 | % | | (0.40 | )% | | (0.42 | )% | | 43 | % |
| | | | | | | |
| 10.95 | | (2.03 | )% | | | 20,816 | | 1.36 | % | | 1.50 | % | | (0.13 | )% | | (0.27 | )% | | 73 | % |
| | | | | | | |
| 11.71 | | 9.35 | % | | | 22,338 | | 1.36 | % | | 1.43 | % | | 0.28 | % | | 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 | % |
| | Distributions reflect actual per-share amounts distributed for the period. |
| 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income/(Loss) to Average Net Assets include the effect of fee waivers, expense limitations, and custody credits, if applicable. |
| 4 | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
| | |
RS Partners VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS Partners VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Partners VIP Series (the “Fund”) is a series of the Trust. The Fund is a non-diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
In its normal course of business, the Fund may invest a significant portion of its assets in companies concentrated within a number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or
| | |
16 | | RS Partners VIP Series |
most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date except certain cash dividends from foreign securities,
| | |
RS Partners VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Partners VIP Series (unaudited) (continued) |
which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 1.00%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
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 the Fund’s total annual fund operating expenses to 1.36% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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
| | |
18 | | RS Partners VIP Series |
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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | |
Ordinary Income Total | | Long-Term Capital Gain Total |
$ | 846,902 | | $ | 97,054 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | |
Undistributed Ordinary Income | | Undistributed Long-Term Capital Gains |
$ | 152,808 | | $ | 271,994 |
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.
During the year ended December 31, 2007, the Fund did not utilize capital loss carryovers and no capital loss carryovers are available for use in future offsets.
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, 2007, which is the most recently completed tax year, the Fund had no such losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $21,908,039. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $1,523,694 and $(3,087,588), respectively, resulting in net unrealized depreciation of $(1,563,894).
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $7,973,521 and $7,578,815, respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies
| | |
RS Partners VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS Partners VIP Series (unaudited) (continued) |
may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to- market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
| | |
20 | | RS Partners VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS Partners VIP Series | | 21 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13—14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects
of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
| | |
22 | | RS Partners VIP Series |
Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advi-
| | |
RS Partners VIP Series | | 23 |
| | |
| | Supplemental Information — unaudited (continued) |
sory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
| | |
24 | | RS Partners VIP Series |
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330.
| | |
RS Partners VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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26 | | RS Partners VIP Series |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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RS Partners VIP Series | | 27 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
| | |
28 | | RS Partners VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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RS Partners VIP Series | | 29 |
RS Variable Products Trust
RS Asset Allocation VIP Series
| | |
06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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 Asset Allocation VIP Series |
| | |
| | Jonathan C. Jankus, CFA Jonathan C. Jankus (GIS) 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 at 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. |
| |
| | Stewart M. Johnson Stewart M. Johnson (GIS) has been a co-portfolio manager of RS Asset Allocation VIP Series since 2004.* Mr. Johnson has been a senior director at Guardian Life since January 2002. Mr. Johnson was second vice president of 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. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | The RS Asset Allocation VIP Series model continues to indicate long-term value in equities versus the alternative, fixed income. The Fund’s full allocation to stocks detracted from performance during the period. |
Ø | | Markets continue to be dominated by credit concerns and rising oil prices |
Market Overview
Financial markets around the globe were broadly lower during the second quarter and continued to be plagued by concerns over the deteriorating credit quality of financial institutions and the inflationary implications of increasing oil prices. The broad domestic stock market, as measured by the S&P 500® Index,2 declined 2.73% in the second quarter. This was the third consecutive quarter of negative returns for the index, which appeared to be on its way to recovery until June during which it declined 8.43%. Domestic bonds, as measured by the Lehman Brothers Aggregate Bond Index,3 declined 1.02%
For the six months ending June 30, 2008, the S&P 500® Index declined 11.91% and the bond market returned a paltry 1.13% in the face of a Federal Reserve which has eased aggressively, cutting the federal funds rate from 4.25% to 2.00%. It remains to be seen whether any further easing is possible as current-year inflation forecasts top 4% according to the latest Bloomberg surveys of economists.
Performance
The RS Asset Allocation VIP Series declined 12.11% during the first half of 2008 while its benchmark (a mix of 60% S&P 500® Index/40% Lehman Brothers Aggregate Bond Index rebalanced monthly) declined 6.71%.
| | |
RS Asset Allocation VIP Series | | 3 |
| | |
| | RS Asset Allocation VIP Series (continued) |
Portfolio Review
The Fund’s managers do not engage in active stock or sector selection. Rather, the Fund generally invests in other funds of RS Investment Trust. The equity or stock portion of the portfolio is usually invested in RS S&P 500 Index VIP Series, which seeks to replicate the returns of the S&P 500® Index.
The Fund’s active decisions focus upon the extent to which it deviates from a neutral position represented by 60% stocks, 40% bonds and no cash. The Fund makes this decision using a quantitative model which attempts to assess the relative value of the alternative markets. Our decision to own stocks in preference to fixed income alternatives has dominated recent investment performance.
Outlook
While credit concerns continue to dominate investor psychology, we think most signs indicate continuing modest economic growth, which hopefully will continue to sustain corporate profits. Crude oil prices have seen levels near or above $130 per barrel; and, according to Bloomberg surveys of economists, consumer prices are expected to rise by 4.1% in 2008, and by 2.7% in 2009. In spite of this, yields on two-year treasury bonds stand below 2.4%, implying negative real (i.e., after inflation) interest rates.
This dramatically low level of yields on bonds (and cash) is precisely what has us favoring equities at this time. We do not look at stocks in isolation, but rather in comparison to the investment alternatives. From that perspective, the quantitative model continues to point to long-term value in equities.
We thank you for your continued support.
| | |
Jonathan C. Jankus Co-Portfolio Manager | | Stewart M. Johnson Co-Portfolio Manager |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case 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 |
Total Net Assets: $41,817,141 | Data as of June 30, 2008 |
| | |
| | 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. Cash includes short-term investments and net other assets and liabilities. |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | |
| | | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Year | | 5 Year | | Since Inception |
RS Asset Allocation VIP Series | | 09/15/99 | | -12.11% | | -12.74% | | 3.25% | | 6.69% | | 2.64% |
Custom Index: 60% S&P 500® Index2, 40% | | | | -6.71% | | -5.25% | | 4.43% | | 6.22% | | 3.51% |
Lehman Brothers Aggregate Bond Index3 | | | | | | | | | | | | |
S&P 500® Index2 | | | | -11.91% | | -13.12% | | 4.40% | | 7.58% | | 1.34% |
Lehman Brothers Aggregate Bond Index3 | | | | 1.13% | | 7.12% | | 4.08% | | 3.86% | | 6.09% |
2 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
3 | The Lehman Brothers Aggregate Bond Index is an unmanaged index that is generally considered to be representative of U.S. bond market activity. You may not invest in the index, and, unlike the Fund, the index does 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 0.93%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
RS Asset Allocation VIP Series | | 5 |
| | |
| | RS Asset Allocation VIP Series (continued) |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 09/15/99 in RS Asset Allocation VIP Series, the Lehman Brothers Aggregate Bond Index, the S&P 500® Index, and a Custom 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 0.93%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $878.90 | | $1.33 | | 0.28% |
Based on Hypothetical Return (5% return Before Expenses) | | $1,000.00 | | $1,023.45 | | $1.43 | | 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 182/366 (to reflect the one-half year period). |
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RS Asset Allocation VIP Series | | 7 |
| | |
| | Schedule of Investments – RS Asset Allocation VIP Series |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
Mutual Funds — 90.8% |
Funds — 90.8% |
RS S&P 500 Index VIP Series(1)(2) | | | 4,026,068 | | $ | 37,965,817 |
| | | | | | |
Total Mutual Funds (Cost $37,071,257) | | | | | | 37,965,817 |
| | |
| | Principal Amount | | Value |
U.S. Government Securities — 1.4% |
U.S. Treasury Bills — 1.4% |
United States Treasury Bill 1.838% due 8/21/2008(3) | | $ | 425,000 | | | 423,893 |
1.87% due 8/28/2008(3) | | | 165,000 | | | 164,503 |
| | | | | | |
Total U.S. Government Securities (Cost $588,396) | | | | | | 588,396 |
| | |
| | Shares | | Value |
Other Investments — For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(4) | | | 9 | | | 352 |
RS Emerging Growth Fund, Class Y(4) | | | 12 | | | 409 |
RS Emerging Markets Fund, Class A(4) | | | 11 | | | 282 |
RS Equity Dividend Fund, Class Y(4) | | | 5 | | | 43 |
RS Global Natural Resources Fund, Class Y(4) | | | 6 | | | 249 |
RS Growth Fund, Class Y(4) | | | 18 | | | 225 |
RS Investment Quality Bond Fund, Class A(4) | | | 4 | | | 44 |
RS Investors Fund, Class Y(4) | | | 17 | | | 159 |
RS MidCap Opportunities Fund, Class Y(4) | | | 8 | | | 103 |
RS Partners Fund, Class Y(4) | | | 8 | | | 235 |
RS S&P 500 Index Fund, Class A(4) | | | 5 | | | 42 |
RS Smaller Company Growth Fund, Class Y(4) | | | 5 | | | 78 |
RS Technology Fund, Class Y(4) | | | 9 | | | 127 |
RS Value Fund, Class Y(4) | | | 16 | | | 417 |
| | | | | | |
Total Other Investments (Cost $2,845) | | | | | | 2,765 |
| | |
| | Principal Amount | | Value |
Repurchase Agreements — 7.9% |
Lehman Brothers Repurchase Agreement, 1.90% dated 6/30/2008, maturity value of $1,800,095 due 7/1/2008, collateralized by FHGN, 2.65%, due 11/19/2009, with a value of $1,836,000 | | $ | 1,800,000 | | | 1,800,000 |
| | | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value | |
State Street Bank and Trust Co. Repurchase Agreement, 2.10% dated 6/30/2008, maturity value of $1,520,089, due 7/1/2008, collateralized by FHLMC, 5.50%, due 8/23/2017, with a value of $1,551,569 | | $ | 1,520,000 | | $ | 1,520,000 | |
| | | | | | | |
Total Repurchase Agreements (Cost $3,320,000) | | | 3,320,000 | |
| | | | | | | |
Total Investments — 100.1% (Cost $40,982,498) | | | 41,876,978 | |
| | | | | | | |
Other Liabilities, Net — (0.1)% | | | (59,837 | ) |
| | | | | | | |
Total Net Assets — 100.0% | | $ | 41,817,141 | |
(1) | Affiliated issuer. See 2c in Notes to Financial Statements. |
(2) | The RS S&P 500 Index VIP Series schedule of investments is included herein. |
(3) | Security 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 2b in Notes to Financial Statements. |
| | | | | | | | | | | |
Description | | Number of Contracts | | Expiration | | Face Value (Thousands) | | Unrealized Depreciation | |
Purchased Futures Contracts | | | | |
S&P 500 INDEX | | 11 | | 9/2008 | | $ | 3,523 | | $ | (232,568 | ) |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | | | | | |
Valuation Inputs | | Investments in Securities | | Other Financial Instruments* | |
Level 1 — Quoted Prices | | $ | 41,876,978 | | $ | (232,568 | ) |
Level 2 — Significant Other Observable Inputs | | | — | | | — | |
Level 3 — Significant Unobservable Inputs | | | — | | | — | |
Total | | $ | 41,876,978 | | $ | (232,568 | ) |
* | Other financial instruments include futures, forwards and swap contracts. |
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, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 3,911,161 | |
Investments in affiliated issuer, at value | | | 37,965,817 | |
Cash and cash equivalents | | | 577 | |
Receivable for fund shares subscribed | | | 7,021 | |
Receivable for variation margin | | | 3,020 | |
Interest receivable | | | 184 | |
Prepaid expenses | | | 1,099 | |
| | | | |
Total Assets | | | 41,888,879 | |
| | | | |
Liabilities | | | | |
Payable for fund shares redeemed | | | 12,884 | |
Payable to adviser | | | 2,448 | |
Trustees’ deferred compensation | | | 2,765 | |
Payable for investments purchased | | | 570 | |
Accrued expenses/other liabilities | | | 53,071 | |
| | | | |
Total Liabilities | | | 71,738 | |
| | | | |
Total Net Assets | | $ | 41,817,141 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 44,309,407 | |
Accumulated undistributed net investment income | | | 58,631 | |
Accumulated net realized loss from investments and futures contracts | | | (3,212,809 | ) |
Net unrealized appreciation on investments and futures contracts | | | 661,912 | |
| | | | |
Total Net Assets | | $ | 41,817,141 | |
| | | | |
Investments, at Cost, includes $37,071,257 of Investments in Affiliated Issuer | | $ | 40,982,498 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 4,465,610 | |
| |
Net Asset Value Per Share | | | $9.36 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 123,821 | |
| | | | |
Total Investment Income | | | 123,821 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 112,580 | |
Shareholder reports | | | 12,539 | |
Custodian fees | | | 14,198 | |
Professional fees | | | 7,554 | |
Administrative service fees | | | 3,449 | |
Trustees’ fees and expenses | | | 1,532 | |
Insurance expense | | | 848 | |
Other expense | | | 751 | |
| | | | |
Total Expenses | | | 153,451 | |
Less: Fee waiver by adviser | | | (89,309 | ) |
| | | | |
Total Expenses, Net | | | 64,142 | |
| | | | |
Net Investment Income | | | 59,679 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Futures Contracts | | | | |
Net realized loss from investments | | | (17 | ) |
Net realized loss from futures contracts | | | (1,247,887 | ) |
Net change in unrealized depreciation on investments in affiliated issuer | | | (4,826,270 | ) |
Net change in unrealized appreciation on investments | | | 24 | |
Net change in unrealized appreciation on futures contracts | | | 80,300 | |
| | | | |
Net Loss on Investments and Futures Contracts | | | (5,993,850 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (5,934,171 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS Asset Allocation VIP Series | | 9 |
| | |
| | Financial Information — RS Asset Allocation VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 59,679 | | | $ | 1,138,927 | |
Net realized gain/(loss) from investments and future contracts | | | (1,247,904 | ) | | | 587,351 | |
Net change in unrealized appreciation/(depreciation) on investments and future contracts | | | (4,745,946 | ) | | | 907,645 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (5,934,171 | ) | | | 2,633,923 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (1,152,659 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (1,152,659 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 1,006,501 | | | | 3,709,484 | |
Reinvestment of distributions | | | — | | | | 1,152,659 | |
Cost of shares redeemed | | | (3,186,648 | ) | | | (6,370,185 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Capital Share Transactions | | | (2,180,147 | ) | | | (1,508,042 | ) |
| | | | | | | | |
Net Decrease in Net Assets | | | (8,114,318 | ) | | | (26,778 | ) |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 49,931,459 | | | | 49,958,237 | |
| | | | | | | | |
End of period | | $ | 41,817,141 | | | $ | 49,931,459 | |
| | | | | | | | |
Distributions in Excess of Net Investment Income Included in Net Assets | | $ | — | | | $ | (1,048 | ) |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 58,631 | | | $ | — | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 101,776 | | | | 345,570 | |
Reinvested | | | — | | | | 108,741 | |
Redeemed | | | (323,903 | ) | | | (589,909 | ) |
| | | | | | | | |
Net Decrease | | | (222,127 | ) | | | (135,598 | ) |
| | | | | | | | |
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 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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 10.65 | | $ | 0.01 | | $ | (1.30 | ) | | $ | (1.29 | ) | | $ | — | | | $ | — | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 10.36 | | | 0.24 | | | 0.30 | | | | 0.54 | | | | (0.25 | ) | | | — | | | (0.25 | ) |
| | | | | | | |
Year Ended 12/31/06 | | | 9.49 | | | 0.23 | | | 1.01 | | | | 1.24 | | | | (0.37 | ) | | | — | | | (0.37 | ) |
| | | | | | | |
Year Ended 12/31/05 | | | 9.16 | | | 0.19 | | | 0.21 | | | | 0.40 | | | | (0.07 | ) | | | — | | | (0.07 | ) |
| | | | | | | |
Year Ended 12/31/04 | | | 8.40 | | | 0.13 | | | 0.74 | | | | 0.87 | | | | (0.11 | ) | | | — | | | (0.11 | ) |
| | | | | | | |
Year Ended 12/31/03 | | | 6.78 | | | 0.10 | | | 1.76 | | | | 1.86 | | | | (0.24 | ) | | | — | | | (0.24 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS Asset Allocation VIP Series |
| | | | | | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Income to Average Net Assets3 | | | Gross Ratio of Net Investment Income to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$ | 9.36 | | (12.11 | )% | | $ | 41,817 | | 0.28 | %4 | | 0.68 | % | | 0.27 | % | | (0.13 | )% | | 0 | % |
| | | | | | | |
| 10.65 | | 5.23 | % | | | 49,931 | | 0.34 | %4 | | 0.72 | % | | 2.23 | % | | 1.85 | % | | 0 | % |
| | | | | | | |
| 10.36 | | 13.37 | % | | | 49,958 | | 0.31 | %4 | | 0.68 | %5 | | 2.32 | % | | 1.95 | % | | 0 | % |
| | | | | | | |
| 9.49 | | 4.36 | % | | | 46,289 | | 0.38 | %4 | | 0.51 | %5 | | 1.75 | % | | 1.62 | % | | 2 | % |
| | | | | | | |
| 9.16 | | 10.31 | % | | | 55,927 | | 0.31 | %4 | | 0.53 | %5 | | 1.52 | % | | 1.30 | % | | 0 | % |
| | | | | | | |
| 8.40 | | 27.70 | % | | | 48,980 | | 0.29 | %4 | | 0.54 | %5 | | 1.51 | % | | 1.26 | % | | 0 | % |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratios for periods of less than one year have been annualized, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations and custody credits, if applicable. |
| 4 | Amounts do not include expenses of the underlying fund. |
| 5 | Amounts include expenses of the underlying fund, except for investment advisory and distribution fees. |
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 (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Asset Allocation VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
In its normal course of business, the Fund may invest a significant portion of its assets in companies concentrated within a number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of
| | |
14 | | RS Asset Allocation VIP Series |
observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 – quoted prices in active markets for identical investments |
Ø | | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Futures Contracts
The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the notional value of the contract. Subsequent payments are
| | |
RS Asset Allocation VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS Asset Allocation VIP Series (unaudited) (continued) |
received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
f. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
g. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
h. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
i. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
j. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/ (losses) for financial statement purposes versus 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.
k. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investment Management Co. LLC (“RS Investments”). Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.50%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has agreed to waive the advisory fee with respect to the portion of the Fund’s assets that are invested in other funds managed by RS Investments.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with GIS. GIS is responsible for providing day-to-day
| | |
16 | | RS Asset Allocation VIP Series |
investment advisory services to the Fund, subject to the
supervision and direction of the Board of Trustees of the Trust and review by 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 the Fund. Payment of the sub-advisory fee 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 the Fund’s total annual fund operating expenses to 0.68% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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.
c. Affiliated Issuers
If the Fund owns 5% or more of the outstanding voting shares of an issuer, the Fund’s investment represents an investment in an affiliated person as defined by the 1940 Act. A summary of the Fund’s transactions in the securities of affiliated issuers for the six months ended June 30, 2008 is listed below:
| | | | | | | | | | | | | | |
Issuer | | Number of Shares Held at Beginning of Period | | Gross Additions | | Gross Reductions | | Number of Shares Held at End of Period | | Income | | Value |
RS S&P 500 Index VIP Series | | 3,552,016 | | 474,052 | | — | | 4,026,068 | | $ | — | | $ | 37,965,817 |
Note 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
|
Ordinary Income Total |
$1,152,659 |
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 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. 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 Asset Allocation VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Asset Allocation VIP Series (unaudited) (continued) |
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
|
Undistributed Ordinary Income |
$1,685 |
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.
Capital loss carryovers available to the Fund at December 31, 2007, were as follows:
| | | |
Expiring | | Amount |
2010 | | $ | 2,277,779 |
During the year ended December 31, 2007, the Fund utilized capital loss carryovers of $269,893.
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, 2007, which is the most recently completed tax year, the Fund had no such losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $40,982,541. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $894,568 and $(131), respectively, resulting in net unrealized appreciation of $894,437.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $4,750,000 and $0 respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
d. Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements with banks or third party broker/dealers to borrow funds. Interest payable on a reverse repurchase agreement is based upon competitive market rates at the time of issuance. When the Fund enters into a reverse repurchase agreement, the Fund 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 a buyer of the securities sold by the Fund may be unable to deliver the securities when the Fund seeks to repurchase them.
Reverse repurchase agreements may increase fluctuations in the Fund’s net asset value and may be viewed as a form of leverage.
e. Dollar Rolls
The Fund may enter into dollar rolls (principally using TBAs) in which the Fund sells mortgage-related securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an
| | |
18 | | RS Asset Allocation VIP Series |
agreed-upon price on a fixed date in a future month from the same party. 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. The Fund 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 a buyer of the securities sold by the Fund may be unable to deliver the replacement securities when it is required to do so. Dollar rolls may increase fluctuations in the Fund’s net asset value and may be viewed as a form of leverage.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
| | |
RS Asset Allocation VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS Asset Allocation VIP Series (unaudited) (continued) |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
| | |
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, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 98.2% |
Aerospace & Defense — 2.6% |
General Dynamics Corp. | | 8,896 | | $ | 749,043 |
Goodrich Corp. | | 2,574 | | | 122,162 |
Honeywell International, Inc. | | 16,604 | | | 834,849 |
L-3 Communications Holdings, Inc. | | 2,900 | | | 263,523 |
Lockheed Martin Corp. | | 7,403 | | | 730,380 |
Northrop Grumman Corp. | | 7,230 | | | 483,687 |
Precision Castparts Corp. | | 2,900 | | | 279,473 |
Raytheon Co. | | 9,152 | | | 515,075 |
Rockwell Collins, Inc. | | 3,536 | | | 169,587 |
The Boeing Co. | | 17,141 | | | 1,126,506 |
United Technologies Corp. | | 21,200 | | | 1,308,040 |
| | | | | |
| | | | | 6,582,325 |
Air Freight & Logistics — 0.9% |
C.H. Robinson Worldwide, Inc. | | 3,400 | | | 186,456 |
Expeditors International of Washington, Inc. | | 4,400 | | | 189,200 |
FedEx Corp. | | 6,694 | | | 527,420 |
United Parcel Service, Inc., Class B | | 22,759 | | | 1,398,996 |
| | | | | |
| | | | | 2,302,072 |
Airlines — 0.1% |
Southwest Airlines Co. | | 18,199 | | | 237,315 |
| | | | | |
| | | | | 237,315 |
Auto Components — 0.2% |
Johnson Controls, Inc. | | 12,264 | | | 351,732 |
The Goodyear Tire & Rubber Co.(1) | | 4,322 | | | 77,061 |
| | | | | |
| | | | | 428,793 |
Automobiles — 0.2% |
Ford Motor Co.(1) | | 48,544 | | | 233,497 |
General Motors Corp. | | 12,434 | | | 142,991 |
Harley-Davidson, Inc. | | 5,221 | | | 189,313 |
| | | | | |
| | | | | 565,801 |
Beverages — 2.5% |
Anheuser-Busch Cos., Inc. | | 15,462 | | | 960,499 |
Brown-Forman Corp., Class B | | 2,046 | | | 154,616 |
Coca-Cola Enterprises, Inc. | | 8,124 | | | 140,545 |
Constellation Brands, Inc., Class A(1) | | 3,500 | | | 69,510 |
Molson Coors Brewing Co., Class B | | 3,682 | | | 200,043 |
Pepsi Bottling Group, Inc. | | 4,264 | | | 119,051 |
PepsiCo, Inc. | | 35,271 | | | 2,242,883 |
The Coca-Cola Co. | | 43,664 | | | 2,269,655 |
| | | | | |
| | | | | 6,156,802 |
Biotechnology — 1.4% |
Amgen, Inc.(1) | | 23,617 | | | 1,113,778 |
Biogen Idec, Inc.(1) | | 6,454 | | | 360,714 |
Celgene Corp.(1) | | 9,900 | | | 632,313 |
Genzyme Corp.(1) | | 5,705 | | | 410,874 |
Gilead Sciences, Inc.(1) | | 20,700 | | | 1,096,065 |
| | | | | |
| | | | | 3,613,744 |
Building Products — 0.1% |
Masco Corp. | | 7,420 | | | 116,717 |
| | | | | |
| | | | | 116,717 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Capital Markets — 2.3% |
American Capital Strategies Ltd. | | 3,700 | | $ | 87,949 |
Ameriprise Financial, Inc. | | 4,567 | | | 185,740 |
E*TRADE Financial Corp.(1) | | 10,100 | | | 31,714 |
Federated Investors, Inc., Class B | | 1,739 | | | 59,856 |
Franklin Resources, Inc. | | 3,387 | | | 310,419 |
Janus Capital Group, Inc. | | 4,326 | | | 114,509 |
Legg Mason, Inc. | | 2,800 | | | 121,996 |
Lehman Brothers Holdings, Inc. | | 11,348 | | | 224,804 |
Merrill Lynch & Co., Inc. | | 20,964 | | | 664,768 |
Morgan Stanley | | 23,983 | | | 865,067 |
Northern Trust Corp. | | 3,863 | | | 264,886 |
State Street Corp. | | 9,370 | | | 599,586 |
T. Rowe Price Group, Inc. | | 5,516 | | | 311,488 |
The Charles Schwab Corp. | | 22,577 | | | 463,732 |
The Goldman Sachs Group, Inc. | | 8,702 | | | 1,521,980 |
| | | | | |
| | | | | 5,828,494 |
Chemicals — 2.1% |
Air Products & Chemicals, Inc. | | 4,469 | | | 441,805 |
Ashland, Inc. | | 1,031 | | | 49,694 |
E.I. du Pont de Nemours & Co. | | 20,005 | | | 858,015 |
Eastman Chemical Co. | | 1,856 | | | 127,804 |
Ecolab, Inc. | | 4,704 | | | 202,225 |
Hercules, Inc. | | 1,633 | | | 27,647 |
International Flavors & Fragrances, Inc. | | 1,417 | | | 55,348 |
Monsanto Co. | | 12,214 | | | 1,544,338 |
PPG Industries, Inc. | | 3,795 | | | 217,719 |
Praxair, Inc. | | 6,983 | | | 658,078 |
Rohm and Haas Co. | | 3,888 | | | 180,559 |
Sigma-Aldrich Corp. | | 2,702 | | | 145,530 |
The Dow Chemical Co. | | 20,842 | | | 727,594 |
| | | | | |
| | | | | 5,236,356 |
Commercial Banks — 2.5% |
Bank of New York Mellon Corp. | | 25,707 | | | 972,496 |
BB&T Corp. | | 11,734 | | | 267,183 |
Comerica, Inc. | | 3,064 | | | 78,530 |
Fifth Third Bancorp | | 11,754 | | | 119,656 |
First Horizon National Corp. | | 2,992 | | | 22,231 |
Huntington Bancshares, Inc. | | 7,298 | | | 42,109 |
KeyCorp | | 8,042 | | | 88,301 |
M&T Bank Corp. | | 1,600 | | | 112,864 |
Marshall & Ilsley Corp. | | 6,396 | | | 98,051 |
National City Corp. | | 17,747 | | | 84,653 |
PNC Financial Services Group, Inc. | | 7,205 | | | 411,406 |
Regions Financial Corp. | | 15,127 | | | 165,036 |
SunTrust Banks, Inc. | | 7,523 | | | 272,483 |
U.S. Bancorp | | 37,797 | | | 1,054,158 |
Wachovia Corp. | | 46,113 | | | 716,135 |
Wells Fargo & Co. | | 72,910 | | | 1,731,612 |
Zions Bancorporation | | 2,472 | | | 77,843 |
| | | | | |
| | | | | 6,314,747 |
Commercial Services & Supplies — 0.5% |
Allied Waste Industries, Inc.(1) | | 8,813 | | | 111,220 |
Avery Dennison Corp. | | 2,079 | | | 91,330 |
Cintas Corp. | | 3,041 | | | 80,617 |
Equifax, Inc. | | 2,150 | | | 72,283 |
Monster Worldwide, Inc.(1) | | 2,470 | | | 50,907 |
Pitney Bowes, Inc. | | 4,665 | | | 159,076 |
The accompanying notes are an integral part of these financial statements.
| | |
22 | | RS S&P 500 Index VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Commercial Services & Supplies (continued) |
R.R. Donnelley & Sons Co. | | 4,695 | | $ | 139,395 |
Robert Half International, Inc. | | 2,619 | | | 62,777 |
Waste Management, Inc. | | 11,422 | | | 430,724 |
| | | | | |
| | | | | 1,198,329 |
Communications Equipment — 2.5% |
Ciena Corp.(1) | | 2,154 | | | 49,908 |
Cisco Systems, Inc.(1) | | 131,363 | | | 3,055,503 |
Corning, Inc. | | 34,563 | | | 796,677 |
JDS Uniphase Corp.(1) | | 3,432 | | | 38,988 |
Juniper Networks, Inc.(1) | | 11,000 | | | 243,980 |
Motorola, Inc. | | 48,205 | | | 353,825 |
QUALCOMM, Inc. | | 35,768 | | | 1,587,026 |
Tellabs, Inc.(1) | | 8,953 | | | 41,632 |
| | | | | |
| | | | | 6,167,539 |
Computers & Peripherals — 4.6% |
Apple, Inc.(1) | | 19,333 | | | 3,237,118 |
Dell, Inc.(1) | | 45,043 | | | 985,541 |
EMC Corp.(1) | | 45,971 | | | 675,314 |
Hewlett-Packard Co. | | 54,601 | | | 2,413,910 |
International Business Machines Corp. | | 30,222 | | | 3,582,214 |
Lexmark International Group, Inc., Class A(1) | | 2,204 | | | 73,680 |
NetApp, Inc.(1) | | 6,733 | | | 145,837 |
QLogic Corp.(1) | | 2,794 | | | 40,764 |
SanDisk Corp.(1) | | 4,800 | | | 89,760 |
Sun Microsystems, Inc.(1) | | 17,058 | | | 185,591 |
Teradata Corp.(1) | | 2,932 | | | 67,846 |
| | | | | |
| | | | | 11,497,575 |
Construction & Engineering — 0.2% |
Fluor Corp. | | 1,906 | | | 354,668 |
Jacobs Engineering Group, Inc.(1) | | 2,700 | | | 217,890 |
| | | | | |
| | | | | 572,558 |
Construction Materials — 0.1% |
Vulcan Materials Co. | | 2,518 | | | 150,526 |
| | | | | |
| | | | | 150,526 |
Consumer Finance — 0.7% |
American Express Co. | | 25,937 | | | 977,047 |
Capital One Financial Corp. | | 8,040 | | | 305,600 |
Discover Financial Services | | 10,191 | | | 134,216 |
SLM Corp.(1) | | 10,286 | | | 199,034 |
| | | | | |
| | | | | 1,615,897 |
Containers & Packaging — 0.1% |
Ball Corp. | | 1,698 | | | 81,063 |
Bemis Co., Inc. | | 2,984 | | | 66,901 |
Pactiv Corp.(1) | | 2,370 | | | 50,315 |
Sealed Air Corp. | | 3,810 | | | 72,428 |
| | | | | |
| | | | | 270,707 |
Distributors — 0.1% |
Genuine Parts Co. | | 3,613 | | | 143,364 |
| | | | | |
| | | | | 143,364 |
Diversified Consumer Services — 0.1% |
Apollo Group, Inc., Class A(1) | | 2,958 | | | 130,921 |
H & R Block, Inc. | | 6,318 | | | 135,205 |
| | | | | |
| | | | | 266,126 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Diversified Financial Services — 3.2% |
Bank of America Corp. | | 97,581 | | $ | 2,329,259 |
CIT Group, Inc. | | 5,900 | | | 40,179 |
Citigroup, Inc. | | 115,238 | | | 1,931,389 |
CME Group, Inc. | | 1,200 | | | 459,828 |
IntercontinentalExchange, Inc.(1) | | 1,500 | | | 171,000 |
JPMorgan Chase & Co. | | 75,311 | | | 2,583,920 |
Leucadia National Corp. | | 3,500 | | | 164,290 |
Moody’s Corp. | | 4,648 | | | 160,077 |
NYSE Euronext | | 5,600 | | | 283,696 |
| | | | | |
| | | | | 8,123,638 |
Diversified Telecommunication Services — 2.9% |
AT&T, Inc. | | 132,388 | | | 4,460,152 |
CenturyTel, Inc. | | 2,122 | | | 75,522 |
Citizens Communications Co. | | 9,221 | | | 104,566 |
Embarq Corp. | | 3,840 | | | 181,517 |
Qwest Communications International, Inc. | | 32,677 | | | 128,421 |
Verizon Communications, Inc. | | 63,236 | | | 2,238,554 |
Windstream Corp. | | 10,529 | | | 129,928 |
| | | | | |
| | | | | 7,318,660 |
Electric Utilities — 3.0% |
Allegheny Energy, Inc. | | 3,880 | | | 194,427 |
Ameren Corp. | | 4,315 | | | 182,222 |
American Electric Power, Inc. | | 7,774 | | | 312,748 |
CenterPoint Energy, Inc. | | 7,948 | | | 127,565 |
CMS Energy Corp. | | 7,452 | | | 111,035 |
Consolidated Edison, Inc. | | 5,764 | | | 225,315 |
Dominion Resources, Inc. | | 13,314 | | | 632,282 |
DTE Energy Co. | | 4,105 | | | 174,216 |
Duke Energy Corp. | | 26,302 | | | 457,129 |
Edison International | | 7,073 | | | 363,411 |
Entergy Corp. | | 4,652 | | | 560,473 |
Exelon Corp. | | 14,956 | | | 1,345,442 |
FirstEnergy Corp. | | 7,451 | | | 613,441 |
FPL Group, Inc. | | 9,212 | | | 604,123 |
Pepco Holdings, Inc. | | 4,100 | | | 105,165 |
Pinnacle West Capital Corp. | | 1,550 | | | 47,693 |
PPL Corp. | | 8,216 | | | 429,450 |
Progress Energy, Inc. | | 5,078 | | | 212,413 |
Southern Co. | | 16,284 | | | 568,637 |
TECO Energy, Inc. | | 4,988 | | | 107,192 |
Xcel Energy, Inc. | | 9,253 | | | 185,708 |
| | | | | |
| | | | | 7,560,087 |
Electrical Equipment — 0.5% |
Cooper Industries Ltd., Class A | | 4,188 | | | 165,426 |
Emerson Electric Co. | | 16,890 | | | 835,210 |
Rockwell Automation, Inc. | | 3,531 | | | 154,411 |
| | | | | |
| | | | | 1,155,047 |
Electronic Equipment & Instruments — 0.4% |
Agilent Technologies, Inc.(1) | | 9,869 | | | 350,744 |
Jabil Circuit, Inc. | | 3,956 | | | 64,918 |
Molex, Inc. | | 2,894 | | | 70,643 |
Tyco Electronics Ltd. | | 10,994 | | | 393,805 |
| | | | | |
| | | | | 880,110 |
The accompanying notes are an integral part of these financial statements.
| | |
RS S&P 500 Index VIP Series | | 23 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series (continued) |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Energy Equipment & Services — 3.6% |
Baker Hughes, Inc. | | 6,815 | | $ | 595,222 |
BJ Services Co. | | 7,588 | | | 242,361 |
Cameron International Corp.(1) | | 4,500 | | | 249,075 |
ENSCO International, Inc. | | 3,100 | | | 250,294 |
Halliburton Co. | | 20,090 | | | 1,066,176 |
Nabors Industries Ltd.(1) | | 6,320 | | | 311,134 |
National-Oilwell Varco, Inc.(1) | | 9,400 | | | 833,968 |
Noble Corp. | | 5,514 | | | 358,189 |
Rowan Companies, Inc. | | 2,114 | | | 98,829 |
Schlumberger Ltd. | | 26,058 | | | 2,799,411 |
Smith International, Inc. | | 4,300 | | | 357,502 |
Transocean, Inc.(1) | | 7,166 | | | 1,092,027 |
Weatherford International Ltd.(1) | | 14,600 | | | 724,014 |
| | | | | |
| | | | | 8,978,202 |
Food & Staples Retailing — 2.7% |
Costco Wholesale Corp. | | 9,157 | | | 642,272 |
CVS Caremark Corp. | | 31,888 | | | 1,261,808 |
Safeway, Inc. | | 9,270 | | | 264,659 |
SUPERVALU, Inc. | | 4,307 | | | 133,043 |
Sysco Corp. | | 12,894 | | | 354,714 |
The Kroger Co. | | 16,796 | | | 484,901 |
Wal-Mart Stores, Inc. | | 51,682 | | | 2,904,528 |
Walgreen Co. | | 22,080 | | | 717,821 |
Whole Foods Market, Inc. | | 2,600 | | | 61,594 |
| | | | | |
| | | | | 6,825,340 |
Food Products — 1.5% |
Archer-Daniels-Midland Co. | | 13,788 | | | 465,345 |
Campbell Soup Co. | | 4,764 | | | 159,403 |
ConAgra Foods, Inc. | | 11,185 | | | 215,647 |
Dean Foods Co.(1) | | 3,100 | | | 60,822 |
General Mills, Inc. | | 7,225 | | | 439,063 |
H.J. Heinz Co. | | 6,812 | | | 325,954 |
Kellogg Co. | | 5,692 | | | 273,330 |
Kraft Foods, Inc., Class A | | 33,345 | | | 948,665 |
McCormick & Co., Inc. | | 2,128 | | | 75,884 |
Sara Lee Corp. | | 16,796 | | | 205,751 |
The Hershey Co. | | 3,675 | | | 120,467 |
Tyson Foods, Inc., Class A | | 6,500 | | | 97,110 |
Wm. Wrigley Jr. Co. | | 5,402 | | | 420,168 |
| | | | | |
| | | | | 3,807,609 |
Gas Utilities — 0.2% |
Integrys Energy Group, Inc. | | 1,599 | | | 81,277 |
Nicor, Inc. | | 938 | | | 39,950 |
Questar Corp. | | 4,200 | | | 298,368 |
| | | | | |
| | | | | 419,595 |
Health Care Equipment & Supplies — 2.0% |
Baxter International, Inc. | | 13,886 | | | 887,871 |
Becton, Dickinson and Co. | | 5,239 | | | 425,931 |
Boston Scientific Corp.(1) | | 28,519 | | | 350,498 |
C.R. Bard, Inc. | | 1,891 | | | 166,313 |
Covidien Ltd. | | 10,694 | | | 512,136 |
Hospira, Inc.(1) | | 2,597 | | | 104,166 |
Intuitive Surgical, Inc.(1) | | 800 | | | 215,520 |
Medtronic, Inc. | | 24,740 | | | 1,280,295 |
St. Jude Medical, Inc.(1) | | 8,090 | | | 330,719 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Health Care Equipment & Supplies (continued) |
Stryker Corp. | | 5,112 | | $ | 321,443 |
Varian Medical Systems, Inc.(1) | | 2,600 | | | 134,810 |
Zimmer Holdings, Inc.(1) | | 5,170 | | | 351,818 |
| | | | | |
| | | | | 5,081,520 |
Health Care Providers & Services — 1.8% |
Aetna, Inc. | | 10,992 | | | 445,506 |
AmerisourceBergen Corp. | | 4,226 | | | 168,998 |
Cardinal Health, Inc. | | 8,368 | | | 431,621 |
CIGNA Corp. | | 6,888 | | | 243,766 |
Coventry Health Care, Inc.(1) | | 3,150 | | | 95,823 |
Express Scripts, Inc.(1) | | 5,376 | | | 337,183 |
Humana, Inc.(1) | | 3,535 | | | 140,587 |
Laboratory Corp. of America Holdings(1) | | 2,400 | | | 167,112 |
McKesson Corp. | | 5,759 | | | 321,986 |
Medco Health Solutions, Inc.(1) | | 11,468 | | | 541,289 |
Patterson Companies, Inc.(1) | | 2,100 | | | 61,719 |
Quest Diagnostics, Inc. | | 3,696 | | | 179,145 |
Tenet Healthcare Corp.(1) | | 11,010 | | | 61,216 |
UnitedHealth Group, Inc. | | 27,200 | | | 714,000 |
WellPoint, Inc.(1) | | 11,706 | | | 557,908 |
| | | | | |
| | | | | 4,467,859 |
Health Care Technology — 0.0% |
IMS Health, Inc. | | 4,244 | | | 98,885 |
| | | | | |
| | | | | 98,885 |
Hotels, Restaurants & Leisure — 1.3% |
Carnival Corp. | | 10,827 | | | 356,858 |
Darden Restaurants, Inc. | | 3,362 | | | 107,382 |
International Game Technology | | 7,684 | | | 191,946 |
Marriott International, Inc., Class A | | 6,432 | | | 168,776 |
McDonald’s Corp. | | 25,361 | | | 1,425,796 |
Starbucks Corp.(1) | | 15,064 | | | 237,107 |
Starwood Hotels & Resorts Worldwide, Inc. | | 4,298 | | | 172,221 |
Wendy’s International, Inc. | | 2,530 | | | 68,867 |
Wyndham Worldwide Corp. | | 3,797 | | | 68,004 |
Yum! Brands, Inc. | | 10,346 | | | 363,041 |
| | | | | |
| | | | | 3,159,998 |
Household Durables — 0.4% |
Black & Decker Corp. | | 1,205 | | | 69,299 |
Centex Corp. | | 2,542 | | | 33,986 |
D.R. Horton, Inc. | | 5,700 | | | 61,845 |
Fortune Brands, Inc. | | 2,945 | | | 183,797 |
Harman International Industries, Inc. | | 1,300 | | | 53,807 |
KB HOME | | 1,990 | | | 33,691 |
Leggett & Platt, Inc. | | 2,928 | | | 49,103 |
Lennar Corp., Class A | | 2,900 | | | 35,786 |
Newell Rubbermaid, Inc. | | 5,096 | | | 85,562 |
Pulte Homes, Inc. | | 4,860 | | | 46,802 |
Snap-On, Inc. | | 1,273 | | | 66,209 |
The Stanley Works | | 1,281 | | | 57,427 |
Whirlpool Corp. | | 1,659 | | | 102,410 |
| | | | | |
| | | | | 879,724 |
Household Products — 2.3% |
Clorox Co. | | 3,445 | | | 179,829 |
Colgate-Palmolive Co. | | 11,318 | | | 782,074 |
The accompanying notes are an integral part of these financial statements.
| | |
24 | | RS S&P 500 Index VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Household Products (continued) |
Kimberly-Clark Corp. | | 9,529 | | $ | 569,644 |
The Procter & Gamble Co. | | 67,362 | | | 4,096,283 |
| | | | | |
| | | | | 5,627,830 |
Independent Power Producers & Energy Traders — 0.3% |
Constellation Energy Group | | 3,844 | | | 315,592 |
Dynegy, Inc., Class A(1) | | 9,236 | | | 78,968 |
The AES Corp.(1) | | 15,781 | | | 303,153 |
| | | | | |
| | | | | 697,713 |
Industrial Conglomerates — 3.0% |
3M Co. | | 15,694 | | | 1,092,145 |
General Electric Co. | | 218,751 | | | 5,838,464 |
Textron, Inc. | | 5,132 | | | 245,977 |
Tyco International Ltd. | | 10,794 | | | 432,192 |
| | | | | |
| | | | | 7,608,778 |
Information Technology Services — 0.9% |
Affiliated Computer Services, Inc., Class A(1) | | 2,300 | | | 123,027 |
Automatic Data Processing, Inc. | | 11,313 | | | 474,015 |
Cognizant Technology Solutions Corp., Class A(1) | | 6,600 | | | 214,566 |
Computer Sciences Corp.(1) | | 3,266 | | | 152,980 |
Convergys Corp.(1) | | 2,590 | | | 38,487 |
Electronic Data Systems Corp. | | 11,314 | | | 278,777 |
Fidelity National Information Services, Inc. | | 3,300 | | | 121,803 |
Fiserv, Inc.(1) | | 3,775 | | | 171,272 |
Paychex, Inc. | | 7,597 | | | 237,634 |
Total System Services, Inc. | | 3,664 | | | 81,414 |
Unisys Corp.(1) | | 8,133 | | | 32,125 |
Western Union Co. | | 15,929 | | | 393,765 |
| | | | | |
| | | | | 2,319,865 |
Insurance — 3.5% |
ACE Ltd. | | 7,024 | | | 386,952 |
AFLAC, Inc. | | 10,397 | | | 652,932 |
American International Group, Inc. | | 59,403 | | | 1,571,803 |
Aon Corp. | | 6,708 | | | 308,166 |
Assurant, Inc. | | 2,100 | | | 138,516 |
Cincinnati Financial Corp. | | 4,875 | | | 123,825 |
Genworth Financial, Inc., Class A | | 9,400 | | | 167,414 |
Lincoln National Corp. | | 5,846 | | | 264,941 |
Loews Corp. | | 9,663 | | | 453,195 |
Marsh & McLennan Companies, Inc. | | 11,451 | | | 304,024 |
MBIA, Inc. | | 4,600 | | | 20,194 |
MetLife, Inc. | | 15,772 | | | 832,289 |
Principal Financial Group, Inc. | | 5,188 | | | 217,740 |
Prudential Financial, Inc. | | 9,477 | | | 566,156 |
SAFECO Corp. | | 2,047 | | | 137,477 |
The Allstate Corp. | | 12,199 | | | 556,152 |
The Chubb Corp. | | 7,936 | | | 388,943 |
The Hartford Financial Services Group, Inc. | | 6,690 | | | 431,973 |
The Progressive Corp. | | 14,224 | | | 266,273 |
The Travelers Companies, Inc. | | 13,898 | | | 603,173 |
Torchmark Corp. | | 1,782 | | | 104,514 |
Unum Group | | 9,310 | | | 190,390 |
XL Capital Ltd., Class A | | 3,956 | | | 81,335 |
| | | | | |
| | | | | 8,768,377 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Internet & Catalog Retail — 0.2% | | | | | |
Amazon.com, Inc.(1) | | 6,600 | | $ | 483,978 |
IAC/InterActiveCorp(1) | | 4,000 | | | 77,120 |
| | | | | |
| | | | | 561,098 |
Internet Software & Services — 1.7% |
Akamai Technologies, Inc.(1) | | 3,400 | | | 118,286 |
eBay, Inc.(1) | | 25,334 | | | 692,378 |
Expedia, Inc.(1) | | 4,300 | | | 79,034 |
Google, Inc., Class A(1) | | 5,100 | | | 2,684,742 |
VeriSign, Inc.(1) | | 5,300 | | | 200,340 |
Yahoo! Inc.(1) | | 28,676 | | | 592,446 |
| | | | | |
| | | | | 4,367,226 |
Leisure Equipment & Products — 0.1% |
Eastman Kodak Co. | | 6,563 | | | 94,704 |
Hasbro, Inc. | | 2,589 | | | 92,479 |
Mattel, Inc. | | 8,533 | | | 146,085 |
| | | | | |
| | | | | 333,268 |
Life Sciences Tools & Services — 0.3% |
Millipore Corp.(1) | | 1,523 | | | 103,351 |
PerkinElmer, Inc. | | 1,870 | | | 52,079 |
Thermo Fisher Scientific, Inc.(1) | | 8,790 | | | 489,867 |
Waters Corp.(1) | | 1,962 | | | 126,549 |
| | | | | |
| | | | | 771,846 |
Machinery — 1.9% |
Caterpillar, Inc. | | 13,694 | | | 1,010,891 |
Cummins, Inc. | | 4,472 | | | 293,005 |
Danaher Corp. | | 5,766 | | | 445,712 |
Deere & Co. | | 9,532 | | | 687,543 |
Dover Corp. | | 4,232 | | | 204,702 |
Eaton Corp. | | 3,646 | | | 309,801 |
Illinois Tool Works, Inc. | | 8,808 | | | 418,468 |
Ingersoll-Rand Co. Ltd., Class A | | 6,704 | | | 250,931 |
ITT Corp. | | 4,742 | | | 300,311 |
PACCAR, Inc. | | 7,909 | | | 330,833 |
Pall Corp. | | 2,232 | | | 88,566 |
Parker Hannifin Corp. | | 3,547 | | | 252,972 |
Terex Corp.(1) | | 2,300 | | | 118,151 |
The Manitowoc Co., Inc. | | 2,700 | | | 87,831 |
| | | | | |
| | | | | 4,799,717 |
Media — 2.8% |
CBS Corp., Class B | | 15,737 | | | 306,714 |
Clear Channel Communications, Inc. | | 11,454 | | | 403,181 |
Comcast Corp., Class A | | 65,332 | | | 1,239,348 |
E.W. Scripps Co., Class A | | 1,600 | | | 66,464 |
Gannett Co., Inc. | | 5,313 | | | 115,133 |
Meredith Corp. | | 742 | | | 20,991 |
News Corp., Class A | | 50,300 | | | 756,512 |
Omnicom Group, Inc. | | 7,322 | | | 328,611 |
The DIRECTV Group, Inc.(1) | | 15,600 | | | 404,196 |
The Interpublic Group of Companies, Inc.(1) | | 11,603 | | | 99,786 |
The McGraw-Hill Companies, Inc. | | 6,924 | | | 277,791 |
The New York Times Co., Class A | | 3,273 | | | 50,371 |
The Walt Disney Co. | | 42,416 | | | 1,323,379 |
The Washington Post Co., Class B | | 123 | | | 72,189 |
The accompanying notes are an integral part of these financial statements.
| | |
RS S&P 500 Index VIP Series | | 25 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series (continued) |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Media (continued) |
Time Warner, Inc. | | 77,424 | | $ | 1,145,875 |
Viacom, Inc., Class B(1) | | 14,037 | | | 428,690 |
| | | | | |
| | | | | 7,039,231 |
Metals & Mining — 1.3% |
Alcoa, Inc. | | 17,725 | | | 631,364 |
Allegheny Technologies, Inc. | | 2,406 | | | 142,628 |
Freeport-McMoran Copper & Gold, Inc., Class B | | 8,203 | | | 961,309 |
Newmont Mining Corp. | | 10,104 | | | 527,025 |
Nucor Corp. | | 7,022 | | | 524,333 |
Titanium Metals Corp. | | 1,900 | | | 26,581 |
United States Steel Corp. | | 2,588 | | | 478,211 |
| | | | | |
| | | | | 3,291,451 |
Multi-Utilities — 0.5% |
NiSource, Inc. | | 4,793 | | | 85,891 |
PG&E Corp. | | 8,080 | | | 320,695 |
Public Service Enterprise Group, Inc. | | 11,568 | | | 531,318 |
Sempra Energy | | 5,394 | | | 304,491 |
| | | | | |
| | | | | 1,242,395 |
Multiline Retail — 0.7% |
Big Lots, Inc.(1) | | 1,734 | | | 54,170 |
Dillards, Inc., Class A | | 1,262 | | | 14,601 |
Family Dollar Stores, Inc. | | 3,292 | | | 65,642 |
J.C. Penney Co., Inc. | | 4,898 | | | 177,748 |
Kohl’s Corp.(1) | | 6,913 | | | 276,797 |
Macy’s, Inc. | | 9,794 | | | 190,200 |
Nordstrom, Inc. | | 3,640 | | | 110,292 |
Sears Holdings Corp.(1) | | 1,611 | | | 118,666 |
Target Corp. | | 17,546 | | | 815,714 |
| | | | | |
| | | | | 1,823,830 |
Office Electronics — 0.1% |
Xerox Corp. | | 20,891 | | | 283,282 |
| | | | | |
| | | | | 283,282 |
Oil, Gas & Consumable Fuels — 12.4% |
Anadarko Petroleum Corp. | | 10,686 | | | 799,740 |
Apache Corp. | | 7,496 | | | 1,041,944 |
Cabot Oil & Gas Corp. | | 2,100 | | | 142,233 |
Chesapeake Energy Corp. | | 10,700 | | | 705,772 |
Chevron Corp. | | 45,419 | | | 4,502,385 |
ConocoPhillips | | 34,035 | | | 3,212,564 |
CONSOL Energy, Inc. | | 3,900 | | | 438,243 |
Devon Energy Corp. | | 9,598 | | | 1,153,296 |
El Paso Corp. | | 16,290 | | | 354,145 |
EOG Resources, Inc. | | 5,345 | | | 701,264 |
Exxon Mobil Corp. | | 117,102 | | | 10,320,199 |
Hess Corp. | | 6,021 | | | 759,790 |
Marathon Oil Corp. | | 15,696 | | | 814,151 |
Massey Energy Co. | | 1,700 | | | 159,375 |
Murphy Oil Corp. | | 4,000 | | | 392,200 |
Noble Energy, Inc. | | 3,700 | | | 372,072 |
Occidental Petroleum Corp. | | 18,358 | | | 1,649,650 |
Peabody Energy Corp. | | 5,800 | | | 510,690 |
Range Resources Corp. | | 3,200 | | | 209,728 |
Southwestern Energy Co.(1) | | 7,500 | | | 357,075 |
Spectra Energy Corp. | | 14,751 | | | 423,944 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Oil, Gas & Consumable Fuels (continued) |
Sunoco, Inc. | | 2,532 | | $ | 103,027 |
Tesoro Corp. | | 2,900 | | | 57,333 |
Valero Energy Corp. | | 11,700 | | | 481,806 |
Williams Companies, Inc. | | 12,415 | | | 500,449 |
XTO Energy, Inc. | | 11,241 | | | 770,121 |
| | | | | |
| | | | | 30,933,196 |
Paper & Forest Products — 0.2% |
International Paper Co. | | 9,605 | | | 223,797 |
MeadWestvaco Corp. | | 2,990 | | | 71,282 |
Weyerhaeuser Co. | | 5,010 | | | 256,211 |
| | | | | |
| | | | | 551,290 |
Personal Products — 0.2% |
Avon Products, Inc. | | 9,396 | | | 338,444 |
Estee Lauder Companies, Inc., Class A | | 2,300 | | | 106,835 |
| | | | | |
| | | | | 445,279 |
Pharmaceuticals — 6.0% |
Abbott Laboratories | | 33,989 | | | 1,800,397 |
Allergan, Inc. | | 6,626 | | | 344,883 |
Barr Pharmaceuticals, Inc.(1) | | 2,000 | | | 90,160 |
Bristol-Myers Squibb Co. | | 44,637 | | | 916,398 |
Eli Lilly & Co. | | 22,839 | | | 1,054,248 |
Forest Laboratories, Inc.(1) | | 7,079 | | | 245,925 |
Johnson & Johnson | | 61,754 | | | 3,973,252 |
King Pharmaceuticals, Inc.(1) | | 5,445 | | | 57,009 |
Merck & Co., Inc. | | 48,258 | | | 1,818,844 |
Mylan, Inc.(1) | | 6,600 | | | 79,662 |
Pfizer, Inc. | | 148,003 | | | 2,585,612 |
Schering-Plough Corp. | | 34,720 | | | 683,637 |
Watson Pharmaceuticals, Inc.(1) | | 1,956 | | | 53,145 |
Wyeth | | 29,569 | | | 1,418,129 |
| | | | | |
| | | | | 15,121,301 |
Real Estate Investment Trusts — 1.1% |
Apartment Investment & Management Co., Class A | | 1,915 | | | 65,225 |
AvalonBay Communities, Inc. | | 1,600 | | | 142,656 |
Boston Properties, Inc. | | 2,500 | | | 225,550 |
Developers Diversified Realty Corp. | | 2,600 | | | 90,246 |
Equity Residential | | 5,321 | | | 203,635 |
General Growth Properties, Inc. | | 5,700 | | | 199,671 |
HCP, Inc. | | 4,900 | | | 155,869 |
Host Hotels & Resorts, Inc. | | 10,800 | | | 147,420 |
Kimco Realty Corp. | | 5,500 | | | 189,860 |
Plum Creek Timber Co., Inc. | | 3,362 | | | 143,591 |
ProLogis | | 5,292 | | | 287,620 |
Public Storage, Inc. | | 2,900 | | | 234,291 |
Simon Property Group, Inc. | | 4,702 | | | 422,663 |
Vornado Realty Trust | | 2,700 | | | 237,600 |
| | | | | |
| | | | | 2,745,897 |
Real Estate Management & Development — 0.0% |
CB Richard Ellis Group, Inc., Class A(1) | | 3,700 | | | 71,040 |
| | | | | |
| | | | | 71,040 |
Road & Rail — 1.1% |
Burlington Northern Santa Fe Corp. | | 6,361 | | | 635,400 |
CSX Corp. | | 8,968 | | | 563,280 |
The accompanying notes are an integral part of these financial statements.
| | |
26 | | RS S&P 500 Index VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Road & Rail (continued) |
Norfolk Southern Corp. | | 8,129 | | $ | 509,445 |
Ryder System, Inc. | | 1,430 | | | 98,498 |
Union Pacific Corp. | | 11,284 | | | 851,942 |
| | | | | |
| | | | | 2,658,565 |
Semiconductors & Semiconductor Equipment — 2.5% |
Advanced Micro Devices, Inc.(1) | | 11,902 | | | 69,389 |
Altera Corp. | | 6,790 | | | 140,553 |
Analog Devices, Inc. | | 6,027 | | | 191,478 |
Applied Materials, Inc. | | 29,509 | | | 563,327 |
Broadcom Corp., Class A(1) | | 10,244 | | | 279,559 |
Intel Corp. | | 127,753 | | | 2,744,134 |
KLA-Tencor Corp. | | 4,028 | | | 163,980 |
Linear Technology Corp. | | 5,347 | | | 174,152 |
LSI Corp.(1) | | 14,361 | | | 88,177 |
MEMC Electronic Materials, Inc.(1) | | 4,800 | | | 295,392 |
Microchip Technology, Inc. | | 4,600 | | | 140,484 |
Micron Technology, Inc.(1) | | 16,828 | | | 100,968 |
National Semiconductor Corp. | | 5,458 | | | 112,107 |
Novellus Systems, Inc.(1) | | 2,370 | | | 50,220 |
NVIDIA Corp.(1) | | 12,261 | | | 229,526 |
Teradyne, Inc.(1) | | 3,377 | | | 37,383 |
Texas Instruments, Inc. | | 29,380 | | | 827,341 |
Xilinx, Inc. | | 5,730 | | | 144,682 |
| | | | | |
| | | | | 6,352,852 |
Software — 3.5% |
Adobe Systems, Inc.(1) | | 11,654 | | | 459,051 |
Autodesk, Inc.(1) | | 4,616 | | | 156,067 |
BMC Software, Inc.(1) | | 3,606 | | | 129,816 |
CA, Inc. | | 9,555 | | | 220,625 |
Citrix Systems, Inc.(1) | | 4,616 | | | 135,757 |
Compuware Corp.(1) | | 5,622 | | | 53,634 |
Electronic Arts, Inc.(1) | | 6,400 | | | 284,352 |
Intuit, Inc.(1) | | 6,330 | | | 174,518 |
Microsoft Corp. | | 175,565 | | | 4,829,793 |
Novell, Inc.(1) | | 7,029 | | | 41,401 |
Oracle, Corp.(1) | | 86,111 | | | 1,808,331 |
Symantec Corp.(1) | | 21,273 | | | 411,632 |
| | | | | |
| | | | | 8,704,977 |
Specialty Retail — 1.5% |
Abercrombie & Fitch Co., Class A | | 1,500 | | | 94,020 |
Applied Biosystems, Inc. | | 3,176 | | | 106,332 |
AutoNation, Inc.(1) | | 3,700 | | | 37,074 |
AutoZone, Inc.(1) | | 974 | | | 117,864 |
Bed, Bath & Beyond, Inc.(1) | | 5,864 | | | 164,778 |
Best Buy Co., Inc. | | 7,540 | | | 298,584 |
GameStop Corp., Class A(1) | | 3,400 | | | 137,360 |
Limited Brands, Inc. | | 7,095 | | | 119,551 |
Lowe’s Companies, Inc. | | 31,468 | | | 652,961 |
Office Depot, Inc.(1) | | 5,824 | | | 63,715 |
RadioShack Corp. | | 2,565 | | | 31,473 |
Staples, Inc. | | 14,990 | | | 356,012 |
The Gap, Inc. | | 12,514 | | | 208,608 |
The Home Depot, Inc. | | 36,530 | | | 855,533 |
The Sherwin-Williams Co. | | 2,251 | | | 103,388 |
Tiffany & Co. | | 3,379 | | | 137,694 |
TJX Companies, Inc. | | 8,872 | | | 279,202 |
| | | | | |
| | | | | 3,764,149 |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | | |
Textiles, Apparel & Luxury Goods — 0.4% |
Coach, Inc.(1) | | | 7,600 | | $ | 219,488 |
Jones Apparel Group, Inc. | | | 1,927 | | | 26,496 |
Liz Claiborne, Inc. | | | 2,595 | | | 36,719 |
NIKE, Inc., Class B | | | 8,816 | | | 525,522 |
Polo Ralph Lauren Corp. | | | 1,200 | | | 75,336 |
VF Corp. | | | 1,636 | | | 116,451 |
| | | | | | |
| | | | | | 1,000,012 |
Thrifts & Mortgage Finance — 0.4% |
Countrywide Financial Corp. | | | 12,410 | | | 52,742 |
Federal National Mortgage Association | | | 23,513 | | | 458,739 |
Freddie Mac | | | 13,887 | | | 227,747 |
Hudson City Bancorp, Inc. | | | 10,500 | | | 175,140 |
MGIC Investment Corp. | | | 2,536 | | | 15,495 |
Sovereign Bancorp, Inc. | | | 8,365 | | | 61,566 |
Washington Mutual, Inc. | | | 22,921 | | | 113,001 |
| | | | | | |
| | | | | | 1,104,430 |
Tobacco — 1.5% |
Altria Group, Inc. | | | 45,095 | | | 927,153 |
Lorillard, Inc.(1) | | | 3,700 | | | 255,892 |
Philip Morris International, Inc. | | | 45,095 | | | 2,227,242 |
Reynolds American, Inc. | | | 3,678 | | | 171,652 |
UST, Inc. | | | 3,831 | | | 209,211 |
| | | | | | |
| | | | | | 3,791,150 |
Trading Companies & Distributors — 0.1% |
W.W. Grainger, Inc. | | | 1,692 | | | 138,406 |
| | | | | | |
| | | | | | 138,406 |
Wireless Telecommunication Services — 0.4% |
American Tower Corp., Class A(1) | | | 8,500 | | | 359,125 |
Sprint Nextel Corp. | | | 61,117 | | | 580,611 |
| | | | | | |
| | | | | | 939,736 |
| | | | | | |
Total Common Stocks (Cost $212,494,209) | | | | | | 245,880,248 |
| | |
| | Principal Amount | | Value |
U.S. Government Securities — 0.1% |
U.S. Treasury Bills — 0.1% |
United States Treasury Bill 1.35% due 7/3/2008(2) | | $ | 50,000 | | | 49,996 |
1.81% due 9/4/2008(2) | | | 15,000 | | | 14,951 |
1.855% due 9/18/2008(2) | | | 230,000 | | | 229,064 |
| | | | | | |
| | | | | | 294,011 |
| | | | | | |
Total U.S. Government Securities (Cost $294,011) | | | | | | 294,011 |
| | |
| | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3) | | | 49 | | | 1,979 |
RS Emerging Growth Fund, Class Y(3) | | | 67 | | | 2,311 |
The accompanying notes are an integral part of these financial statements.
| | |
RS S&P 500 Index VIP Series | | 27 |
| | |
| | Schedule of Investments – RS S&P 500 Index VIP Series (continued) |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | | |
Other Investments – For Trustee Deferred Compensation Plan (continued) |
RS Emerging Markets Fund, Class A(3) | | | 65 | | $ | 1,581 |
RS Equity Dividend Fund, Class Y(3) | | | 30 | | | 251 |
RS Global Natural Resources Fund, Class Y(3) | | | 34 | | | 1,484 |
RS Growth Fund, Class Y(3) | | | 100 | | | 1,238 |
RS Investment Quality Bond Fund, Class A(3) | | | 27 | | | 256 |
RS Investors Fund, Class Y(3) | | | 90 | | | 856 |
RS MidCap Opportunities Fund, Class Y(3) | | | 46 | | | 560 |
RS Partners Fund, Class Y(3) | | | 45 | | | 1,339 |
RS S&P 500 Index Fund, Class A(3) | | | 28 | | | 245 |
RS Smaller Company Growth Fund, Class Y(3) | | | 27 | | | 450 |
RS Technology Fund, Class Y(3) | | | 48 | | | 707 |
RS Value Fund, Class Y(3) | | | 91 | | | 2,339 |
| | | | | | |
Total Other Investments (Cost $16,005) | | | | | | 15,596 |
| | |
| | Principal Amount | | Value |
Repurchase Agreements — 1.6% |
State Street Bank and Trust Co. Repurchase Agreement, 2.10% dated 6/30/2008, maturity value of $3,949,230, due 7/1/2008, collateralized by FHLB, 5.00%, due 6/11/2018, with a value of $4,029,000 | | $ | 3,949,000 | | | 3,949,000 |
| | | | | | |
Total Repurchase Agreements (Cost $3,949,000) | | | | | | 3,949,000 |
| | | | | | |
Total Investments — 99.9% (Cost $216,753,225) | | | | | | 250,138,855 |
| | | | | | |
Other Assets, Net — 0.1% | | | | | | 225,399 |
| | | | | | |
Total Net Assets — 100.0% | | | | | $ | 250,364,254 |
(1) | Non-income producing security. |
(2) | Security 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 2b in Notes to Financial Statements. |
| | | | | | | | | | | |
Description | | Number of Contracts | | Expiration | | Face Value (Thousands) | | Unrealized Depreciation | |
Purchased Futures Contracts | | | | |
S&P 500 INDEX | | 12 | | 9/2008 | | $ | 3,843 | | $ | (253,710 | ) |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | | | | | |
Valuation Inputs | | Investments in Securities | | Other Financial Instruments* | |
Level 1 — Quoted Prices | | $ | 250,138,855 | | $ | (253,710 | ) |
Level 2 — Significant Other Observable Inputs | | | — | | | — | |
Level 3 — Significant Unobservable Inputs | | | — | | | — | |
| | | | | | | |
Total | | $ | 250,138,855 | | $ | (253,710 | ) |
* | Other financial instruments include futures, forwards and swap contracts. |
The accompanying notes are an integral part of these financial statements.
| | |
28 | | RS S&P 500 Index VIP Series |
| | |
| | Financial Information — RS S&P 500 Index VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 250,138,855 | |
Cash and cash equivalents | | | 625 | |
Dividends/interest receivable | | | 324,419 | |
Receivable for fund shares subscribed | | | 113,269 | |
Due from distributor | | | 14,459 | |
Prepaid expenses | | | 6,845 | |
Receivable for variation margin | | | 3,300 | |
| | | | |
Total Assets | | | 250,601,772 | |
| | | | |
Liabilities | | | | |
Payable to adviser | | | 53,457 | |
Payable for fund shares redeemed | | | 48,678 | |
Trustees’ deferred compensation | | | 15,596 | |
Payable for investments purchased | | | 3,316 | |
Accrued expenses/other liabilities | | | 116,471 | |
| | | | |
Total Liabilities | | | 237,518 | |
| | | | |
Total Net Assets | | $ | 250,364,254 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 345,925,646 | |
Accumulated undistributed net investment income | | | 2,399,081 | |
Accumulated net realized loss from investments, futures contracts and foreign currency transactions | | | (131,092,393 | ) |
Net unrealized appreciation on investments and futures contracts | | | 33,131,920 | |
| | | | |
Total Net Assets | | $ | 250,364,254 | |
| | | | |
Investments, at Cost | | $ | 216,753,225 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 26,557,130 | |
| |
Net Asset Value Per Share | | | $9.43 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 68,476 | |
Dividends | | | 2,656,939 | |
Withholding taxes on foreign dividends | | | (125 | ) |
| | | | |
Total Investment Income | | | 2,725,290 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 325,871 | |
Shareholder reports | | | 34,066 | |
Professional fees | | | 28,578 | |
Custodian fees | | | 24,187 | |
Administrative service fees | | | 19,127 | |
Trustees’ fees and expenses | | | 8,709 | |
Registration fees | | | 8,186 | |
Insurance expense | | | 4,537 | |
Other expense | | | 3,338 | |
| | | | |
Total Expenses | | | 456,599 | |
Less: Fee waiver by distributor | | | (91,596 | ) |
| | | | |
Total Expenses, Net | | �� | 365,003 | |
| | | | |
Net Investment Income | | | 2,360,287 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments, Futures Contracts and Foreign Currency Transactions | | | | |
Net realized loss from investments | | | (677,215 | ) |
Net realized loss from futures contracts | | | (627,031 | ) |
Net realized gain from foreign currency transactions | | | 8 | |
Net change in unrealized depreciation on investments | | | (34,913,698 | ) |
Net change in unrealized depreciation on futures contracts | | | (92,230 | ) |
| | | | |
Net Loss on Investments, Futures Contracts and Foreign Currency Transactions | | | (36,310,166 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (33,949,879 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS S&P 500 Index VIP Series | | 29 |
| | |
| | Financial Information — RS S&P 500 Index VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six-Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 2,360,287 | | | $ | 4,837,840 | |
Net realized gain from investments | | | (1,304,238 | ) | | | 2,260,748 | |
Net change in unrealized appreciation on investments and futures contracts | | | (35,005,928 | ) | | | 6,990,996 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | (33,949,879 | ) | | | 14,089,584 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (4,914,798 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (4,914,798 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 12,282,455 | | | | 21,108,628 | |
Reinvestment of distributions | | | — | | | | 4,914,798 | |
Cost of shares redeemed | | | (10,905,559 | ) | | | (20,651,753 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 1,376,896 | | | | 5,371,673 | |
| | | | | | | | |
Net Increase in Net Assets | | | (32,572,983 | ) | | | 14,546,459 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of year | | | 282,937,237 | | | | 268,390,778 | |
| | | | | | | | |
End of year | | $ | 250,364,254 | | | $ | 282,937,237 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 2,399,081 | | | $ | 38,794 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 1,236,569 | | | | 1,952,027 | |
Reinvested | | | — | | | | 461,483 | |
Redeemed | | | (1,095,243 | ) | | | (1,902,682 | ) |
| | | | | | | | |
Net Increase | | | 141,326 | | | | 510,828 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
30 | | RS S&P 500 Index VIP Series |
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| | |
RS S&P 500 Index VIP Series | | 31 |
| | |
| | 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. 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 distributions).
| | |
| | Financial Highlights |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Asset Value, Beginning of Period | | Net Investment Income | | Net Realized and Unrealized Gain | | | Total Operations | | | Distributions From Net Investment Income | | | Distributions From Net Realized Capital Gains | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/08 | | $ | 10.71 | | $ | 0.09 | | $ | (1.37 | ) | | $ | (1.28 | ) | | $ | — | | | $ | — | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 10.36 | | | 0.19 | | | 0.35 | | | | 0.54 | | | | (0.19 | ) | | | — | | | (0.19 | ) |
| | | | | | | |
Year Ended 12/31/06 | | | 9.12 | | | 0.16 | | | 1.24 | | | | 1.40 | | | | (0.16 | ) | | | — | | | (0.16 | ) |
| | | | | | | |
Year Ended 12/31/05 | | | 8.86 | | | 0.14 | | | 0.26 | | | | 0.40 | | | | (0.14 | ) | | | — | | | (0.14 | ) |
| | | | | | | |
Year Ended 12/31/04 | | | 8.14 | | | 0.14 | | | 0.72 | | | | 0.86 | | | | (0.14 | ) | | | — | | | (0.14 | ) |
| | | | | | | |
Year Ended 12/31/03 | | | 6.44 | | | 0.11 | | | 1.70 | | | | 1.81 | | | | (0.11 | ) | | | — | | | (0.11 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
32 | | RS S&P 500 Index VIP Series |
| | | | | | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets1 | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Income to Average Net Assets1 | | | Gross Ratio of Net Investment Income to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$ | 9.43 | | (11.95 | )% | | $ | 250,364 | | 0.28 | % | | 0.35 | % | | 1.81 | % | | 1.74 | % | | 2 | % |
| | | | | | | |
| 10.71 | | 5.22 | % | | | 282,937 | | 0.28 | % | | 0.35 | % | | 1.72 | % | | 1.65 | % | | 3 | % |
| | | | | | | |
| 10.36 | | 15.46 | % | | | 268,391 | | 0.28 | % | | 0.36 | % | | 1.72 | % | | 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 | % |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations and custody credits, if applicable. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’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.
| | |
RS S&P 500 Index VIP Series | | 33 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS S&P 500 Index VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4b). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the
| | |
34 | | RS S&P 500 Index VIP Series |
reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 – quoted prices in active markets for identical investments |
Ø | | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Futures Contracts
The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the notional value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of unin-
| | |
RS S&P 500 Index VIP Series | | 35 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series (continued) |
vested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.25%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with GIS. GIS is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision and direction of the Board of Trustees of the Trust and review by RS Investments. As compensation for GIS’s services, RS Investments pays fees to GIS at an annual rate of 0.2375% of the average daily net assets of the Fund. Payment of the sub-advisory fee 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 the Fund’s total annual fund operating expenses to 0.28% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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
| | |
36 | | RS S&P 500 Index VIP Series |
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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
|
Ordinary Income Total |
$4,914,798 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
| | |
Undistributed Ordinary Income | | Undistributed Long-Term Capital Gains |
$53,812 | | $— |
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.
Capital loss carryovers available to the Fund at December 31, 2007 were as follows:
| | |
Expiring | | Amount |
2010 | | $112,667,814 |
2011 | | 11,938,809 |
2013 | | 549,960 |
| | |
Total | | $125,156,583 |
During the year ended December 31, 2007, the Fund utilized capital loss carryovers of $1,574,982.
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, 2007, which is the most recently completed tax year, the Fund had no such losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008 was $221,535,951. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $64,522,947 and $(35,920,043), respectively, resulting in net unrealized appreciation of $28,602,904.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $11,095,138 and $5,290,404, respectively, for the six months ended June 30, 2008.
b. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the
| | |
RS S&P 500 Index VIP Series | | 37 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series (continued) |
value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
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38 | | RS S&P 500 Index VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS S&P 500 Index VIP Series | | 39 |
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| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 – 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management
* | The Advisory Agreements for the Funds of the series not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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40 | | RS Asset Allocation VIP Series |
capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
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RS Asset Allocation VIP Series | | 41 |
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| | Supplemental Information — unaudited (continued) |
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as
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42 | | RS Asset Allocation VIP Series |
well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to
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RS Asset Allocation VIP Series | | 43 |
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| | Supplemental Information — unaudited (continued) |
portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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44 | | RS Asset Allocation VIP Series |
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| | Trustees and Officers Information Table |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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RS Asset Allocation VIP Series | | 45 |
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| | Supplemental Information — unaudited (continued) |
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| | Trustees and Officers Information Table (continued) |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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46 | | RS Asset Allocation VIP Series |
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| | Trustees and Officers Information Table (continued) |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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RS Asset Allocation VIP Series | | 47 |
RS Variable Products Trust
RS S&P 500 Index VIP Series
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06.30.08 | | |
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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, 2008. 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 S&P 500 Index VIP Series |
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| | Jonathan C. Jankus, CFA Jonathan C. Jankus (GIS) 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 at 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. |
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| | Stewart M. Johnson Stewart M. Johnson (GIS) has been a co-portfolio manager of RS S&P 500 Index VIP Series since 2004.* Mr. Johnson has been a senior director at Guardian Life since January 2002. Mr. Johnson was second vice president of 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. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | The RS S&P 500 Index VIP Series performed generally as expected, as it tracked the performance of the S&P 500® Index.3 |
Ø | | Markets continue to be dominated by credit concerns and rising oil prices. |
Market Overview
Financial markets around the globe were broadly lower during the second quarter and continued to be plagued by concerns over the deteriorating credit quality of financial institutions and the inflationary implications of increasing oil prices. The broad domestic stock market, as measured by the S&P 500® Index, declined 2.73% in the second quarter. This was the third consecutive quarter of negative returns for the index, which appeared to be on its way to recovery until the devastating month of June during which it declined 8.43%.
For the six months ending June 30, 2008, the S&P 500® Index declined 11.91% in the face of a Federal Reserve which has eased aggressively, cutting the federal funds rate from 4.25% to 2.00%. It remains to be seen whether any further easing is possible as current-year inflation forecasts top 4% according to the latest Bloomberg surveys of economists.
Performance
The RS S&P 500 Index VIP Series declined 11.95% during the first half of 2008 while its benchmark declined 11.91%. The return of the index is theoretical in the sense that it is assumed that all index rebalancing and dividend reinvestment is done without any transaction costs.
Portfolio Review
The Fund’s managers do not engage in active stock or sector selection. Rather, the Fund’s investments seek to replicate the returns of the S&P 500® Index while minimizing transaction costs.
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RS S&P 500 Index VIP Series | | 3 |
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| | RS S&P 500 Index VIP Series (continued) |
Since the Fund can be expected to own exposure to the broad economy as represented by the S&P 500® Index, it should come as no surprise that the Fund’s holdings reflected exposure to the broad macroeconomic themes described above. In particular, during the period, concern over the deteriorating credit quality of financial institutions led to declines in holdings such as MBIA, Inc. (-76%), Lehman Brothers (-70%) and Wachovia Corp. (-59%). Price increases in oil and other commodities led to gains in the natural resources area, such as Massey Energy (162%), Cabot Oil & Gas (68%) and U.S. Steel (53%).
Outlook
While credit concerns continue to dominate investor psychology, we believe most signs indicate continuing modest economic growth, which hopefully will continue to sustain corporate profits. Crude oil prices have seen levels near or above $130 per barrel; and, according to Bloomberg surveys of economists, consumer prices are expected to rise by 4.1% in 2008, and moderate to 2.7% in 2009. In spite of this, yields on two-year treasury bonds stand below 2.4%, implying negative real (i.e., after inflation) interest rates.
In the face of recent equity market declines, we remain bullish on the value comparison between stocks, bonds and cash. It seems to us that only stocks offer the prospect for real returns at these levels, and that even modest economic growth going forward will show the recent downturn to have been overdone.
We thank you for your continued support.
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Jonathan C. Jankus Co-Portfolio Manager | | Stewart M. Johnson Co-Portfolio Manager |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case 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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4 | | RS S&P 500 Index VIP Series |
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Total Net Assets: $250,364,254 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| |
Company | | Percentage of Total Net Assets |
Exxon Mobil Corp. | | 4.20% |
General Electric Co. | | 2.37% |
Microsoft Corp. | | 1.96% |
Chevron Corp. | | 1.83% |
AT&T, Inc. | | 1.81% |
The Procter & Gamble Co. | | 1.67% |
Johnson & Johnson | | 1.62% |
International Business Machines Corp. | | 1.46% |
Apple, Inc. | | 1.32% |
ConocoPhillips | | 1.31% |
Total | | 19.55% |
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 is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
| | |
RS S&P 500 Index VIP Series | | 5 |
| | |
| | RS S&P 500 Index VIP Series (continued) |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | |
| | | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Year | | 5 Year | | Since Inception |
RS S&P 500 Index VIP Series | | 08/25/99 | | -11.95% | | -13.30% | | 4.11% | | 7.27% | | 0.58% |
S&P 500® Index3 | | | | -11.91% | | -13.12% | | 4.40% | | 7.58% | | 0.80% |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 08/25/99 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 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $880.50 | | $1.31 | | 0.28% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,023.47 | | $1.41 | | 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 182/366 (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, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 98.2% |
Aerospace & Defense — 2.6% |
General Dynamics Corp. | | 8,896 | | $ | 749,043 |
Goodrich Corp. | | 2,574 | | | 122,162 |
Honeywell International, Inc. | | 16,604 | | | 834,849 |
L-3 Communications Holdings, Inc. | | 2,900 | | | 263,523 |
Lockheed Martin Corp. | | 7,403 | | | 730,380 |
Northrop Grumman Corp. | | 7,230 | | | 483,687 |
Precision Castparts Corp. | | 2,900 | | | 279,473 |
Raytheon Co. | | 9,152 | | | 515,075 |
Rockwell Collins, Inc. | | 3,536 | | | 169,587 |
The Boeing Co. | | 17,141 | | | 1,126,506 |
United Technologies Corp. | | 21,200 | | | 1,308,040 |
| | | | | |
| | | | | 6,582,325 |
Air Freight & Logistics — 0.9% |
C.H. Robinson Worldwide, Inc. | | 3,400 | | | 186,456 |
Expeditors International of Washington, Inc. | | 4,400 | | | 189,200 |
FedEx Corp. | | 6,694 | | | 527,420 |
United Parcel Service, Inc., Class B | | 22,759 | | | 1,398,996 |
| | | | | |
| | | | | 2,302,072 |
Airlines — 0.1% |
Southwest Airlines Co. | | 18,199 | | | 237,315 |
| | | | | |
| | | | | 237,315 |
Auto Components — 0.2% |
Johnson Controls, Inc. | | 12,264 | | | 351,732 |
The Goodyear Tire & Rubber Co.(1) | | 4,322 | | | 77,061 |
| | | | | |
| | | | | 428,793 |
Automobiles — 0.2% |
Ford Motor Co.(1) | | 48,544 | | | 233,497 |
General Motors Corp. | | 12,434 | | | 142,991 |
Harley-Davidson, Inc. | | 5,221 | | | 189,313 |
| | | | | |
| | | | | 565,801 |
Beverages — 2.5% |
Anheuser-Busch Cos., Inc. | | 15,462 | | | 960,499 |
Brown-Forman Corp., Class B | | 2,046 | | | 154,616 |
Coca-Cola Enterprises, Inc. | | 8,124 | | | 140,545 |
Constellation Brands, Inc., Class A(1) | | 3,500 | | | 69,510 |
Molson Coors Brewing Co., Class B | | 3,682 | | | 200,043 |
Pepsi Bottling Group, Inc. | | 4,264 | | | 119,051 |
PepsiCo, Inc. | | 35,271 | | | 2,242,883 |
The Coca-Cola Co. | | 43,664 | | | 2,269,655 |
| | | | | |
| | | | | 6,156,802 |
Biotechnology — 1.4% |
Amgen, Inc.(1) | | 23,617 | | | 1,113,778 |
Biogen Idec, Inc.(1) | | 6,454 | | | 360,714 |
Celgene Corp.(1) | | 9,900 | | | 632,313 |
Genzyme Corp.(1) | | 5,705 | | | 410,874 |
Gilead Sciences, Inc.(1) | | 20,700 | | | 1,096,065 |
| | | | | |
| | | | | 3,613,744 |
Building Products — 0.1% |
Masco Corp. | | 7,420 | | | 116,717 |
| | | | | |
| | | | | 116,717 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Capital Markets — 2.3% |
American Capital Strategies Ltd. | | 3,700 | | $ | 87,949 |
Ameriprise Financial, Inc. | | 4,567 | | | 185,740 |
E*TRADE Financial Corp.(1) | | 10,100 | | | 31,714 |
Federated Investors, Inc., Class B | | 1,739 | | | 59,856 |
Franklin Resources, Inc. | | 3,387 | | | 310,419 |
Janus Capital Group, Inc. | | 4,326 | | | 114,509 |
Legg Mason, Inc. | | 2,800 | | | 121,996 |
Lehman Brothers Holdings, Inc. | | 11,348 | | | 224,804 |
Merrill Lynch & Co., Inc. | | 20,964 | | | 664,768 |
Morgan Stanley | | 23,983 | | | 865,067 |
Northern Trust Corp. | | 3,863 | | | 264,886 |
State Street Corp. | | 9,370 | | | 599,586 |
T. Rowe Price Group, Inc. | | 5,516 | | | 311,488 |
The Charles Schwab Corp. | | 22,577 | | | 463,732 |
The Goldman Sachs Group, Inc. | | 8,702 | | | 1,521,980 |
| | | | | |
| | | | | 5,828,494 |
Chemicals — 2.1% |
Air Products & Chemicals, Inc. | | 4,469 | | | 441,805 |
Ashland, Inc. | | 1,031 | | | 49,694 |
E.I. du Pont de Nemours & Co. | | 20,005 | | | 858,015 |
Eastman Chemical Co. | | 1,856 | | | 127,804 |
Ecolab, Inc. | | 4,704 | | | 202,225 |
Hercules, Inc. | | 1,633 | | �� | 27,647 |
International Flavors & Fragrances, Inc. | | 1,417 | | | 55,348 |
Monsanto Co. | | 12,214 | | | 1,544,338 |
PPG Industries, Inc. | | 3,795 | | | 217,719 |
Praxair, Inc. | | 6,983 | | | 658,078 |
Rohm and Haas Co. | | 3,888 | | | 180,559 |
Sigma-Aldrich Corp. | | 2,702 | | | 145,530 |
The Dow Chemical Co. | | 20,842 | | | 727,594 |
| | | | | |
| | | | | 5,236,356 |
Commercial Banks — 2.5% |
Bank of New York Mellon Corp. | | 25,707 | | | 972,496 |
BB&T Corp. | | 11,734 | | | 267,183 |
Comerica, Inc. | | 3,064 | | | 78,530 |
Fifth Third Bancorp | | 11,754 | | | 119,656 |
First Horizon National Corp. | | 2,992 | | | 22,231 |
Huntington Bancshares, Inc. | | 7,298 | | | 42,109 |
KeyCorp | | 8,042 | | | 88,301 |
M&T Bank Corp. | | 1,600 | | | 112,864 |
Marshall & Ilsley Corp. | | 6,396 | | | 98,051 |
National City Corp. | | 17,747 | | | 84,653 |
PNC Financial Services Group, Inc. | | 7,205 | | | 411,406 |
Regions Financial Corp. | | 15,127 | | | 165,036 |
SunTrust Banks, Inc. | | 7,523 | | | 272,483 |
U.S. Bancorp | | 37,797 | | | 1,054,158 |
Wachovia Corp. | | 46,113 | | | 716,135 |
Wells Fargo & Co. | | 72,910 | | | 1,731,612 |
Zions Bancorporation | | 2,472 | | | 77,843 |
| | | | | |
| | | | | 6,314,747 |
Commercial Services & Supplies — 0.5% |
Allied Waste Industries, Inc.(1) | | 8,813 | | | 111,220 |
Avery Dennison Corp. | | 2,079 | | | 91,330 |
Cintas Corp. | | 3,041 | | | 80,617 |
Equifax, Inc. | | 2,150 | | | 72,283 |
Monster Worldwide, Inc.(1) | | 2,470 | | | 50,907 |
Pitney Bowes, Inc. | | 4,665 | | | 159,076 |
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, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Commercial Services & Supplies (continued) |
R.R. Donnelley & Sons Co. | | 4,695 | | $ | 139,395 |
Robert Half International, Inc. | | 2,619 | | | 62,777 |
Waste Management, Inc. | | 11,422 | | | 430,724 |
| | | | | |
| | | | | 1,198,329 |
Communications Equipment — 2.5% |
Ciena Corp.(1) | | 2,154 | | | 49,908 |
Cisco Systems, Inc.(1) | | 131,363 | | | 3,055,503 |
Corning, Inc. | | 34,563 | | | 796,677 |
JDS Uniphase Corp.(1) | | 3,432 | | | 38,988 |
Juniper Networks, Inc.(1) | | 11,000 | | | 243,980 |
Motorola, Inc. | | 48,205 | | | 353,825 |
QUALCOMM, Inc. | | 35,768 | | | 1,587,026 |
Tellabs, Inc.(1) | | 8,953 | | | 41,632 |
| | | | | |
| | | | | 6,167,539 |
Computers & Peripherals — 4.6% |
Apple, Inc.(1) | | 19,333 | | | 3,237,118 |
Dell, Inc.(1) | | 45,043 | | | 985,541 |
EMC Corp.(1) | | 45,971 | | | 675,314 |
Hewlett-Packard Co. | | 54,601 | | | 2,413,910 |
International Business Machines Corp. | | 30,222 | | | 3,582,214 |
Lexmark International Group, Inc., Class A(1) | | 2,204 | | | 73,680 |
NetApp, Inc.(1) | | 6,733 | | | 145,837 |
QLogic Corp.(1) | | 2,794 | | | 40,764 |
SanDisk Corp.(1) | | 4,800 | | | 89,760 |
Sun Microsystems, Inc.(1) | | 17,058 | | | 185,591 |
Teradata Corp.(1) | | 2,932 | | | 67,846 |
| | | | | |
| | | | | 11,497,575 |
Construction & Engineering — 0.2% |
Fluor Corp. | | 1,906 | | | 354,668 |
Jacobs Engineering Group, Inc.(1) | | 2,700 | | | 217,890 |
| | | | | |
| | | | | 572,558 |
Construction Materials — 0.1% |
Vulcan Materials Co. | | 2,518 | | | 150,526 |
| | | | | |
| | | | | 150,526 |
Consumer Finance — 0.7% |
American Express Co. | | 25,937 | | | 977,047 |
Capital One Financial Corp. | | 8,040 | | | 305,600 |
Discover Financial Services | | 10,191 | | | 134,216 |
SLM Corp.(1) | | 10,286 | | | 199,034 |
| | | | | |
| | | | | 1,615,897 |
Containers & Packaging — 0.1% |
Ball Corp. | | 1,698 | | | 81,063 |
Bemis Co., Inc. | | 2,984 | | | 66,901 |
Pactiv Corp.(1) | | 2,370 | | | 50,315 |
Sealed Air Corp. | | 3,810 | | | 72,428 |
| | | | | |
| | | | | 270,707 |
Distributors — 0.1% |
Genuine Parts Co. | | 3,613 | | | 143,364 |
| | | | | |
| | | | | 143,364 |
Diversified Consumer Services — 0.1% |
Apollo Group, Inc., Class A(1) | | 2,958 | | | 130,921 |
H & R Block, Inc. | | 6,318 | | | 135,205 |
| | | | | |
| | | | | 266,126 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Diversified Financial Services — 3.2% |
Bank of America Corp. | | 97,581 | | $ | 2,329,259 |
CIT Group, Inc. | | 5,900 | | | 40,179 |
Citigroup, Inc. | | 115,238 | | | 1,931,389 |
CME Group, Inc. | | 1,200 | | | 459,828 |
IntercontinentalExchange, Inc.(1) | | 1,500 | | | 171,000 |
JPMorgan Chase & Co. | | 75,311 | | | 2,583,920 |
Leucadia National Corp. | | 3,500 | | | 164,290 |
Moody’s Corp. | | 4,648 | | | 160,077 |
NYSE Euronext | | 5,600 | | | 283,696 |
| | | | | |
| | | | | 8,123,638 |
Diversified Telecommunication Services — 2.9% |
AT&T, Inc. | | 132,388 | | | 4,460,152 |
CenturyTel, Inc. | | 2,122 | | | 75,522 |
Citizens Communications Co. | | 9,221 | | | 104,566 |
Embarq Corp. | | 3,840 | | | 181,517 |
Qwest Communications International, Inc. | | 32,677 | | | 128,421 |
Verizon Communications, Inc. | | 63,236 | | | 2,238,554 |
Windstream Corp. | | 10,529 | | | 129,928 |
| | | | | |
| | | | | 7,318,660 |
Electric Utilities — 3.0% |
Allegheny Energy, Inc. | | 3,880 | | | 194,427 |
Ameren Corp. | | 4,315 | | | 182,222 |
American Electric Power, Inc. | | 7,774 | | | 312,748 |
CenterPoint Energy, Inc. | | 7,948 | | | 127,565 |
CMS Energy Corp. | | 7,452 | | | 111,035 |
Consolidated Edison, Inc. | | 5,764 | | | 225,315 |
Dominion Resources, Inc. | | 13,314 | | | 632,282 |
DTE Energy Co. | | 4,105 | | | 174,216 |
Duke Energy Corp. | | 26,302 | | | 457,129 |
Edison International | | 7,073 | | | 363,411 |
Entergy Corp. | | 4,652 | | | 560,473 |
Exelon Corp. | | 14,956 | | | 1,345,442 |
FirstEnergy Corp. | | 7,451 | | | 613,441 |
FPL Group, Inc. | | 9,212 | | | 604,123 |
Pepco Holdings, Inc. | | 4,100 | | | 105,165 |
Pinnacle West Capital Corp. | | 1,550 | | | 47,693 |
PPL Corp. | | 8,216 | | | 429,450 |
Progress Energy, Inc. | | 5,078 | | | 212,413 |
Southern Co. | | 16,284 | | | 568,637 |
TECO Energy, Inc. | | 4,988 | | | 107,192 |
Xcel Energy, Inc. | | 9,253 | | | 185,708 |
| | | | | |
| | | | | 7,560,087 |
Electrical Equipment — 0.5% |
Cooper Industries Ltd., Class A | | 4,188 | | | 165,426 |
Emerson Electric Co. | | 16,890 | | | 835,210 |
Rockwell Automation, Inc. | | 3,531 | | | 154,411 |
| | | | | |
| | | | | 1,155,047 |
Electronic Equipment & Instruments — 0.4% |
Agilent Technologies, Inc.(1) | | 9,869 | | | 350,744 |
Jabil Circuit, Inc. | | 3,956 | | | 64,918 |
Molex, Inc. | | 2,894 | | | 70,643 |
Tyco Electronics Ltd. | | 10,994 | | | 393,805 |
| | | | | |
| | | | | 880,110 |
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, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Energy Equipment & Services — 3.6% |
Baker Hughes, Inc. | | 6,815 | | $ | 595,222 |
BJ Services Co. | | 7,588 | | | 242,361 |
Cameron International Corp.(1) | | 4,500 | | | 249,075 |
ENSCO International, Inc. | | 3,100 | | | 250,294 |
Halliburton Co. | | 20,090 | | | 1,066,176 |
Nabors Industries Ltd.(1) | | 6,320 | | | 311,134 |
National-Oilwell Varco, Inc.(1) | | 9,400 | | | 833,968 |
Noble Corp. | | 5,514 | | | 358,189 |
Rowan Companies, Inc. | | 2,114 | | | 98,829 |
Schlumberger Ltd. | | 26,058 | | | 2,799,411 |
Smith International, Inc. | | 4,300 | | | 357,502 |
Transocean, Inc.(1) | | 7,166 | | | 1,092,027 |
Weatherford International Ltd.(1) | | 14,600 | | | 724,014 |
| | | | | |
| | | | | 8,978,202 |
Food & Staples Retailing — 2.7% |
Costco Wholesale Corp. | | 9,157 | | | 642,272 |
CVS Caremark Corp. | | 31,888 | | | 1,261,808 |
Safeway, Inc. | | 9,270 | | | 264,659 |
SUPERVALU, Inc. | | 4,307 | | | 133,043 |
Sysco Corp. | | 12,894 | | | 354,714 |
The Kroger Co. | | 16,796 | | | 484,901 |
Wal-Mart Stores, Inc. | | 51,682 | | | 2,904,528 |
Walgreen Co. | | 22,080 | | | 717,821 |
Whole Foods Market, Inc. | | 2,600 | | | 61,594 |
| | | | | |
| | | | | 6,825,340 |
Food Products — 1.5% |
Archer-Daniels-Midland Co. | | 13,788 | | | 465,345 |
Campbell Soup Co. | | 4,764 | | | 159,403 |
ConAgra Foods, Inc. | | 11,185 | | | 215,647 |
Dean Foods Co.(1) | | 3,100 | | | 60,822 |
General Mills, Inc. | | 7,225 | | | 439,063 |
H.J. Heinz Co. | | 6,812 | | | 325,954 |
Kellogg Co. | | 5,692 | | | 273,330 |
Kraft Foods, Inc., Class A | | 33,345 | | | 948,665 |
McCormick & Co., Inc. | | 2,128 | | | 75,884 |
Sara Lee Corp. | | 16,796 | | | 205,751 |
The Hershey Co. | | 3,675 | | | 120,467 |
Tyson Foods, Inc., Class A | | 6,500 | | | 97,110 |
Wm. Wrigley Jr. Co. | | 5,402 | | | 420,168 |
| | | | | |
| | | | | 3,807,609 |
Gas Utilities — 0.2% |
Integrys Energy Group, Inc. | | 1,599 | | | 81,277 |
Nicor, Inc. | | 938 | | | 39,950 |
Questar Corp. | | 4,200 | | | 298,368 |
| | | | | |
| | | | | 419,595 |
Health Care Equipment & Supplies — 2.0% |
Baxter International, Inc. | | 13,886 | | | 887,871 |
Becton, Dickinson and Co. | | 5,239 | | | 425,931 |
Boston Scientific Corp.(1) | | 28,519 | | | 350,498 |
C.R. Bard, Inc. | | 1,891 | | | 166,313 |
Covidien Ltd. | | 10,694 | | | 512,136 |
Hospira, Inc.(1) | | 2,597 | | | 104,166 |
Intuitive Surgical, Inc.(1) | | 800 | | | 215,520 |
Medtronic, Inc. | | 24,740 | | | 1,280,295 |
St. Jude Medical, Inc.(1) | | 8,090 | | | 330,719 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Health Care Equipment & Supplies (continued) |
Stryker Corp. | | 5,112 | | $ | 321,443 |
Varian Medical Systems, Inc.(1) | | 2,600 | | | 134,810 |
Zimmer Holdings, Inc.(1) | | 5,170 | | | 351,818 |
| | | | | |
| | | | | 5,081,520 |
Health Care Providers & Services — 1.8% |
Aetna, Inc. | | 10,992 | | | 445,506 |
AmerisourceBergen Corp. | | 4,226 | | | 168,998 |
Cardinal Health, Inc. | | 8,368 | | | 431,621 |
CIGNA Corp. | | 6,888 | | | 243,766 |
Coventry Health Care, Inc.(1) | | 3,150 | | | 95,823 |
Express Scripts, Inc.(1) | | 5,376 | | | 337,183 |
Humana, Inc.(1) | | 3,535 | | | 140,587 |
Laboratory Corp. of America Holdings(1) | | 2,400 | | | 167,112 |
McKesson Corp. | | 5,759 | | | 321,986 |
Medco Health Solutions, Inc.(1) | | 11,468 | | | 541,289 |
Patterson Companies, Inc.(1) | | 2,100 | | | 61,719 |
Quest Diagnostics, Inc. | | 3,696 | | | 179,145 |
Tenet Healthcare Corp.(1) | | 11,010 | | | 61,216 |
UnitedHealth Group, Inc. | | 27,200 | | | 714,000 |
WellPoint, Inc.(1) | | 11,706 | | | 557,908 |
| | | | | |
| | | | | 4,467,859 |
Health Care Technology — 0.0% |
IMS Health, Inc. | | 4,244 | | | 98,885 |
| | | | | |
| | | | | 98,885 |
Hotels, Restaurants & Leisure — 1.3% |
Carnival Corp. | | 10,827 | | | 356,858 |
Darden Restaurants, Inc. | | 3,362 | | | 107,382 |
International Game Technology | | 7,684 | | | 191,946 |
Marriott International, Inc., Class A | | 6,432 | | | 168,776 |
McDonald’s Corp. | | 25,361 | | | 1,425,796 |
Starbucks Corp.(1) | | 15,064 | | | 237,107 |
Starwood Hotels & Resorts Worldwide, Inc. | | 4,298 | | | 172,221 |
Wendy’s International, Inc. | | 2,530 | | | 68,867 |
Wyndham Worldwide Corp. | | 3,797 | | | 68,004 |
Yum! Brands, Inc. | | 10,346 | | | 363,041 |
| | | | | |
| | | | | 3,159,998 |
Household Durables — 0.4% |
Black & Decker Corp. | | 1,205 | | | 69,299 |
Centex Corp. | | 2,542 | | | 33,986 |
D.R. Horton, Inc. | | 5,700 | | | 61,845 |
Fortune Brands, Inc. | | 2,945 | | | 183,797 |
Harman International Industries, Inc. | | 1,300 | | | 53,807 |
KB HOME | | 1,990 | | | 33,691 |
Leggett & Platt, Inc. | | 2,928 | | | 49,103 |
Lennar Corp., Class A | | 2,900 | | | 35,786 |
Newell Rubbermaid, Inc. | | 5,096 | | | 85,562 |
Pulte Homes, Inc. | | 4,860 | | | 46,802 |
Snap-On, Inc. | | 1,273 | | | 66,209 |
The Stanley Works | | 1,281 | | | 57,427 |
Whirlpool Corp. | | 1,659 | | | 102,410 |
| | | | | |
| | | | | 879,724 |
Household Products — 2.3% |
Clorox Co. | | 3,445 | | | 179,829 |
Colgate-Palmolive Co. | | 11,318 | | | 782,074 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS S&P 500 Index VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Household Products (continued) |
Kimberly-Clark Corp. | | 9,529 | | $ | 569,644 |
The Procter & Gamble Co. | | 67,362 | | | 4,096,283 |
| | | | | |
| | | | | 5,627,830 |
Independent Power Producers & Energy Traders — 0.3% |
Constellation Energy Group | | 3,844 | | | 315,592 |
Dynegy, Inc., Class A(1) | | 9,236 | | | 78,968 |
The AES Corp.(1) | | 15,781 | | | 303,153 |
| | | | | |
| | | | | 697,713 |
Industrial Conglomerates — 3.0% |
3M Co. | | 15,694 | | | 1,092,145 |
General Electric Co. | | 218,751 | | | 5,838,464 |
Textron, Inc. | | 5,132 | | | 245,977 |
Tyco International Ltd. | | 10,794 | | | 432,192 |
| | | | | |
| | | | | 7,608,778 |
Information Technology Services — 0.9% |
Affiliated Computer Services, Inc., Class A(1) | | 2,300 | | | 123,027 |
Automatic Data Processing, Inc. | | 11,313 | | | 474,015 |
Cognizant Technology Solutions Corp., Class A(1) | | 6,600 | | | 214,566 |
Computer Sciences Corp.(1) | | 3,266 | | | 152,980 |
Convergys Corp.(1) | | 2,590 | | | 38,487 |
Electronic Data Systems Corp. | | 11,314 | | | 278,777 |
Fidelity National Information Services, Inc. | | 3,300 | | | 121,803 |
Fiserv, Inc.(1) | | 3,775 | | | 171,272 |
Paychex, Inc. | | 7,597 | | | 237,634 |
Total System Services, Inc. | | 3,664 | | | 81,414 |
Unisys Corp.(1) | | 8,133 | | | 32,125 |
Western Union Co. | | 15,929 | | | 393,765 |
| | | | | |
| | | | | 2,319,865 |
Insurance — 3.5% |
ACE Ltd. | | 7,024 | | | 386,952 |
AFLAC, Inc. | | 10,397 | | | 652,932 |
American International Group, Inc. | | 59,403 | | | 1,571,803 |
Aon Corp. | | 6,708 | | | 308,166 |
Assurant, Inc. | | 2,100 | | | 138,516 |
Cincinnati Financial Corp. | | 4,875 | | | 123,825 |
Genworth Financial, Inc., Class A | | 9,400 | | | 167,414 |
Lincoln National Corp. | | 5,846 | | | 264,941 |
Loews Corp. | | 9,663 | | | 453,195 |
Marsh & McLennan Companies, Inc. | | 11,451 | | | 304,024 |
MBIA, Inc. | | 4,600 | | | 20,194 |
MetLife, Inc. | | 15,772 | | | 832,289 |
Principal Financial Group, Inc. | | 5,188 | | | 217,740 |
Prudential Financial, Inc. | | 9,477 | | | 566,156 |
SAFECO Corp. | | 2,047 | | | 137,477 |
The Allstate Corp. | | 12,199 | | | 556,152 |
The Chubb Corp. | | 7,936 | | | 388,943 |
The Hartford Financial Services Group, Inc. | | 6,690 | | | 431,973 |
The Progressive Corp. | | 14,224 | | | 266,273 |
The Travelers Companies, Inc. | | 13,898 | | | 603,173 |
Torchmark Corp. | | 1,782 | | | 104,514 |
Unum Group | | 9,310 | | | 190,390 |
XL Capital Ltd., Class A | | 3,956 | | | 81,335 |
| | | | | |
| | | | | 8,768,377 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Internet & Catalog Retail — 0.2% | | | | | |
Amazon.com, Inc.(1) | | 6,600 | | $ | 483,978 |
IAC/InterActiveCorp(1) | | 4,000 | | | 77,120 |
| | | | | |
| | | | | 561,098 |
Internet Software & Services — 1.7% |
Akamai Technologies, Inc.(1) | | 3,400 | | | 118,286 |
eBay, Inc.(1) | | 25,334 | | | 692,378 |
Expedia, Inc.(1) | | 4,300 | | | 79,034 |
Google, Inc., Class A(1) | | 5,100 | | | 2,684,742 |
VeriSign, Inc.(1) | | 5,300 | | | 200,340 |
Yahoo! Inc.(1) | | 28,676 | | | 592,446 |
| | | | | |
| | | | | 4,367,226 |
Leisure Equipment & Products — 0.1% |
Eastman Kodak Co. | | 6,563 | | | 94,704 |
Hasbro, Inc. | | 2,589 | | | 92,479 |
Mattel, Inc. | | 8,533 | | | 146,085 |
| | | | | |
| | | | | 333,268 |
Life Sciences Tools & Services — 0.3% |
Millipore Corp.(1) | | 1,523 | | | 103,351 |
PerkinElmer, Inc. | | 1,870 | | | 52,079 |
Thermo Fisher Scientific, Inc.(1) | | 8,790 | | | 489,867 |
Waters Corp.(1) | | 1,962 | | | 126,549 |
| | | | | |
| | | | | 771,846 |
Machinery — 1.9% |
Caterpillar, Inc. | | 13,694 | | | 1,010,891 |
Cummins, Inc. | | 4,472 | | | 293,005 |
Danaher Corp. | | 5,766 | | | 445,712 |
Deere & Co. | | 9,532 | | | 687,543 |
Dover Corp. | | 4,232 | | | 204,702 |
Eaton Corp. | | 3,646 | | | 309,801 |
Illinois Tool Works, Inc. | | 8,808 | | | 418,468 |
Ingersoll-Rand Co. Ltd., Class A | | 6,704 | | | 250,931 |
ITT Corp. | | 4,742 | | | 300,311 |
PACCAR, Inc. | | 7,909 | | | 330,833 |
Pall Corp. | | 2,232 | | | 88,566 |
Parker Hannifin Corp. | | 3,547 | | | 252,972 |
Terex Corp.(1) | | 2,300 | | | 118,151 |
The Manitowoc Co., Inc. | | 2,700 | | | 87,831 |
| | | | | |
| | | | | 4,799,717 |
Media — 2.8% |
CBS Corp., Class B | | 15,737 | | | 306,714 |
Clear Channel Communications, Inc. | | 11,454 | | | 403,181 |
Comcast Corp., Class A | | 65,332 | | | 1,239,348 |
E.W. Scripps Co., Class A | | 1,600 | | | 66,464 |
Gannett Co., Inc. | | 5,313 | | | 115,133 |
Meredith Corp. | | 742 | | | 20,991 |
News Corp., Class A | | 50,300 | | | 756,512 |
Omnicom Group, Inc. | | 7,322 | | | 328,611 |
The DIRECTV Group, Inc.(1) | | 15,600 | | | 404,196 |
The Interpublic Group of Companies, Inc.(1) | | 11,603 | | | 99,786 |
The McGraw-Hill Companies, Inc. | | 6,924 | | | 277,791 |
The New York Times Co., Class A | | 3,273 | | | 50,371 |
The Walt Disney Co. | | 42,416 | | | 1,323,379 |
The Washington Post Co., Class B | | 123 | | | 72,189 |
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, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Media (continued) |
Time Warner, Inc. | | 77,424 | | $ | 1,145,875 |
Viacom, Inc., Class B(1) | | 14,037 | | | 428,690 |
| | | | | |
| | | | | 7,039,231 |
Metals & Mining — 1.3% |
Alcoa, Inc. | | 17,725 | | | 631,364 |
Allegheny Technologies, Inc. | | 2,406 | | | 142,628 |
Freeport-McMoran Copper & Gold, Inc., Class B | | 8,203 | | | 961,309 |
Newmont Mining Corp. | | 10,104 | | | 527,025 |
Nucor Corp. | | 7,022 | | | 524,333 |
Titanium Metals Corp. | | 1,900 | | | 26,581 |
United States Steel Corp. | | 2,588 | | | 478,211 |
| | | | | |
| | | | | 3,291,451 |
Multi-Utilities — 0.5% |
NiSource, Inc. | | 4,793 | | | 85,891 |
PG&E Corp. | | 8,080 | | | 320,695 |
Public Service Enterprise Group, Inc. | | 11,568 | | | 531,318 |
Sempra Energy | | 5,394 | | | 304,491 |
| | | | | |
| | | | | 1,242,395 |
Multiline Retail — 0.7% |
Big Lots, Inc.(1) | | 1,734 | | | 54,170 |
Dillards, Inc., Class A | | 1,262 | | | 14,601 |
Family Dollar Stores, Inc. | | 3,292 | | | 65,642 |
J.C. Penney Co., Inc. | | 4,898 | | | 177,748 |
Kohl’s Corp.(1) | | 6,913 | | | 276,797 |
Macy’s, Inc. | | 9,794 | | | 190,200 |
Nordstrom, Inc. | | 3,640 | | | 110,292 |
Sears Holdings Corp.(1) | | 1,611 | | | 118,666 |
Target Corp. | | 17,546 | | | 815,714 |
| | | | | |
| | | | | 1,823,830 |
Office Electronics — 0.1% |
Xerox Corp. | | 20,891 | | | 283,282 |
| | | | | |
| | | | | 283,282 |
Oil, Gas & Consumable Fuels — 12.4% |
Anadarko Petroleum Corp. | | 10,686 | | | 799,740 |
Apache Corp. | | 7,496 | | | 1,041,944 |
Cabot Oil & Gas Corp. | | 2,100 | | | 142,233 |
Chesapeake Energy Corp. | | 10,700 | | | 705,772 |
Chevron Corp. | | 45,419 | | | 4,502,385 |
ConocoPhillips | | 34,035 | | | 3,212,564 |
CONSOL Energy, Inc. | | 3,900 | | | 438,243 |
Devon Energy Corp. | | 9,598 | | | 1,153,296 |
El Paso Corp. | | 16,290 | | | 354,145 |
EOG Resources, Inc. | | 5,345 | | | 701,264 |
Exxon Mobil Corp. | | 117,102 | | | 10,320,199 |
Hess Corp. | | 6,021 | | | 759,790 |
Marathon Oil Corp. | | 15,696 | | | 814,151 |
Massey Energy Co. | | 1,700 | | | 159,375 |
Murphy Oil Corp. | | 4,000 | | | 392,200 |
Noble Energy, Inc. | | 3,700 | | | 372,072 |
Occidental Petroleum Corp. | | 18,358 | | | 1,649,650 |
Peabody Energy Corp. | | 5,800 | | | 510,690 |
Range Resources Corp. | | 3,200 | | | 209,728 |
Southwestern Energy Co.(1) | | 7,500 | | | 357,075 |
Spectra Energy Corp. | | 14,751 | | | 423,944 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Oil, Gas & Consumable Fuels (continued) |
Sunoco, Inc. | | 2,532 | | $ | 103,027 |
Tesoro Corp. | | 2,900 | | | 57,333 |
Valero Energy Corp. | | 11,700 | | | 481,806 |
Williams Companies, Inc. | | 12,415 | | | 500,449 |
XTO Energy, Inc. | | 11,241 | | | 770,121 |
| | | | | |
| | | | | 30,933,196 |
Paper & Forest Products — 0.2% |
International Paper Co. | | 9,605 | | | 223,797 |
MeadWestvaco Corp. | | 2,990 | | | 71,282 |
Weyerhaeuser Co. | | 5,010 | | | 256,211 |
| | | | | |
| | | | | 551,290 |
Personal Products — 0.2% |
Avon Products, Inc. | | 9,396 | | | 338,444 |
Estee Lauder Companies, Inc., Class A | | 2,300 | | | 106,835 |
| | | | | |
| | | | | 445,279 |
Pharmaceuticals — 6.0% |
Abbott Laboratories | | 33,989 | | | 1,800,397 |
Allergan, Inc. | | 6,626 | | | 344,883 |
Barr Pharmaceuticals, Inc.(1) | | 2,000 | | | 90,160 |
Bristol-Myers Squibb Co. | | 44,637 | | | 916,398 |
Eli Lilly & Co. | | 22,839 | | | 1,054,248 |
Forest Laboratories, Inc.(1) | | 7,079 | | | 245,925 |
Johnson & Johnson | | 61,754 | | | 3,973,252 |
King Pharmaceuticals, Inc.(1) | | 5,445 | | | 57,009 |
Merck & Co., Inc. | | 48,258 | | | 1,818,844 |
Mylan, Inc.(1) | | 6,600 | | | 79,662 |
Pfizer, Inc. | | 148,003 | | | 2,585,612 |
Schering-Plough Corp. | | 34,720 | | | 683,637 |
Watson Pharmaceuticals, Inc.(1) | | 1,956 | | | 53,145 |
Wyeth | | 29,569 | | | 1,418,129 |
| | | | | |
| | | | | 15,121,301 |
Real Estate Investment Trusts — 1.1% |
Apartment Investment & Management Co., Class A | | 1,915 | | | 65,225 |
AvalonBay Communities, Inc. | | 1,600 | | | 142,656 |
Boston Properties, Inc. | | 2,500 | | | 225,550 |
Developers Diversified Realty Corp. | | 2,600 | | | 90,246 |
Equity Residential | | 5,321 | | | 203,635 |
General Growth Properties, Inc. | | 5,700 | | | 199,671 |
HCP, Inc. | | 4,900 | | | 155,869 |
Host Hotels & Resorts, Inc. | | 10,800 | | | 147,420 |
Kimco Realty Corp. | | 5,500 | | | 189,860 |
Plum Creek Timber Co., Inc. | | 3,362 | | | 143,591 |
ProLogis | | 5,292 | | | 287,620 |
Public Storage, Inc. | | 2,900 | | | 234,291 |
Simon Property Group, Inc. | | 4,702 | | | 422,663 |
Vornado Realty Trust | | 2,700 | | | 237,600 |
| | | | | |
| | | | | 2,745,897 |
Real Estate Management & Development — 0.0% |
CB Richard Ellis Group, Inc., Class A(1) | | 3,700 | | | 71,040 |
| | | | | |
| | | | | 71,040 |
Road & Rail — 1.1% |
Burlington Northern Santa Fe Corp. | | 6,361 | | | 635,400 |
CSX Corp. | | 8,968 | | | 563,280 |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS S&P 500 Index VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Road & Rail (continued) |
Norfolk Southern Corp. | | 8,129 | | $ | 509,445 |
Ryder System, Inc. | | 1,430 | | | 98,498 |
Union Pacific Corp. | | 11,284 | | | 851,942 |
| | | | | |
| | | | | 2,658,565 |
Semiconductors & Semiconductor Equipment — 2.5% |
Advanced Micro Devices, Inc.(1) | | 11,902 | | | 69,389 |
Altera Corp. | | 6,790 | | | 140,553 |
Analog Devices, Inc. | | 6,027 | | | 191,478 |
Applied Materials, Inc. | | 29,509 | | | 563,327 |
Broadcom Corp., Class A(1) | | 10,244 | | | 279,559 |
Intel Corp. | | 127,753 | | | 2,744,134 |
KLA-Tencor Corp. | | 4,028 | | | 163,980 |
Linear Technology Corp. | | 5,347 | | | 174,152 |
LSI Corp.(1) | | 14,361 | | | 88,177 |
MEMC Electronic Materials, Inc.(1) | | 4,800 | | | 295,392 |
Microchip Technology, Inc. | | 4,600 | | | 140,484 |
Micron Technology, Inc.(1) | | 16,828 | | | 100,968 |
National Semiconductor Corp. | | 5,458 | | | 112,107 |
Novellus Systems, Inc.(1) | | 2,370 | | | 50,220 |
NVIDIA Corp.(1) | | 12,261 | | | 229,526 |
Teradyne, Inc.(1) | | 3,377 | | | 37,383 |
Texas Instruments, Inc. | | 29,380 | | | 827,341 |
Xilinx, Inc. | | 5,730 | | | 144,682 |
| | | | | |
| | | | | 6,352,852 |
Software — 3.5% |
Adobe Systems, Inc.(1) | | 11,654 | | | 459,051 |
Autodesk, Inc.(1) | | 4,616 | | | 156,067 |
BMC Software, Inc.(1) | | 3,606 | | | 129,816 |
CA, Inc. | | 9,555 | | | 220,625 |
Citrix Systems, Inc.(1) | | 4,616 | | | 135,757 |
Compuware Corp.(1) | | 5,622 | | | 53,634 |
Electronic Arts, Inc.(1) | | 6,400 | | | 284,352 |
Intuit, Inc.(1) | | 6,330 | | | 174,518 |
Microsoft Corp. | | 175,565 | | | 4,829,793 |
Novell, Inc.(1) | | 7,029 | | | 41,401 |
Oracle, Corp.(1) | | 86,111 | | | 1,808,331 |
Symantec Corp.(1) | | 21,273 | | | 411,632 |
| | | | | |
| | | | | 8,704,977 |
Specialty Retail — 1.5% |
Abercrombie & Fitch Co., Class A | | 1,500 | | | 94,020 |
Applied Biosystems, Inc. | | 3,176 | | | 106,332 |
AutoNation, Inc.(1) | | 3,700 | | | 37,074 |
AutoZone, Inc.(1) | | 974 | | | 117,864 |
Bed, Bath & Beyond, Inc.(1) | | 5,864 | | | 164,778 |
Best Buy Co., Inc. | | 7,540 | | | 298,584 |
GameStop Corp., Class A(1) | | 3,400 | | | 137,360 |
Limited Brands, Inc. | | 7,095 | | | 119,551 |
Lowe’s Companies, Inc. | | 31,468 | | | 652,961 |
Office Depot, Inc.(1) | | 5,824 | | | 63,715 |
RadioShack Corp. | | 2,565 | | | 31,473 |
Staples, Inc. | | 14,990 | | | 356,012 |
The Gap, Inc. | | 12,514 | | | 208,608 |
The Home Depot, Inc. | | 36,530 | | | 855,533 |
The Sherwin-Williams Co. | | 2,251 | | | 103,388 |
Tiffany & Co. | | 3,379 | | | 137,694 |
TJX Companies, Inc. | | 8,872 | | | 279,202 |
| | | | | |
| | | | | 3,764,149 |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | | |
Textiles, Apparel & Luxury Goods — 0.4% |
Coach, Inc.(1) | | | 7,600 | | $ | 219,488 |
Jones Apparel Group, Inc. | | | 1,927 | | | 26,496 |
Liz Claiborne, Inc. | | | 2,595 | | | 36,719 |
NIKE, Inc., Class B | | | 8,816 | | | 525,522 |
Polo Ralph Lauren Corp. | | | 1,200 | | | 75,336 |
VF Corp. | | | 1,636 | | | 116,451 |
| | | | | | |
| | | | | | 1,000,012 |
Thrifts & Mortgage Finance — 0.4% |
Countrywide Financial Corp. | | | 12,410 | | | 52,742 |
Federal National Mortgage Association | | | 23,513 | | | 458,739 |
Freddie Mac | | | 13,887 | | | 227,747 |
Hudson City Bancorp, Inc. | | | 10,500 | | | 175,140 |
MGIC Investment Corp. | | | 2,536 | | | 15,495 |
Sovereign Bancorp, Inc. | | | 8,365 | | | 61,566 |
Washington Mutual, Inc. | | | 22,921 | | | 113,001 |
| | | | | | |
| | | | | | 1,104,430 |
Tobacco — 1.5% |
Altria Group, Inc. | | | 45,095 | | | 927,153 |
Lorillard, Inc.(1) | | | 3,700 | | | 255,892 |
Philip Morris International, Inc. | | | 45,095 | | | 2,227,242 |
Reynolds American, Inc. | | | 3,678 | | | 171,652 |
UST, Inc. | | | 3,831 | | | 209,211 |
| | | | | | |
| | | | | | 3,791,150 |
Trading Companies & Distributors — 0.1% |
W.W. Grainger, Inc. | | | 1,692 | | | 138,406 |
| | | | | | |
| | | | | | 138,406 |
Wireless Telecommunication Services — 0.4% |
American Tower Corp., Class A(1) | | | 8,500 | | | 359,125 |
Sprint Nextel Corp. | | | 61,117 | | | 580,611 |
| | | | | | |
| | | | | | 939,736 |
| | | | | | |
Total Common Stocks (Cost $212,494,209) | | | | | | 245,880,248 |
| | |
| | Principal Amount | | Value |
U.S. Government Securities — 0.1% |
U.S. Treasury Bills — 0.1% |
United States Treasury Bill 1.35% due 7/3/2008(2) | | $ | 50,000 | | | 49,996 |
1.81% due 9/4/2008(2) | | | 15,000 | | | 14,951 |
1.855% due 9/18/2008(2) | | | 230,000 | | | 229,064 |
| | | | | | |
| | | | | | 294,011 |
| | | | | | |
Total U.S. Government Securities (Cost $294,011) | | | | | | 294,011 |
| | |
| | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3) | | | 49 | | | 1,979 |
RS Emerging Growth Fund, Class Y(3) | | | 67 | | | 2,311 |
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, 2008 (unaudited) | | Shares | | Value |
| | | | | | |
Other Investments – For Trustee Deferred Compensation Plan (continued) |
RS Emerging Markets Fund, Class A(3) | | | 65 | | $ | 1,581 |
RS Equity Dividend Fund, Class Y(3) | | | 30 | | | 251 |
RS Global Natural Resources Fund, Class Y(3) | | | 34 | | | 1,484 |
RS Growth Fund, Class Y(3) | | | 100 | | | 1,238 |
RS Investment Quality Bond Fund, Class A(3) | | | 27 | | | 256 |
RS Investors Fund, Class Y(3) | | | 90 | | | 856 |
RS MidCap Opportunities Fund, Class Y(3) | | | 46 | | | 560 |
RS Partners Fund, Class Y(3) | | | 45 | | | 1,339 |
RS S&P 500 Index Fund, Class A(3) | | | 28 | | | 245 |
RS Smaller Company Growth Fund, Class Y(3) | | | 27 | | | 450 |
RS Technology Fund, Class Y(3) | | | 48 | | | 707 |
RS Value Fund, Class Y(3) | | | 91 | | | 2,339 |
| | | | | | |
Total Other Investments (Cost $16,005) | | | | | | 15,596 |
| | |
| | Principal Amount | | Value |
Repurchase Agreements — 1.6% |
State Street Bank and Trust Co. Repurchase Agreement, 2.10% dated 6/30/2008, maturity value of $3,949,230, due 7/1/2008, collateralized by FHLB, 5.00%, due 6/11/2018, with a value of $4,029,000 | | $ | 3,949,000 | | | 3,949,000 |
| | | | | | |
Total Repurchase Agreements (Cost $3,949,000) | | | | | | 3,949,000 |
| | | | | | |
Total Investments — 99.9% (Cost $216,753,225) | | | | | | 250,138,855 |
| | | | | | |
Other Assets, Net — 0.1% | | | | | | 225,399 |
| | | | | | |
Total Net Assets — 100.0% | | | | | $ | 250,364,254 |
(1) | Non-income producing security. |
(2) | Security 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 2b in Notes to Financial Statements. |
| | | | | | | | | | | |
Description | | Number of Contracts | | Expiration | | Face Value (Thousands) | | Unrealized Depreciation | |
Purchased Futures Contracts | | | | |
S&P 500 INDEX | | 12 | | 9/2008 | | $ | 3,843 | | $ | (253,710 | ) |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | | | | | |
Valuation Inputs | | Investments in Securities | | Other Financial Instruments* | |
Level 1 — Quoted Prices | | $ | 250,138,855 | | $ | (253,710 | ) |
Level 2 — Significant Other Observable Inputs | | | — | | | — | |
Level 3 — Significant Unobservable Inputs | | | — | | | — | |
| | | | | | | |
Total | | $ | 250,138,855 | | $ | (253,710 | ) |
* | Other financial instruments include futures, forwards and swap contracts. |
The accompanying notes are an integral part of these financial statements.
| | |
14 | | RS S&P 500 Index VIP Series |
| | |
| | Financial Information — RS S&P 500 Index VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 250,138,855 | |
Cash and cash equivalents | | | 625 | |
Dividends/interest receivable | | | 324,419 | |
Receivable for fund shares subscribed | | | 113,269 | |
Due from distributor | | | 14,459 | |
Prepaid expenses | | | 6,845 | |
Receivable for variation margin | | | 3,300 | |
| | | | |
Total Assets | | | 250,601,772 | |
| | | | |
Liabilities | | | | |
Payable to adviser | | | 53,457 | |
Payable for fund shares redeemed | | | 48,678 | |
Trustees’ deferred compensation | | | 15,596 | |
Payable for investments purchased | | | 3,316 | |
Accrued expenses/other liabilities | | | 116,471 | |
| | | | |
Total Liabilities | | | 237,518 | |
| | | | |
Total Net Assets | | $ | 250,364,254 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 345,925,646 | |
Accumulated undistributed net investment income | | | 2,399,081 | |
Accumulated net realized loss from investments, futures contracts and foreign currency transactions | | | (131,092,393 | ) |
Net unrealized appreciation on investments and futures contracts | | | 33,131,920 | |
| | | | |
Total Net Assets | | $ | 250,364,254 | |
| | | | |
Investments, at Cost | | $ | 216,753,225 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 26,557,130 | |
| |
Net Asset Value Per Share | | | $9.43 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 68,476 | |
Dividends | | | 2,656,939 | |
Withholding taxes on foreign dividends | | | (125 | ) |
| | | | |
Total Investment Income | | | 2,725,290 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 325,871 | |
Shareholder reports | | | 34,066 | |
Professional fees | | | 28,578 | |
Custodian fees | | | 24,187 | |
Administrative service fees | | | 19,127 | |
Trustees’ fees and expenses | | | 8,709 | |
Registration fees | | | 8,186 | |
Insurance expense | | | 4,537 | |
Other expense | | | 3,338 | |
| | | | |
Total Expenses | | | 456,599 | |
Less: Fee waiver by distributor | | | (91,596 | ) |
| | | | |
Total Expenses, Net | | | 365,003 | |
| | | | |
Net Investment Income | | | 2,360,287 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments, Futures Contracts and Foreign Currency Transactions | | | | |
Net realized loss from investments | | | (677,215 | ) |
Net realized loss from futures contracts | | | (627,031 | ) |
Net realized gain from foreign currency transactions | | | 8 | |
Net change in unrealized depreciation on investments | | | (34,913,698 | ) |
Net change in unrealized depreciation on futures contracts | | | (92,230 | ) |
| | | | |
Net Loss on Investments, Futures Contracts and Foreign Currency Transactions | | | (36,310,166 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (33,949,879 | ) |
| | | | |
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 (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 2,360,287 | | | $ | 4,837,840 | |
Net realized gain/(loss) from investments, foreign currency transactions and futures contracts | | | (1,304,238 | ) | | | 2,260,748 | |
Net change in unrealized appreciation/(depreciation) on investments and futures contracts | | | (35,005,928 | ) | | | 6,990,996 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (33,949,879 | ) | | | 14,089,584 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (4,914,798 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (4,914,798 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 12,282,455 | | | | 21,108,628 | |
Reinvestment of distributions | | | — | | | | 4,914,798 | |
Cost of shares redeemed | | | (10,905,559 | ) | | | (20,651,753 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 1,376,896 | | | | 5,371,673 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | (32,572,983 | ) | | | 14,546,459 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 282,937,237 | | | | 268,390,778 | |
| | | | | | | | |
End of period | | $ | 250,364,254 | | | $ | 282,937,237 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 2,399,081 | | | $ | 38,794 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 1,236,569 | | | | 1,952,027 | |
Reinvested | | | — | | | | 461,483 | |
Redeemed | | | (1,095,243 | ) | | | (1,902,682 | ) |
| | | | | | | | |
Net Increase | | | 141,326 | | | | 510,828 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
16 | | RS S&P 500 Index VIP Series |
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| | |
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 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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 10.71 | | $ | 0.09 | | $ | (1.37 | ) | | $ | (1.28 | ) | | $ | — | | | $ | — | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 10.36 | | | 0.19 | | | 0.35 | | | | 0.54 | | | | (0.19 | ) | | | — | | | (0.19 | ) |
| | | | | | | |
Year Ended 12/31/06 | | | 9.12 | | | 0.16 | | | 1.24 | | | | 1.40 | | | | (0.16 | ) | | | — | | | (0.16 | ) |
| | | | | | | |
Year Ended 12/31/05 | | | 8.86 | | | 0.14 | | | 0.26 | | | | 0.40 | | | | (0.14 | ) | | | — | | | (0.14 | ) |
| | | | | | | |
Year Ended 12/31/04 | | | 8.14 | | | 0.14 | | | 0.72 | | | | 0.86 | | | | (0.14 | ) | | | — | | | (0.14 | ) |
| | | | | | | |
Year Ended 12/31/03 | | | 6.44 | | | 0.11 | | | 1.70 | | | | 1.81 | | | | (0.11 | ) | | | — | | | (0.11 | ) |
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 Return2 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | Net Ratio of Net Investment Income to Average Net Assets3 | | | Gross Ratio of Net Investment Income to Average Net Assets | | Portfolio Turnover Rate |
| | | | | | | |
$ 9.43 | | (11.95) | % | | $ | 250,364 | | 0.28% | | | 0.35% | | 1.81% | | | 1.74% | | 2% |
| | | | | | | |
10.71 | | 5.22% | | | | 282,937 | | 0.28% | | | 0.35% | | 1.72% | | | 1.65% | | 3% |
| | | | | | | |
10.36 | | 15.46% | | | | 268,391 | | 0.28% | | | 0.36% | | 1.72% | | | 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% |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratios for periods of less than one year have been annualized, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations and custody credits, if applicable. |
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 (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS S&P 500 Index VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4b). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting
| | |
20 | | RS S&P 500 Index VIP Series |
entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 – quoted prices in active markets for identical investments |
Ø | | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Futures Contracts
The Fund may enter into financial futures contracts. In entering into such contracts, the Fund is required to deposit with the broker, either in cash or securities, an amount equal to a certain percentage of the notional value of the contract. Subsequent payments are received or made by the Fund each day, depending on the daily fluctuations in the values of the contracts, and are recorded for financial statement purposes as variation margin received or paid by the Fund. Daily changes in variation margin are recognized as unrealized gains or losses by the Fund. The Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of unin-
| | |
RS S&P 500 Index VIP Series | | 21 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series (unaudited) (continued) |
vested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.25%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with GIS. GIS is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision and direction of the Board of Trustees of the Trust and review by RS Investments. As compensation for GIS’s services, RS Investments pays fees to GIS at an annual rate of 0.2375% of the average daily net assets of the Fund. Payment of the sub-advisory fee 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 the Fund’s total annual fund operating expenses to 0.28% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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
| | |
22 | | RS S&P 500 Index VIP Series |
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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
|
Ordinary Income Total |
$4,914,798 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
| | |
Undistributed Ordinary Income | | Undistributed Long-Term Capital Gains |
$53,812 | | $— |
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.
Capital loss carryovers available to the Fund at December 31, 2007 were as follows:
| | |
Expiring | | Amount |
2010 | | $112,667,814 |
2011 | | 11,938,809 |
2013 | | 549,960 |
| | |
Total | | $125,156,583 |
During the year ended December 31, 2007, the Fund utilized capital loss carryovers of $1,574,982.
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, 2007, which is the most recently completed tax year, the Fund had no such losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008 was $221,535,951. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $64,522,947 and $(35,920,043), respectively, resulting in net unrealized appreciation of $28,602,904.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $11,095,138 and $5,290,404, respectively, for the six months ended June 30, 2008.
b. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price
| | |
RS S&P 500 Index VIP Series | | 23 |
| | |
| | Notes to Financial Statements — RS S&P 500 Index VIP Series (unaudited) (continued) |
plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
| | |
24 | | RS S&P 500 Index VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS S&P 500 Index VIP Series | | 25 |
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| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 – 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger,
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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26 | | RS S&P 500 Index VIP Series |
deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement,
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RS S&P 500 Index VIP Series | | 27 |
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| | Supplemental Information — unaudited (continued) |
showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that
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28 | | RS S&P 500 Index VIP Series |
information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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RS S&P 500 Index VIP Series | | 29 |
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| | Supplemental Information — unaudited (continued) |
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| | Trustees and Officers Information Table |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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30 | | RS S&P 500 Index VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS S&P 500 Index VIP Series | | 31 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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32 | | RS S&P 500 Index VIP Series |
RS Variable Products Trust
RS International Growth VIP Series
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06.30.08 | | |
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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, 2008. 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.
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| | RS International Growth VIP Series |
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| | John F. Carnegie John F. Carnegie (BG) has managed RS International Growth VIP Series since 2006*. He joined Baillie Gifford in 2006 and is a director in the institutional clients department with responsibility for North American clients. Prior to that, he spent ten years working as a sell side equity analyst for Credit Suisse, Citigroup and ABN AMRO. Mr. Carnegie holds a B.A. in sociology from Durham University and a MLitt in management, economics and politics from St Andrews University. |
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| | Joseph M. Faraday Joseph M. Faraday (BG) has managed RS International Growth VIP Series since 2005*. He joined Baillie Gifford’s graduate scheme in September 2002 and is an investment manager in the developed Asia including Japan investment team. Mr. Faraday holds an MEng in Chemical Engineering from Cambridge University. |
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| | Paul Faulkner Paul Faulkner (BG) has been a member of the investment management team of RS International Growth VIP Series since 2008. He joined Baillie Gifford in 2000 and since then has had experience with both the United Kingdom and European investment teams. Dr. Faulkner holds a BSc in geology from Edinburgh University, an MSc in petroleum geo-science from Imperial College, and a PhD in geology/geophysics from Cambridge University. |
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| | Christopher C. Huckle, CFA Christopher C. Huckle, CFA (BG) has managed RS International Growth VIP Series since 2008. He joined Baillie Gifford in 2000 and is a director in the institutional clients department where he has responsibility for North American clients. Mr. Huckle holds a M.A. in psychology from Edinburgh University, a MSc in neural computation from the University of Stirling, and a PhD in cognitive science from the University of Edinburgh. |
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RS International Growth VIP Series | | 3 |
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| | RS International Growth VIP Series |
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| | R. Robin Menzies R. Robin Menzies (BG) has managed RS International Growth VIP Series since 1991.* In this role, Mr. Menzies works with the investment management teams at BG Overseas, which make the securities selections for the Fund, and an investment policy committee of 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 1973. 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. |
The Statement of Additional Information provides further information about the portfolio manager, including information regarding his compensation, other accounts he manages, and his ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | Markets fell during the first half of the year, the woes for banks continued, and inflationary pressures became more evident. |
Ø | | The RS International Growth VIP Series underperformed its benchmark for the six months ended June 30, 2008. |
Ø | | The holdings in industrials and energy companies fared well, the latter driven by rising oil prices. On the other hand, the holdings in health care and materials companies detracted from performance. |
Market Overview
The first half of 2008 saw many themes with which we are becoming all too familiar: large losses for financial companies, sharply rising oil prices, and a lack of availability of funding for companies and consumers in mature economies. A new player on the stage of global financial concerns was inflation, and we encountered a situation in which expectations in many mature economies are for interest rate rises rather than cuts. Lower rates would be desirable for many areas of economies that are struggling (such as housing and consumer-related sectors), but the presence of food and energy price inflation means that the hands of central bankers are tied.
Performance
The RS International Growth VIP Series declined 7.85% for the six months ended June 30, 2008, compared with its benchmark, the Morgan Stanley Capital International Europe, Australasia, and Far East Index2, which fell 7.84%. The notable features were a relative recovery in Japanese companies, where the index decline was weaker than the average, and strong absolute performance from energy and materials companies.
Portfolio Review
With the price of oil rising from $94 to $139 during the period, our energy holdings were important to the Fund’s relative performance. Seadrill, a Norwegian oil offshore drilling contractor, rose strongly as demand for its fleet of semi-submersibles, jack-ups, tender rigs, and drill ships remained solid. The company has particular expertise in deep water areas, which we think is even more valuable as new discoveries of oil tend to be in places where the technical demands for extraction are ever greater. Other energy holdings that contributed to the Fund’s performance were Petrobras, the Brazilian national oil company, and John Wood Group, an international oil services company based in Scotland.
We remain positive about the prospects for a number of industrial companies, believing that the demand for new equipment (which is very strong at present) will be supplemented in years to come by high levels of service and maintenance revenue. The industrials sector is diverse, and some of the holdings that performed well included Finnish elevator company Kone, Swedish manufacturer of compressors Atlas Copco, and British
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4 | | RS International Growth VIP Series |
engineering company Weir Group. Demand from the booming economies of Asia remains strong, and these companies are seeing double-digit growth in new orders, which we think underpins their earnings potential.
The Fund benefited from not holding some of the major companies in the index that performed poorly, such as Nokia, Siemens, Telefónica, and Veolia Environnement. It is interesting to note that the latter two stocks—a telecommunications company and a utilities services company—should be relatively defensive in this environment when market volatility is high, but in many areas of the market traditional staples have proved disappointing.
The Fund suffered from the underperformance in consumer staples companies such as Carrefour, Électricité de France, Celesio, and L’Oreal. We believe that all these companies have strong competitive advantages, which will help them contribute to the Fund’s performance over the long term, but they highlight the difficultly of picking stocks in the current volatile environment.
The Fund’s underweight position in materials companies detracted from performance during the period. There are some striking examples of price rises in this area (the current round of iron ore negotiations saw prices nearly double), and owning neither Rio Tinto nor BHP Billiton detracted from the Fund’s performance.
Banks and other financial companies remain a talking point and were the most poorly performing sectors of the index during the period. The Fund’s performance was adversely affected by holdings in Svenska Handelsbank and Royal Bank of Scotland. We have sold Royal Bank of Scotland because we think the recovery process may take many years given the scale of the problems over the past 12 months for these types of companies. However, not all financial holdings detracted from performance. We added a Swiss wealth manager, Partners Group, to the portfolio in the past few months, and this company was a prominent contributor to performance. We believe that wealth management has considerable potential, and that Partners Group has particular expertise in absolute funds, which may look attractive if market volatility continues.
Outlook
We are continuing to see the impact on global markets of the credit crisis and more recently of higher energy and food prices (rising wage inflation in the emerging markets). The weakness of the index in 2008 can be linked to these factors. Although earnings estimates may continue to fall in the short term and further weakness cannot be ruled out, we retain a positive view of the medium to long term, with global growth continuing to be driven by the stronger emerging markets. We believe that market valuations remain fair, and that the Fund is positioned with stocks that are well placed over the medium term.
We thank you for your investment and continued support.
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John Carnegie Co-Portfolio Manager Paul Faulkner Co-Portfolio Manager R. Robin Menzies Co-Portfolio Manager | | Joseph Faraday Co-Portfolio Manager Christopher Huckle Co-Portfolio Manager |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. 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.
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RS International Growth VIP Series | | 5 |
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| | RS International Growth VIP Series (continued) |
| | |
Total Net Assets: $285,809,334 | | Data as of June 30, 2008 |
| | |
| | Geographical Location vs. Index1 |
| | |
| | Top Ten Holdings1 |
| | | | |
| | |
Company | | Country | | Percentage of Total Net Assets |
Atlas Copco AB | | Sweden | | 2.89% |
Kone Oyj | | Finland | | 2.84% |
Essilor International S.A. | | France | | 2.65% |
Seadrill Ltd. | | Norway | | 2.44% |
BG Group PLC | | United Kingdom | | 2.28% |
Mitsui & Co. Ltd. | | Japan | | 2.18% |
Nestle S.A. | | Switzerland | | 2.14% |
Canon, Inc. | | Japan | | 1.98% |
L’Oreal S.A. | | France | | 1.88% |
Vodafone Group PLC | | United Kingdom | | 1.88% |
Total | | | | 23.16% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
2 | The 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. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
| | |
6 | | RS International Growth VIP Series |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | | | |
| | | | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | 10 Years | | Since Inception |
RS International Growth VIP Series | | 02/08/91 | | -7.85% | | -3.93% | | 14.95% | | 16.22% | | 5.49% | | 9.06% |
MSCI EAFE Growth Index2 | | | | -7.84% | | -4.07% | | 15.07% | | 16.64% | | 4.42% | | 5.76% |
| | |
| | Results of a Hypothetical $10,000 Investment |
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 0.96%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
RS International Growth 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $921.50 | | $4.40 | | 0.92% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,020.28 | | $4.63 | | 0.92% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
8 | | RS International Growth VIP Series |
| | |
| | Schedule of Investments – RS International Growth VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 96.1% | | | | | |
Australia — 4.9% | | | | | |
Beverages — 0.4% | | | | | |
Fosters Group Ltd. | | 255,500 | | $ | 1,241,820 |
Commercial Banks — 0.6% | | | | | |
Australia & NZ Banking Group Ltd. | | 87,754 | | | 1,574,826 |
Commercial Services & Supplies — 0.4% |
Brambles Ltd. | | 116,500 | | | 974,990 |
Construction Materials — 0.1% | | | | | |
James Hardie Industries N.V. | | 78,000 | | | 317,045 |
Food & Staples Retailing — 0.4% |
Woolworths Ltd. | | 45,900 | | | 1,075,849 |
Insurance — 0.2% | | | | | |
AMP Ltd. | | 95,000 | | | 609,270 |
Metals & Mining — 2.2% | | | | | |
BHP Billiton Ltd. | | 120,221 | | | 5,036,417 |
Rio Tinto Ltd. | | 9,875 | | | 1,282,733 |
| | | | | |
| | | 6,319,150 |
Oil, Gas & Consumable Fuels — 0.6% |
Woodside Petroleum Ltd. | | 27,900 | | | 1,805,377 |
| | | | | |
| | | 13,918,327 |
Belgium — 1.3% | | | | | |
Diversified Financial Services — 1.3% |
Groupe Bruxelles Lambert S.A. | | 30,000 | | | 3,571,327 |
| | | | | |
| | | 3,571,327 |
Denmark — 2.1% | | | | | |
Chemicals — 1.2% | | | | | |
Novozymes AS, Class B | | 39,900 | | | 3,605,371 |
Marine — 0.9% | | | | | |
A.P. Moeller-Maersk AS, Class B | | 206 | | | 2,522,484 |
| | | | | |
| | | 6,127,855 |
Finland — 2.8% | | | | | |
Construction & Engineering — 2.8% |
Kone Oyj, Class B | | 230,800 | | | 8,117,983 |
| | | | | |
| | | 8,117,983 |
France — 11.9% | | | | | |
Communications Equipment — 1.1% |
Neopost S.A. | | 28,813 | | | 3,048,959 |
Diversified Financial Services — 0.9% |
Eurazeo | | 24,033 | | | 2,564,713 |
Electrical Equipment — 1.1% | | | | | |
Alstom | | 13,344 | | | 3,081,460 |
Food & Staples Retailing — 1.4% |
Carrefour S.A. | | 71,529 | | | 4,049,776 |
Health Care Equipment & Supplies — 2.7% |
Essilor International S.A. | | 123,820 | | | 7,571,801 |
Machinery — 1.6% | | | | | |
Vallourec | | 13,308 | | | 4,670,587 |
Multi-Utilities — 1.2% | | | | | |
Electricite de France | | 36,800 | | | 3,496,087 |
Personal Products — 1.9% | | | | | |
L’Oreal S.A. | | 49,406 | | | 5,375,104 |
| | | | | |
| | | 33,858,487 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Germany — 2.5% | | | | | |
Air Freight & Logistics — 0.8% | | | | | |
Deutsche Post AG | | 92,252 | | $ | 2,411,088 |
Health Care Providers & Services — 1.7% |
Celesio AG | | 130,693 | | | 4,728,588 |
| | | | | |
| | | 7,139,676 |
Hong Kong — 2.4% | | | | | |
Commercial Banks — 0.7% | | | | | |
BOC Hong Kong Holdings Ltd. | | 730,000 | | | 1,933,310 |
Distributors — 0.2% | | | | | |
Li & Fung Ltd. | | 177,000 | | | 533,457 |
Diversified Financial Services — 0.4% |
Hong Kong Exchanges & Clearing Ltd. | | 90,000 | | | 1,315,849 |
Real Estate Management & Development — 1.1% |
Cheung Kong Holdings Ltd. | | 137,000 | | | 1,846,638 |
Hang Lung Properties Ltd. | | 405,000 | | | 1,298,535 |
| | | | | |
| | | 3,145,173 |
| | | | | |
| | | 6,927,789 |
India — 0.5% | | | | | |
Oil, Gas & Consumable Fuels — 0.5% |
Reliance Industries Ltd., GDR, 144A(1)(2) | | 15,300 | | | 1,505,520 |
| | | | | |
| | | 1,505,520 |
Italy — 1.2% | | | | | |
Commercial Banks — 1.2% | | | | | |
UniCredito Italiano SpA | | 564,812 | | | 3,457,033 |
| | | | | |
| | | 3,457,033 |
Japan — 16.4% | | | | | |
Automobiles — 0.9% | | | | | |
Nissan Motor Co. Ltd. | | 310,200 | | | 2,561,995 |
Beverages — 1.0% | | | | | |
Asahi Breweries Ltd. | | 157,300 | | | 2,936,089 |
Electrical Equipment — 0.9% | | | | | |
Mitsubishi Electric Corp. | | 230,000 | | | 2,480,106 |
Electronic Equipment & Instruments — 1.6% |
Hirose Electric Co. Ltd. | | 20,100 | | | 2,017,855 |
Kyocera Corp. | | 26,000 | | | 2,448,557 |
| | | | | |
| | | 4,466,412 |
Food & Staples Retailing — 0.9% | | | | | |
AEON Co., Ltd. | | 198,800 | | | 2,454,460 |
Insurance — 1.7% | | | | | |
Millea Holdings, Inc. | | 72,500 | | | 2,826,671 |
Mitsui Sumitomo Insurance Group Holdings, Inc.(3) | | 63,000 | | | 2,171,493 |
| | | | | |
| | | 4,998,164 |
Internet Software & Services — 0.5% |
Rakuten, Inc. | | 2,578 | | | 1,301,321 |
Machinery — 1.4% | | | | | |
Komatsu Ltd. | | 90,600 | | | 2,525,554 |
SMC Corp. | | 13,500 | | | 1,478,599 |
| | | | | |
| | | 4,004,153 |
The accompanying notes are an integral part of these financial statements.
| | |
RS International Growth VIP Series | | 9 |
| | |
| | Schedule of Investments – RS International Growth VIP Series (continued) |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Japan (continued) | | | | | |
Marine — 0.6% | | | | | |
Mitsui O.S.K. Lines Ltd. | | 119,000 | | $ | 1,695,597 |
Office Electronics — 2.0% | | | | | |
Canon, Inc. | | 109,800 | | | 5,645,882 |
Oil, Gas & Consumable Fuels — 0.4% |
INPEX Holdings, Inc. | | 65 | | | 820,267 |
Japan Petroleum Exploration Co., Ltd. | | 6,200 | | | 442,586 |
| | | | | |
| | | 1,262,853 |
Paper & Forest Products — 0.4% |
Nippon Paper Group, Inc. | | 461 | | | 1,259,029 |
Real Estate Management & Development — 0.3% |
Sumitomo Realty & Development Co. Ltd. | | 40,000 | | | 794,839 |
Specialty Retail — 0.5% | | | | | |
Yamada Denki Co. Ltd. | | 22,090 | | | 1,572,731 |
Tobacco — 0.7% | | | | | |
Japan Tobacco, Inc. | | 477 | | | 2,034,948 |
Trading Companies & Distributors — 2.6% |
Hitachi High-Technologies Corp. | | 53,600 | | | 1,241,757 |
Mitsui & Co. Ltd. | | 282,000 | | | 6,227,716 |
| | | | | |
| | | 7,469,473 |
| | | | | |
| | | 46,938,052 |
Netherlands — 1.2% |
Metals & Mining — 1.2% |
ArcelorMittal | | 34,750 | | | 3,435,925 |
| | | | | |
| | | 3,435,925 |
Norway — 5.0% | | | | | |
Energy Equipment & Services — 1.7% |
Aker Kvaerner ASA | | 208,764 | | | 4,928,900 |
Food Products — 0.8% | | | | | |
Marine Harvest(3) | | 3,161,723 | | | 2,321,692 |
Oil, Gas & Consumable Fuels — 2.5% |
Seadrill Ltd. | | 227,799 | | | 6,966,091 |
| | | | | |
| | | 14,216,683 |
People’s Republic of China — 0.5% |
Oil, Gas & Consumable Fuels — 0.5% |
China Shenhua Energy Co. Ltd., H shares | | 396,500 | | | 1,556,049 |
| | | | | |
| | | 1,556,049 |
Russia — 1.7% | | | | | |
Metals & Mining — 0.5% | | | | | |
MMC Norilsk Nickel, ADR(4) | | 60,400 | | | 1,528,120 |
Oil, Gas & Consumable Fuels — 0.6% |
OAO Gazprom, ADR(4) | | 29,500 | | | 1,711,000 |
Wireless Telecommunication Services — 0.6% |
Mobile TeleSystems, ADR(4) | | 21,800 | | | 1,670,098 |
| | | | | |
| | | 4,909,218 |
Singapore — 1.0% | | | | | |
Commercial Banks — 0.4% | | | | | |
DBS Group Holdings Ltd. | | 76,000 | | | 1,053,515 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Singapore (continued) | | | | | |
Industrial Conglomerates — 0.6% |
Keppel Corp. Ltd. | | 210,000 | | $ | 1,719,452 |
| | | | | |
| | | 2,772,967 |
Sweden — 7.5% | | | | | |
Commercial Banks — 1.3% | | | | | |
Svenska Handelsbanken AB, Class A | | 160,167 | | | 3,816,381 |
Diversified Financial Services — 1.8% |
Investor AB, Class B | | 243,258 | | | 5,139,865 |
Health Care Equipment & Supplies — 1.5% |
Getinge AB, Class B | | 170,480 | | | 4,175,344 |
Machinery — 2.9% | | | | | |
Atlas Copco AB, Class B | | 619,157 | | | 8,250,355 |
| | | | | |
| | | 21,381,945 |
Switzerland — 11.9% | | | | | |
Building Products — 1.2% | | | | | |
Geberit AG | | 24,120 | | | 3,553,482 |
Commercial Banks — 1.2% | | | | | |
UBS AG | | 156,246 | | | 3,279,246 |
Computers & Peripherals — 0.7% |
Logitech International S.A.(3) | | 71,446 | | | 1,923,318 |
Consumer Finance — 1.1% | | | | | |
Partners Group Holding AG | | 23,642 | | | 3,260,886 |
Diversified Telecommunication Services — 1.4% |
Swisscom AG | | 11,610 | | | 3,872,652 |
Food Products — 2.1% | | | | | |
Nestle S.A. | | 135,480 | | | 6,121,831 |
Health Care Equipment & Supplies — 1.1% |
Straumann Holding AG | | 13,600 | | | 3,259,048 |
Machinery — 1.1% | | | | | |
Schindler Holding AG | | 43,320 | | | 3,229,228 |
Pharmaceuticals — 0.6% | | | | | |
Basilea Pharmaceutica(3) | | 10,320 | | | 1,681,022 |
Textiles, Apparel & Luxury Goods — 1.4% |
Compagnie Financiere Richemont AG, Class A | | 69,800 | | | 3,887,837 |
| | | | | |
| | | 34,068,550 |
Taiwan — 1.3% | | | | | |
Electronic Equipment & Instruments — 0.6% |
Hon Hai Precision Industry Co. Ltd., GDR(2) | | 175,500 | | | 1,749,735 |
Semiconductors & Semiconductor Equipment — 0.7% |
Taiwan Semiconductor Mfg. Co. Ltd., ADR(4) | | 165,776 | | | 1,808,616 |
| | | | | |
| | | 3,558,351 |
United Kingdom — 20.0% | | | | | |
Commercial Banks — 2.2% | | | | | |
Royal Bank of Scotland | | 539,330 | | | 2,309,668 |
Standard Chartered PLC | | 137,000 | | | 3,902,232 |
| | | | | |
| | | 6,211,900 |
Commercial Services & Supplies — 1.2% |
Capita Group PLC | | 137,419 | | | 1,881,811 |
Hays PLC | | 774,000 | | | 1,395,231 |
| | | | | |
| | | 3,277,042 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS International Growth VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
United Kingdom (continued) | | | | | |
Construction & Engineering — 1.5% |
Amec PLC | | 133,747 | | $ | 2,370,994 |
The Weir Group PLC | | 107,700 | | | 2,012,218 |
| | | | | |
| | | 4,383,212 |
Containers & Packaging — 0.8% | | | | | |
Rexam PLC | | 313,000 | | | 2,415,864 |
Health Care Equipment & Supplies — 0.5% |
Smith & Nephew PLC | | 129,000 | | | 1,423,495 |
Media — 0.8% | | | | | |
Reed Elsevier PLC | | 206,895 | | | 2,373,717 |
Metals & Mining — 3.0% | | | | | |
Johnson Matthey PLC | | 51,816 | | | 1,905,250 |
Lonmin PLC | | 31,040 | | | 1,972,900 |
Xstrata PLC | | 57,000 | | | 4,568,665 |
| | | | | |
| | | 8,446,815 |
Oil, Gas & Consumable Fuels — 5.7% |
BG Group PLC | | 250,000 | | | 6,508,368 |
Cairn Energy PLC(3) | | 55,068 | | | 3,548,380 |
John Wood Group PLC | | 414,018 | | | 4,077,951 |
Royal Dutch Shell PLC, Class A | | 53,200 | | | 2,186,086 |
| | | | | |
| | | 16,320,785 |
Pharmaceuticals — 1.7% | | | | | |
GlaxoSmithKline PLC | | 222,277 | | | 4,927,722 |
Tobacco — 0.7% | | | | | |
Imperial Tobacco Group PLC | | 51,900 | | | 1,934,183 |
Wireless Telecommunication Services — 1.9% |
Vodafone Group PLC | | 1,805,700 | | | 5,364,452 |
| | | | | |
| | | 57,079,187 |
| | | | | |
Total Common Stocks (Cost $221,633,540) | | | 274,540,924 |
| | |
| | Shares | | Value |
Preferred Stocks — 1.8% | | | | | |
Brazil — 1.8% | | | | | |
Commercial Banks — 0.6% | | | | | |
Banco Itau Holdings Financeira S.A., ADR(4) | | 80,000 | | | 1,624,800 |
Oil, Gas & Consumable Fuels — 1.2% |
Petroleo Brasileiro S.A., ADR(4) | | 60,500 | | | 3,505,975 |
| | | | | |
| | | 5,130,775 |
| | | | | |
Total Preferred Stocks (Cost $1,214,596) | | | 5,130,775 |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | | |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(5) | | | 54 | | $ | 2,182 |
RS Emerging Growth Fund, Class Y(5) | | | 74 | | | 2,567 |
RS Emerging Markets Fund, Class A(5) | | | 72 | | | 1,742 |
RS Equity Dividend Fund, Class Y(5) | | | 34 | | | 287 |
RS Global Natural Resources Fund, Class Y(5) | | | 38 | | | 1,660 |
RS Growth Fund, Class Y(5) | | | 108 | | | 1,330 |
RS Investment Quality Bond Fund, Class A(5) | | | 30 | | | 292 |
RS Investors Fund, Class Y(5) | | | 95 | | | 898 |
RS MidCap Opportunities Fund, Class Y(5) | | | 49 | | | 591 |
RS Partners Fund, Class Y(5) | | | 50 | | | 1,499 |
RS S&P 500 Index Fund, Class A(5) | | | 32 | | | 279 |
RS Smaller Company Growth Fund, Class Y(5) | | | 31 | | | 514 |
RS Technology Fund, Class Y(5) | | | 53 | | | 771 |
RS Value Fund, Class Y(5) | | | 100 | | | 2,576 |
| | | | | | |
Total Other Investments (Cost $17,597) | | | 17,188 |
| | |
| | Principal Amount | | Value |
Repurchase Agreements — 0.8% |
State Street Bank and Trust Co. Repurchase Agreement, 0.2% dated 6/30/2008, maturity value of $2,340,013, due 7/1/2008, collateralized by U.S. Treasury Bond, 4.50%, due 2/15/2036, with a value of $2,391,606 | | $ | 2,340,000 | | | 2,340,000 |
| | | | | | |
Total Repurchase Agreements (Cost $2,340,000) | | | 2,340,000 |
| | | | | | |
Total Investments — 98.7% (Cost $225,205,733) | | | 282,028,887 |
| | | | | | |
Other Assets, Net — 1.3% | | | 3,780,447 |
| | | | | | |
Total Net Assets — 100.0% | | $ | 285,809,334 |
(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, 2008, the aggregate market value of these securities amounted to $1,505,520, representing 0.5% of net assets. These securities have been deemed liquid by the investment adviser pursuant to the Fund's liquidity procedures approved by the Board of Trustees. |
(2) | GDR — Global Depositary Receipt. |
(3) | Non-income producing security. |
(4) | ADR — American Depositary Receipt. |
(5) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
The accompanying notes are an integral part of these financial statements.
| | |
RS International Growth VIP Series | | 11 |
| | |
| | Schedule of Investments – RS International Growth VIP Series |
At June 30, 2008, the Fund had entered into the following forward currency exchange contracts:
| | | | | | | | | | | | |
Forward Currency Contracts to Sell | | Value | | Aggregate Face Value | | Settlement Date | | Unrealized Depreciation | |
GBP | | $ | 35,745,295 | | $ | 35,120,354 | | 7/10/2008 | | ($ | 624,941 | ) |
Legend:
GBP — Pound Sterling
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | | | | | |
Valuation Inputs | | Investments in Securities | | Other Financial Instruments* | |
Level 1 – Quoted Prices | | $ | 282,028,887 | | ($ | 624,941 | ) |
Level 2 – Significant Other Observable Inputs | | | — | | | — | |
Level 3 – Significant Unobservable Inputs | | | — | | | — | |
| | | | | | | |
Total | | $ | 282,028,887 | | ($ | 624,941 | ) |
* | Other financial instruments include futures, forwards and/or swap contracts. |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS International Growth VIP Series |
| | |
| | Financial Information — RS International Growth VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
|
Assets | |
Investments, at value | | $ | 282,028,887 | |
Cash and cash equivalents | | | 732 | |
Foreign currency, at value | | | 3,248,839 | |
Receivable for investments sold | | | 1,198,240 | |
Dividends/interest receivable | | | 796,587 | |
Receivable for fund shares subscribed | | | 179,063 | |
Prepaid expenses | | | 8,149 | |
| | | | |
Total Assets | | | 287,460,497 | |
| | | | |
Liabilities | | | | |
Payable for open forward currency contracts | | | 624,941 | |
Payable for investments purchased | | | 252,532 | |
Payable for fund shares redeemed | | | 413,169 | |
Payable to adviser | | | 195,778 | |
Trustees’ deferred compensation | | | 17,188 | |
Accrued expenses/other liabilities | | | 147,555 | |
| | | | |
Total Liabilities | | | 1,651,163 | |
| | | | |
Total Net Assets | | $ | 285,809,334 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 213,556,246 | |
Accumulated undistributed net investment loss | | | (1,627,095 | ) |
Accumulated net realized gain from investments and foreign currency transactions | | | 17,646,489 | |
Net unrealized appreciation on investments and translation of assets and liabilities in foreign currencies | | | 56,233,694 | |
| | | | |
Total Net Assets | | $ | 285,809,334 | |
| | | | |
Investments, at Cost | | $ | 225,205,733 | |
| | | | |
Foreign Currency, at Cost | | $ | 3,249,771 | |
| | | | |
Pricing of Shares | | | | |
Shares of Beneficial Interest Outstanding with no Par Value | | | 12,871,901 | |
| |
Net Asset Value Per Share | | | $22.20 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
|
Investment Income | |
Interest | | $ | 5,149 | |
Dividends | | | 6,246,313 | |
Withholding taxes on foreign dividends | | | (566,188 | ) |
| | | | |
Total Investment Income | | | 5,685,274 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 1,185,220 | |
Custodian fees | | | 68,896 | |
Shareholder reports | | | 39,898 | |
Professional fees | | | 31,143 | |
Administrative service fees | | | 21,706 | |
Trustees’ fees and expenses | | | 9,776 | |
Insurance expense | | | 4,914 | |
Other expense | | | 4,302 | |
| | | | |
Total Expenses | | | 1,365,855 | |
Less: Custody credits | | | (1 | ) |
| | | | |
Total Expenses, Net | | | 1,365,854 | |
| | | | |
Net Investment Income | | | 4,319,420 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | | | | |
Net realized gain from investments | | | 16,919,108 | |
Net realized loss from foreign currency transactions | | | (424,214 | ) |
Net change in unrealized depreciation on investments | | | (44,897,182 | ) |
Net change in unrealized depreciation on translation of assets and liabilities in foreign currencies | | | (597,903 | ) |
| | | | |
Net Loss on Investments and Foreign Currency Transactions | | | (29,000,191 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (24,680,771 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS International Growth VIP Series | | 13 |
| | |
| | Financial Information — RS International Growth VIP Series |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | |
Net investment income | | $ | 4,319,420 | | | $ | 3,453,373 | |
Net realized gain from investments and foreign currency transactions | | | 16,494,894 | | | | 31,185,600 | |
Net change in unrealized appreciation/(depreciation) on investments and translation of assets and liabilities in foreign currencies | | | (45,495,085 | ) | | | 7,016,989 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (24,680,771 | ) | | | 41,655,962 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (10,555,160 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (10,555,160 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 17,345,333 | | | | 46,941,055 | |
Reinvestment of distributions | | | — | | | | 10,555,160 | |
Cost of shares redeemed | | | (25,823,003 | ) | | | (49,999,831 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (8,477,670 | ) | | | 7,496,384 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | (33,158,441 | ) | | | 38,597,186 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 318,967,775 | | | | 280,370,589 | |
| | | | | | | | |
End of period | | $ | 285,809,334 | | | $ | 318,967,775 | |
| | | | | | | | |
Distributions in Excess of Net Investment Income Included in Net Assets | | $ | — | | | $ | (5,946,515 | ) |
| | | | | | | | |
Accumulated Undistributed Net Investment Loss Included in Net Assets | | $ | (1,627,095 | ) | | $ | — | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 767,728 | | | | 1,994,240 | |
Reinvested | | | — | | | | 454,964 | |
Redeemed | | | (1,135,035 | ) | | | (2,133,886 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (367,307 | ) | | | 315,318 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
14 | | RS International Growth VIP Series |
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| | |
RS International Growth VIP Series | | 15 |
| | |
| | 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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 24.09 | | $ | 0.32 | | $ | (2.21 | ) | | $ | (1.89 | ) | | $ | — | | | $ | — | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 21.69 | | | 0.29 | | | 2.94 | | | | 3.23 | | | | (0.83 | ) | | | — | | | (0.83 | ) |
| | | | | | | |
Year Ended 12/31/06 | | | 17.80 | | | 0.20 | | | 3.92 | | | | 4.12 | | | | (0.23 | ) | | | — | | | (0.23 | ) |
| | | | | | | |
Year Ended 12/31/05 | | | 15.60 | | | 0.22 | | | 2.24 | | | | 2.46 | | | | (0.26 | ) | | | — | | | (0.26 | ) |
| | | | | | | |
Year Ended 12/31/04 | | | 13.40 | | | 0.16 | | | 2.08 | | | | 2.24 | | | | (0.04 | ) | | | — | | | (0.04 | ) |
| | | | | | | |
Year Ended 12/31/03 | | | 10.46 | | | 0.14 | | | 2.99 | | | | 3.13 | | | | (0.19 | ) | | | — | | | (0.19 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
16 | | RS International Growth VIP Series |
| | | | | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Income to Average Net Assets3 | | | Gross Ratio of Net Investment Income to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$22.20 | | (7.85 | )% | | $ | 285,809 | | 0.92 | % | | 0.92 | % | | 2.64 | % | | 2.64 | % | | 17 | % |
| | | | | | | |
24.09 | | 15.02 | % | | | 318,968 | | 0.96 | % | | 0.96 | % | | 1.14 | % | | 1.14 | % | | 27 | % |
| | | | | | | |
21.69 | | 23.43 | % | | | 280,371 | | 1.04 | % | | 1.04 | % | | 1.06 | % | | 1.06 | % | | 22 | % |
| | | | | | | |
17.80 | | 16.02 | % | | | 210,859 | | 1.05 | % | | 1.05 | % | | 1.30 | % | | 1.30 | % | | 28 | % |
| | | | | | | |
15.60 | | 16.72 | % | | | 189,858 | | 1.01 | % | | 1.01 | % | | 1.03 | % | | 1.03 | % | | 24 | % |
| | | | | | | |
13.40 | | 30.03 | % | | | 194,159 | | 1.05 | % | | 1.05 | % | | 1.17 | % | | 1.17 | % | | 41 | % |
| Distributions | reflect actual per-share amounts distributed for the period. |
| 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations, and custody credits, if applicable. |
The accompanying notes are an integral part of these financial statements.
| | |
RS International Growth VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS International Growth VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS International Growth VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions
| | |
18 | | RS International Growth VIP Series |
market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Forward Foreign Currency Contracts
The Fund 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 the Fund’s counterparty to meet the terms of a contract and from unanticipated movements in the value of a currency relative to another currency. 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 the Fund. When a forward contract is closed, the Fund will record a realized gain or loss equal to the increase or decrease in the value of such forward contract between the time it was opened and the time it
| | |
RS International Growth VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS International Growth VIP Series (unaudited) (continued) |
was closed. Such amounts are recorded as net realized gains or losses on foreign currency related transactions.
f. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
g. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
h. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits are shown in the accompanying Statement of Operations.
i. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
j. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
k. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
| | | | | | | |
Amount Outstanding at 06/30/08 | | Average Borrowing* | | Average Interest Rate* | |
$ | — | | $ | 600,582 | | 5.26 | % |
* | For the six months ended June 30, 2008. |
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.80%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Baillie Gifford Limited (“GBG”), a Scottish company owned jointly 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 the Fund. Payment of the sub-advisory fee does not represent a separate or additional expense to the Fund. GBG has entered into a Sub-Sub-Investment Advisory Agreement with BG Overseas pursuant to which BG Overseas is responsible for providing day-to-day investment advisory services to the Fund subject to the supervision and direction of the Board of Trustees of the Trust and review by RS Investments. A sub-sub-investment advisory fee payable at the rate of 0.40% of the average daily net assets of the Fund is payable by
| | |
20 | | RS International Growth VIP Series |
GBG to BG Overseas for its services. Payment of the sub-sub-investment advisory fee 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 the Fund’s total annual fund operating expenses to 1.04% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
| |
Ordinary Income Total |
$ | 10,555,160 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
| |
Undistributed Long-Term Capital Gains |
$ | 1,270,532 |
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.
During the year ended December 31, 2007, the Fund utilized capital loss carryovers of $29,815,072 and no capital loss carryovers are available for use in future offsets.
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, 2007, which is the most recently completed tax year, the Fund had $1,142,144 in deferred losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $229,994,351. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $70,486,507 and $(18,451,971), respectively, resulting in net unrealized appreciation of $52,034,536.
| | |
RS International Growth VIP Series | | 21 |
| | |
| | Notes to Financial Statements — RS International Growth VIP Series (unaudited) (continued) |
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $50,576,562 and $60,779,295, respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
| | |
22 | | RS International Growth VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS International Growth VIP Series | | 23 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 – 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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24 | | RS International Growth VIP Series |
capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
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RS International Growth VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly
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26 | | RS International Growth VIP Series |
throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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RS International Growth VIP Series | | 27 |
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| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s)
During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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28 | | RS International Growth VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s)
During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS International Growth VIP Series | | 29 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s)
During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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30 | | RS International Growth VIP Series |
RS Variable Products Trust
RS Emerging Markets VIP Series
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06.30.08 | | |
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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, 2008. 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.
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| | RS Emerging Markets VIP Series |
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| | Timothy Campbell Timothy Campbell (BG) has managed RS Emerging Markets VIP Series since 2004.* Mr. Campbell joined Baillie Gifford in 1999 and worked as an investment manager in the emerging markets investment team before joining the institutional clients department in 2007. He is a member of the emerging markets policy committee. Mr. Campbell holds a B.A. in history from Trinity College, Dublin. |
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| | Edward H. Hocknell Edward H. Hocknell (BG) has managed RS Emerging Markets VIP Series since inception.* In this role, Mr. Hocknell works with the investment management teams at 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 at BG Overseas and a partner at Baillie Gifford & Co., where he has worked since 1984. He holds a B.A. from Oxford University. |
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| | Richard E. Sneller Richard E. Sneller (BG) has been a member of the investment management team of RS Emerging Markets VIP Series since inception.* He joined Baillie Gifford in 1994 and is an investment manager in the emerging markets investment team. Mr. Sneller is a partner of Baillie Gifford & Co. He holds a BSc (Econ) in statistics from the London School of Economics and an MSc in investment analysis from Stirling University. |
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| | Michael P. Stirling-Aird Michael P. Stirling-Aird (BG) has managed RS Emerging Markets VIP Series since 2008. He is a manager in the institutional clients department. Michael joined Baillie Gifford’s Institutional Clients Department in 2006 after four years with Alliance Trust, where he spent the final year as a business manager (third parties). Mr. Stirling-Aird is a client service manager with responsibility for international clients. He is a member of the emerging markets investment policy committee. He holds a MA in politics from Edinburgh University and a MSc in investment analysis from Stirling University. |
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RS Emerging Markets VIP Series | | 3 |
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| | RS Emerging Markets VIP Series (continued) |
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| | William Sutcliffe William Sutcliffe (BG) has managed RS Emerging Markets VIP Series since 2001.* He joined Baillie Gifford in 1999 and is an investment manager in the emerging markets investment team. Mr. Sutcliffe holds a MA in History from Glasgow 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. |
The Statement of Additional Information provides further information about the portfolio manager, including information regarding his compensation, other accounts he manages, and his ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | The emerging markets fell during the first six months of the year, following five consecutive years of double-digit returns. |
Ø | | The RS Emerging Markets VIP Series underperformed its benchmark for the six months ended June 30, 2008. |
Ø | | Overall, economic growth in the emerging markets remained strong. |
Market Overview
The emerging markets were extremely volatile during the first six months of 2008, with the divergence between country and sector performance wider than it has been for some time. India, Turkey, South Korea, and China suffered heavy declines, whereas Brazil, Argentina, and the Czech Republic enjoyed strong double-digit positive returns. It was notable that those countries that were net exporters of commodities tended to fare better than those countries that were net importers. This should come as little surprise to investors, as the price of oil doubled in the past 12 months and iron ore annual contract prices rose by 80% to 95%.
Similarly, countries with the ability and the desire to deal with inflationary pressures performed better than those with little flexibility or poor control. Both the strong demand for commodities and increasing inflationary pressures were dominating features of recent market behavior and seem unlikely to dissipate in the near future.
Performance
Over the first half of the year, the RS Emerging Markets VIP Series declined 12.74% compared with its benchmark the Morgan Stanley Capital International Emerging Markets Free Index2, which declined 11.64% in the same period. It is interesting to note that the emerging markets, having significantly outperformed the developed markets over the previous five years, fell slightly less than the developed markets over the six-month period. This is an encouraging departure from previous cycles, when the emerging markets have typically exhibited much higher overall volatility than the developed markets.
Portfolio Review
In general, economic growth remains strong, but we are seeing greater differentiation between the weaker and stronger emerging market economies.
The Fund has been underweight in India for some time, as we struggled to find companies that were attractively valued. We have not doubted the high quality of some of the
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4 | | RS Emerging Markets VIP Series |
companies listed on the Indian exchange, so we are happy that the recent large declines in the market may enable the Fund to buy some excellent businesses on more appealing valuations.
Unsurprisingly, given the rise in the oil price from $94 to $139 over the past six months, the Fund saw strong contributions to relative performance from some of its holdings in oil-producing companies, including Dragon Oil, which has assets in the Turkmenistan area of the Caspian Sea; Petrobras, a Brazilian oil company; and CNOOC, the state-run Chinese offshore oil company. It is worth pointing out that we believe the valuations for Dragon Oil and Petrobras still do not fully capture their striking growth potential, especially when compared with their peers in the developed markets.
Other important contributors to Fund performance were from materials companies that benefited from strong emerging market demand and robust commodity prices. The two Russian steel companies, Evraz and Severstal, were meaningful contributors to performance, as was Ternium, a steel company with assets in Venezuela, Argentina, and Mexico.
On the flipside, some of the companies that suffered over the first half of the year were unsurprisingly in the financial sector. In particular, the Fund was overweight in Turkish banks, Garanti Bankasi and Turkiye Is Bankasi, which fell significantly during the period, as Turkey wrestled with inflation, a falling currency, and a current account deficit. We continue to believe that Turkey will overcome these short-term difficulties and that the banking sector stands to benefit significantly from increased loan growth that is currently being overlooked by the market.
During the first half of the year, the Fund’s performance benefited in relative terms from being underweight in Chinese stocks. Valuations in the Chinese market have been high since last summer, and the number of Chinese companies in the Fund reflected this. The A share market (China’s domestic Renminbi-denominated shares) has now fallen so sharply, however, that it is back to levels not seen since the start of 2007, which is quite a roundtrip. The Chinese benchmark itself has fallen more than 27% year to date. We are hopeful that, given the recent falls, we may have the opportunity to increase the Fund’s exposure to some strong Chinese businesses at increasingly appealing valuations.
Outlook
The impact of rising inflation is being felt around the globe as emerging markets transition from being exporters of deflation to exporters of capital. This presents both pitfalls and opportunities for stock pickers. What seems clear is that it is likely to lead to greater volatility in equity markets as economies wrestle with a heady mix of inflation, strong growth, and capital flows.
The performance of the different sectors largely supports this theory, displaying some themes that are becoming increasingly familiar. Energy and materials performed well but real estate and diversified financials have been weak. We are encouraged that after five consecutive years of double-digit returns from the emerging markets, the weak start to this year has been slightly less pronounced than the weakness seen in the developed markets. This seems a rational response, as we believe that emerging economies are in better financial shape than many developed markets and are set to grow faster.
Overall, we believe that China, Russia, Brazil, and the Middle East will remain the principal drivers of global growth over the coming years and we think that this may provide significant opportunities for strong investment returns.
We thank you for your investment and continued support.
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Timothy Campbell Co-Portfolio Manager Richard Sneller Co-Portfolio Manager William Sutcliffe Co-Portfolio Manager | | Edward H. Hocknell Co-Portfolio Manager Michael P. Stirling-Aird Co-Portfolio Manager |
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RS Emerging Markets VIP Series | | 5 |
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| | RS Emerging Markets VIP Series (continued) |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
Any discussion 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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. 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.
| | |
6 | | RS Emerging Markets VIP Series |
| | |
Total Net Assets: $196,884,872 | | Data as of June 30, 2008 |
| | |
| | Geographical Location vs. Index1 As of 12/31/2007 |
| | |
| | Top Ten Holdings1 |
| | | | |
| | |
Company | | Country | | Percentage of Total Net Assets |
Petroleo Brasileiro S.A. | | Brazil | | 7.61% |
Gazprom, ADR | | Russia | | 4.12% |
Taiwan Semiconductor Manufacturing Co. Ltd. | | Taiwan | | 2.81% |
CNOOC Ltd. | | People’s Republic of China | | 2.45% |
Companhia Vale do Rio Doce | | Brazil | | 2.38% |
Imperial Energy Corp. PLC | | Russia | | 2.35% |
Norilsk Nickel, ADR | | Russia | | 2.25% |
Hon Hai Precision Industry Co. Ltd. | | Taiwan | | 2.13% |
Itausa-Investimentos Itau S.A. | | Brazil | | 1.98% |
Ternium S.A. | | Argentina | | 1.94% |
Total | | | | 30.02% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. Cash includes short-term investments and net other assets and liabilities. |
2 | The 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. You may not invest in the index, and, unlike the Fund, the index does not incur fees. |
| | |
RS Emerging Markets VIP Series | | 7 |
| | |
| | RS Emerging Markets VIP Series (continued) |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | | | | |
| | | | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | 10 Years | | Since Inception |
RS Emerging Markets VIP Series | | 10/17/94 | | – | 12.74% | | 7.26% | | 30.83% | | 32.06% | | 17.73% | | 11.88% |
MSCI EMF Index2 | | | | – | 11.64% | | 4.89% | | 27.52% | | 30.15% | | 15.51% | | 7.25% |
| | |
| | Results of a Hypothetical $10,000 Investment |
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 1.26%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com
| | |
8 | | RS Emerging Markets 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $1,229.20 | | $6.57 | | 1.19% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00
| | $1,018.97 | | $5.95 | | 1.19% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
RS Emerging Markets VIP Series | | 9 |
| | |
| | Schedule of Investments – RS Emerging Markets VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 86.3% |
Argentina — 1.9% |
Metals & Mining — 1.9% |
Ternium S.A., ADR(1) | | 90,900 | | $ | 3,817,800 |
| | | | | |
| | | 3,817,800 |
Bolivia — 0.2% |
Metals & Mining — 0.2% | | | | | |
Apex Silver Mines Ltd.(2) | | 65,478 | | | 321,497 |
| | | | | |
| | | 321,497 |
Brazil — 4.7% | | | | | |
Metals & Mining — 2.9% | | | | | |
Companhia Vale do Rio Doce, ADR(1) | | 130,700 | | | 4,681,674 |
MMX Mineracao e Metalicos SA(2) | | 34,000 | | | 1,049,841 |
| | | | | |
| | | 5,731,515 |
Multiline Retail — 1.8% | | | | | |
B2W Companhia Global do Varejo | | 45,900 | | | 1,680,414 |
Lojas Renner S.A. | | 92,500 | | | 1,839,498 |
| | | | | |
| | | 3,519,912 |
| | | | | |
| | | 9,251,427 |
Egypt — 0.8% | | | | | |
Diversified Financial Services — 0.8% | | | |
Egyptian Financial Group-Hermes Holding | | 165,117 | | | 1,484,761 |
| | | | | |
| | | 1,484,761 |
Hong Kong — 0.9% | | | | | |
Electronic Equipment & Instruments — 0.9% |
Kingboard Chemical Holdings Ltd. | | 368,000 | | | 1,699,061 |
| | | | | |
| | | 1,699,061 |
India — 4.4% | | | | | |
Commercial Banks — 0.7% | | | | | |
ICICI Bank Ltd. | | 92,200 | | | 1,360,767 |
Construction Materials — 0.7% | | | | | |
ACC Ltd. | | 107,400 | | | 1,298,036 |
Diversified Financial Services — 0.2% | | | |
Reliance Capital Ltd. | | 22,200 | | | 463,968 |
Oil, Gas & Consumable Fuels — 1.9% | | | |
Reliance Industries Ltd.(2) | | 76,600 | | | 3,708,491 |
Real Estate — 0.2% | | | | | |
Housing Development & Infrastructure Ltd. | | 53,500 | | | 475,065 |
Wireless Telecommunication Services — 0.7% |
Idea Cellular Ltd.(2) | | 638,000 | | | 1,376,093 |
| | | | | |
| | | 8,682,420 |
Indonesia — 4.1% | | | | | |
Commercial Banks — 1.9% | | | | | |
PT Bank Mandiri | | 7,662,500 | | | 2,160,792 |
PT Bank Rakyat Indonesia | | 2,996,000 | | | 1,657,223 |
| | | | | |
| | | 3,818,015 |
Diversified Telecommunication Services — 1.5% |
PT Indosat Tbk | | 2,448,500 | | | 1,792,557 |
PT Telekomunikasi Indonesia | | 1,429,700 | | | 1,131,975 |
| | | | | |
| | | 2,924,532 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Indonesia (continued) | | | |
Industrial Conglomerates — 0.7% | | | |
PT Bakrie and Brothers Tbk(2) | | 22,190,250 | | $ | 1,275,579 |
| | | | | |
| | | 8,018,126 |
Malaysia — 1.8% | | | | | |
Commercial Banks — 0.8% | | | | | |
Public Bank Berhad | | 486,300 | | | 1,577,591 |
Industrial Conglomerates — 1.0% | | | |
Sime Darby Berhad | | 671,521 | | | 1,901,016 |
| | | | | |
| | | 3,478,607 |
Mexico — 4.1% |
Commercial Banks — 1.0% |
Grupo Financiero Banorte S.A.B. de C.V. | | 442,800 | | | 2,082,381 |
Food & Staples Retailing — 1.1% | | | |
Wal-Mart de Mexico SAB de C.V. | | 541,042 | | | 2,144,631 |
Wireless Telecommunication Services — 2.0% |
America Movil SAB de C.V., ADR, Series L(1) | | 55,300 | | | 2,917,075 |
America Movil SAB de C.V., Series L | | 384,780 | | | 1,016,693 |
| | | | | |
| | | 3,933,768 |
| | | | | |
| | | 8,160,780 |
Other African Countries — 2.2% | | | |
Metals & Mining — 2.2% | | | | | |
Gem Diamonds Ltd.(2) | | 85,600 | | | 1,824,375 |
Katanga Mining Ltd.(2) | | 93,789 | | | 1,198,461 |
Kenmare Resources PLC(2) | | 1,650,494 | | | 1,380,765 |
| | | | | |
| | | 4,403,601 |
| | | | | |
| | | 4,403,601 |
Other Emerging Markets Countries — 1.8% | | | |
Oil, Gas & Consumable Fuels — 1.8% | | | |
Dragon Oil PLC(2) | | 394,090 | | | 3,591,228 |
| | | | | |
| | | 3,591,228 |
People’s Republic of China — 12.6% | | | |
Building Products — 0.8% | | | | | |
China National Building Material Co. Ltd., H shares | | 786,000 | | | 1,512,072 |
Insurance — 0.8% | | | | | |
China Insurance International Holdings Co. Ltd. | | 695,000 | | | 1,657,892 |
Internet Software & Services — 0.5% | | | |
SINA Corp.(2) | | 22,100 | | | 940,355 |
Leisure Equipment & Products — 0.9% | | | |
Li Ning Co. Ltd. | | 793,500 | �� | | 1,831,800 |
Oil, Gas & Consumable Fuels — 4.3% | | | |
China Shenhua Energy Co. Ltd., H shares | | 527,000 | | | 2,068,191 |
CNOOC Ltd. | | 2,797,000 | | | 4,813,972 |
PetroChina Co. Ltd., H shares | | 1,274,000 | | | 1,650,248 |
| | | | | |
| | | 8,532,411 |
Real Estate — 0.2% | | | | | |
C C Land Holdings Ltd. | | 707,000 | | | 439,764 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Emerging Markets VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
People’s Republic of China (continued) |
Real Estate Management & Development — 1.1% |
Country Garden Holdings Co. | | 1,784,000 | | $ | 1,157,721 |
Shimao Property Holdings Ltd. | | 865,000 | | | 992,882 |
| | | | | |
| | | 2,150,603 |
Specialty Retail — 1.1% | | | | | |
GOME Electrical Appliances Holdings Ltd. | | 4,360,000 | | | 2,068,934 |
Transportation Infrastructure — 0.4% | | | |
Jiangsu Expressway Co. Ltd. | | 1,022,000 | | | 837,549 |
Wireless Telecommunication Services — 2.5% |
China Mobile Ltd. | | 172,500 | | | 2,318,510 |
China Unicom Ltd. | | 1,380,000 | | | 2,562,749 |
| | | | | |
| | | 4,881,259 |
| | | | | |
| | | 24,852,639 |
Poland — 1.4% | | | | | |
Diversified Financial Services — 1.4% | | | |
International Personal Finance | | 507,000 | | | 2,779,661 |
| | | | | |
| | | 2,779,661 |
Russia — 13.7% | | | | | |
Commercial Banks — 0.1% | | | | | |
Sberbank, GDR(3) | | 500 | | | 182,557 |
Food & Staples Retailing — 0.8% | | | |
X5 Retail Group N.V., GDR(2)(3) | | 49,620 | | | 1,672,194 |
Metals & Mining — 5.6% |
Evraz Group SA, GDR(3) | | 26,800 | | | 3,122,200 |
Norilsk Nickel, ADR(1) | | 175,050 | | | 4,428,765 |
Norilsk Nickel, ADR(1) | | 12,950 | | | 327,635 |
Severstal, GDR(3) | | 120,100 | | | 3,110,590 |
| | | | | |
| | | 10,989,190 |
Oil, Gas & Consumable Fuels — 6.5% | | | |
Gazprom, ADR(1) | | 139,850 | | | 8,111,300 |
Imperial Energy Corp. PLC(2) | | 249,690 | | | 4,620,334 |
| | | | | |
| | | 12,731,634 |
Wireless Telecommunication Services — 0.7% |
Vimpel-Communications, ADR(1) | | 49,900 | | | 1,481,032 |
| | | | | |
| | | 27,056,607 |
South Africa — 4.3% | | | | | |
Food & Staples Retailing — 0.4% | | | |
Massmart Holdings Ltd. | | 96,232 | | | 758,303 |
Industrial Conglomerates — 0.7% | | | |
Barloworld Ltd. | | 130,020 | | | 1,328,429 |
Media — 1.3% | | | | | |
Naspers Ltd., N shares | | 118,500 | | | 2,587,931 |
Metals & Mining — 1.9% | | | | | |
Impala Platinum Holdings Ltd. | | 74,000 | | | 2,920,307 |
International Ferro Metals Ltd.(2) | | 364,388 | | | 885,483 |
| | | | | |
| | | 3,805,790 |
| | | | | |
| | | 8,480,453 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
South Korea — 13.8% | | | | | |
Commercial Banks — 1.5% | | | | | |
Daegu Bank | | 115,700 | | $ | 1,537,431 |
Hana Financial Group, Inc. | | 37,900 | | | 1,458,320 |
| | | | | |
| | | 2,995,751 |
Construction & Engineering — 0.7% | | | |
Hyundai Development Co. | | 27,810 | | | 1,409,044 |
Food & Staples Retailing — 2.0% | | | | | |
ORION Corp. | | 6,500 | | | 1,376,368 |
Shinsegae Co. Ltd. | | 4,750 | | | 2,556,522 |
| | | | | |
| | | 3,932,890 |
Insurance — 2.6% | | | | | |
Hyundai Marine & Fire Insurance Co. Ltd. | | 82,300 | | | 1,793,834 |
Samsung Fire & Marine Insurance Co. Ltd. | | 15,600 | | | 3,258,544 |
| | | | | |
| | | 5,052,378 |
Internet Software & Services — 0.5% | | | |
NHN Corp.(2) | | 5,600 | | | 977,009 |
Machinery — 1.1% | | | | | |
Daewoo Shipbuilding & Marine Engineering Co. Ltd. | | 24,100 | | | 942,297 |
Samsung Heavy Industries Co. Ltd. | | 35,390 | | | 1,261,935 |
| | | | | |
| | | 2,204,232 |
Pharmaceuticals — 1.0% | | | | | |
Yuhan Corp. | | 9,092 | | | 1,903,492 |
Semiconductors & Semiconductor Equipment — 0.9% |
Hynix Semiconductor, Inc.(2) | | 75,300 | | | 1,799,627 |
Textiles, Apparel & Luxury Goods — 1.8% | | | |
Cheil Industries, Inc. | | 76,900 | | | 3,565,460 |
Trading Companies & Distributors — 1.7% |
Samsung C&T Corp. | | 62,560 | | | 3,385,016 |
| | | | | |
| | | 27,224,899 |
Taiwan — 10.1% | | | | | |
Chemicals — 0.9% | | | | | |
Taiwan Fertilizer Co. Ltd. | | 460,000 | | | 1,727,671 |
Computers & Peripherals — 0.7% | | | |
High Tech Computer Corp. | | 63,000 | | | 1,411,393 |
Electronic Equipment & Instruments — 2.1% |
Hon Hai Precision Industry Co. Ltd. | | 850,394 | | | 4,188,512 |
Insurance — 0.9% | | | | | |
China Life Insurance Co. Ltd.(2) | | 2,372,000 | | | 1,754,403 |
Marine — 1.6% | | | | | |
Evergreen Marine Corp. | | 2,101,000 | | | 1,668,175 |
Yang Ming Marine Transport | | 2,357,846 | | | 1,553,616 |
| | | | | |
| | | 3,221,791 |
Multiline Retail — 1.1% | | | | | |
Far Eastern Department Stores Ltd. | | 1,990,744 | | | 2,118,441 |
Semiconductors & Semiconductor Equipment — 2.8% |
Taiwan Semiconductor Manufacturing Co. Ltd. | | 2,580,341 | | | 5,525,719 |
| | | | | |
| | | 19,947,930 |
The accompanying notes are an integral part of these financial statements.
| | |
RS Emerging Markets VIP Series | | 11 |
| | |
| | Schedule of Investments – RS Emerging Markets VIP Series (continued) |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Thailand — 1.0% | | | | | |
Commercial Banks — 1.0% | | | | | |
Bank of Ayudhya Public Co. Ltd.(2) | | 2,846,700 | | $ | 1,873,109 |
| | | | | |
| | | 1,873,109 |
Turkey — 2.1% | | | | | |
Commercial Banks — 2.1% | | | | | |
Turkiye Garanti Bankasi A.S. | | 1,051,200 | | | 2,422,476 |
Turkiye Is Bankasi | | 497,700 | | | 1,626,869 |
| | | | | |
| | | 4,049,345 |
| | | | | |
| | | 4,049,345 |
Vietnam — 0.4% | | | | | |
Metals & Mining — 0.4% | | | | | |
Vietnam Resource Investments Holdings Ltd.(4) | | 91,000 | | | 830,375 |
| | | | | |
| | | 830,375 |
| | | | | |
Total Common Stocks (Cost $136,570,906) | | | 170,004,326 |
| | |
| | Shares | | Value |
Preferred Stocks — 12.6% | | | | | |
Brazil — 11.8% | | | | | |
Commercial Banks — 3.5% | | | | | |
Banco Bradesco S.A. | | 147,097 | | | 3,027,091 |
Itausa-Investimentos Itau S.A. | | 615,700 | | | 3,905,975 |
Itausa-Investimentos Itau S.A. (Receipts)(4) | | 5,314 | | | 33,712 |
| | | | | |
| | | 6,966,778 |
Oil, Gas & Consumable Fuels — 7.6% | | | |
Petroleo Brasileiro S.A., ADR(1) | | 211,524 | | | 14,982,245 |
Road & Rail — 0.7% | | | | | |
All America Latina Logistica (Units) | | 101,700 | | | 1,308,759 |
| | | | | |
| | | 23,257,782 |
Colombia — 0.8% | | | | | |
Commercial Banks — 0.8% | | | | | |
BanColombia S.A., ADR(1) | | 48,600 | | | 1,525,554 |
| | | | | |
| | | 1,525,554 |
| | | | | |
Total Preferred Stocks (Cost $8,078,063) | | | 24,783,336 |
| | |
| | Warrants | | Value |
Warrants — 0.0% | | | | | |
Indonesia — 0.0% | | | | | |
PT Bakrie and Brothers Tbk(2) | | 870,205 | | | 17,650 |
| | | | | |
| | | 17,650 |
Vietnam — 0.0% |
Vietnam Resource Investments Holdings Ltd.(2)(4) | | 9,100 | | | — |
| | | | | |
| | | | | — |
| | | | | |
Total Warrants (Cost $0) | | | 17,650 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% | | | |
RS Core Equity Fund, Class Y(5) | | 37 | | $ | 1,501 |
RS Emerging Growth Fund, Class Y(5) | | 52 | | | 1,784 |
RS Emerging Markets Fund, Class A(5) | | 49 | | | 1,196 |
RS Equity Dividend Fund, Class Y(5) | | 24 | | | 206 |
RS Global Natural Resources Fund, Class Y(5) | | 27 | | | 1,182 |
RS Growth Fund, Class Y(5) | | 71 | | | 878 |
RS Investment Quality Bond Fund, Class A(5) | | 22 | | | 211 |
RS Investors Fund, Class Y(5) | | 59 | | | 564 |
RS MidCap Opportunities Fund, Class Y(5) | | 31 | | | 376 |
RS Partners Fund, Class Y(5) | | 36 | | | 1,066 |
RS S&P 500 Index Fund, Class A(5) | | 23 | | | 201 |
RS Smaller Company Growth Fund, Class Y(5) | | 22 | | | 370 |
RS Technology Fund, Class Y(5) | | 36 | | | 523 |
RS Value Fund, Class Y(5) | | 69 | | | 1,774 |
| | | | | |
Total Other Investments (Cost $12,073) | | | 11,832 |
| | | | | |
Total Investments — 98.9% (Cost $144,661,042) | | | 194,817,144 |
| | | | | |
Other Assets, Net — 1.1% | | | 2,067,728 |
| | | | | |
Total Net Assets — 100.0% | | $ | 196,884,872 |
(1) | ADR — American Depositary Receipt. |
(2) | Non–income producing security. |
(3) | GDR — Global Depositary Receipt. |
(4) | Fair valued security. See 1a in Notes to Financial Statements. |
(5) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 – Quoted Prices | | $ | 193,953,057 |
Level 2 – Significant Other Observable Inputs | | | 864,087 |
Level 3 – Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 194,817,144 |
| | |
12 | | RS Emerging Markets VIP Series |
The accompanying notes are an integral part of these financial statements.
| | |
| | Financial Information — RS Emerging Markets VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 194,817,144 | |
Cash and cash equivalents | | | 1,018,930 | |
Foreign currency, at value | | | 1,662,362 | |
Dividends/interest receivable | | | 511,470 | |
Receivable for fund shares subscribed | | | 8,722 | |
Receivable for investments sold | | | 5,908 | |
Prepaid expenses | | | 5,972 | |
| | | | |
Total Assets | | | 198,030,508 | |
| | | | |
Liabilities | | | | |
Payable for fund shares redeemed | | | 481,685 | |
Payable for investments purchased | | | 290,544 | |
Payable to adviser | | | 171,662 | |
Accrued custodian fees | | | 67,273 | |
Accrued foreign capital gains tax | | | 44,032 | |
Trustees’ deferred compensation | | | 11,832 | |
Accrued expenses/other liabilities | | | 78,608 | |
| | | | |
Total Liabilities | | | 1,145,636 | |
| | | | |
Total Net Assets | | $ | 196,884,872 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 127,555,597 | |
Accumulated undistributed net investment loss | | | (562,705 | ) |
Accumulated net realized gain from investments, foreign currency transactions and foreign capital gains tax | | | 19,778,279 | |
Net unrealized appreciation on investments, foreign capital gains tax and translation of assets and liabilities in foreign currencies | | | 50,113,701 | |
| | | | |
Total Net Assets | | $ | 196,884,872 | |
| | | | |
Investments, at Cost | | $ | 144,661,042 | |
| | | | |
Foreign Currency, at Cost | | $ | 1,662,222 | |
| | | | |
| |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 7,663,754 | |
| |
Net Asset Value Per Share | | | $25.69 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 9,002 | |
Dividends | | | 2,166,319 | |
Withholding taxes on foreign dividends | | | (238,116 | ) |
| | | | |
Total Investment Income | | | 1,937,205 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 1,075,823 | |
Custodian fees | | | 116,368 | |
Shareholder reports | | | 31,715 | |
Professional fees | | | 22,078 | |
Administrative service fees | | | 16,747 | |
Trustees’ fees and expenses | | | 7,546 | |
Insurance expense | | | 2,894 | |
Other expense | | | 2,548 | |
| | | | |
Total Expenses | | | 1,275,719 | |
Less: Custody credits | | | (1 | ) |
| | | | |
Total Expenses, Net | | | 1,275,718 | |
| | | | |
Net Investment Income | | | 661,487 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments, Foreign Currency Transactions and Foreign Capital Gains Tax | | | | |
Net realized gain from investments | | | 14,807,204 | |
Net realized loss from foreign currency transactions | | | (87,108 | ) |
Realized loss on foreign capital gains tax | | | (220,701 | ) |
Net change in unrealized depreciation on investments | | | (46,809,294 | ) |
Net change in unrealized depreciation on translation of assets and liabilities in foreign currencies | | | (725 | ) |
Net change in accrued foreign capital gains tax | | | 286,414 | |
| | | | |
Net Loss on Investments, Foreign Currency Transactions and Foreign Capital Gains Tax | | | (32,024,210 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (31,362,723 | ) |
| | | | |
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) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | |
Net investment income | | $ | 661,487 | | | $ | 2,377,280 | |
Net realized gain from investments, foreign currency transactions and foreign capital gains tax | | | 14,499,395 | | | | 38,053,063 | |
Net change in unrealized appreciation/(depreciation) on investments, translation of assets and liabilities in foreign currencies and foreign capital gains tax | | | (46,523,605 | ) | | | 36,748,454 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (31,362,723 | ) | | | 77,178,797 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (4,296,821 | ) |
Net realized gain on investments | | | — | | | | (37,172,322 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (41,469,143 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 19,583,398 | | | | 59,059,771 | |
Reinvestment of distributions | | | — | | | | 41,469,143 | |
Cost of shares redeemed | | | (38,022,847 | ) | | | (66,212,771 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (18,439,449 | ) | | | 34,316,143 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | (49,802,172 | ) | | | 70,025,797 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 246,687,044 | | | | 176,661,247 | |
| | | | | | | | |
End of period | | $ | 196,884,872 | | | $ | 246,687,044 | |
| | | | | | | | |
Distributions in Excess of Net Investment Income Included in Net Assets | | $ | — | | | $ | (1,224,192 | ) |
| | | | | | | | |
Accumulated Net Investment Loss Included in Net Assets | | $ | (562,705 | ) | | $ | — | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 711,734 | | | | 2,023,930 | |
Reinvested | | | — | | | | 1,473,149 | |
Redeemed | | | (1,427,626 | ) | | | (2,314,558 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | (715,892 | ) | | | 1,182,521 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
14 | | RS Emerging Markets VIP Series |
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| | |
RS Emerging Markets VIP Series | | 15 |
| | |
| | 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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 29.44 | | $ | 0.07 | | $ | (3.82 | ) | | $ | (3.75 | ) | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 24.55 | | | 0.38 | | | 10.49 | | | | 10.87 | | | | (0.62 | ) | | | (5.36 | ) | | | (5.98 | ) |
| | | | | | | |
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 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
16 | | RS Emerging Markets VIP Series |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Net Asset Value, End of Period | | Total Return2 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Income to Average Net Assets3 | | | Gross Ratio of Investment Income to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | | |
| | $25.69 | | (12.74 | )% | | $ | 196,885 | | 1.19 | % | | 1.19 | % | | 0.46 | % | | 0.46 | % | | 25 | % |
| | | | | | | | |
| | 29.44 | | 45.40 | % | | | 246,687 | | 1.26 | % | | 1.26 | % | | 1.16 | % | | 1.16 | % | | 54 | % |
| | | | | | | | |
| | 24.55 | | 36.19 | % | | | 176,661 | | 1.43 | % | | 1.45 | % | | 0.58 | % | | 0.57 | % | | 62 | % |
| | | | | | | | |
| | 21.46 | | 40.51 | % | | | 123,478 | | 1.51 | % | | 1.51 | % | | 1.08 | % | | 1.08 | % | | 41 | % |
| | | | | | | | |
| | 16.43 | | 23.56 | % | | | 74,081 | | 1.57 | % | | 1.57 | % | | 0.76 | % | | 0.76 | % | | 75 | % |
| | | | | | | | |
| | 13.60 | | 53.92 | % | | | 55,252 | | 1.82 | % | | 1.82 | % | | 0.99 | % | | 0.99 | % | | 71 | % |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations, and custody credits, if applicable. |
The accompanying notes are an integral part of these financial statements.
| | |
RS Emerging Markets VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Emerging Markets VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Emerging Markets VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained
| | |
18 | | RS Emerging Markets VIP Series |
from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Forward Foreign Currency Contracts
The Fund 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 the Fund’s counterparty to meet the terms of a contract and from unanticipated movements in the value of a currency relative to another currency. Fluctuations in the values of forward foreign currency contracts are recorded for
| | |
RS Emerging Markets VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS Emerging Markets VIP Series (unaudited) (continued) |
book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by the Fund. When a forward contract is closed, the Fund will record a realized gain or loss equal to the increase or decrease in the value of such forward contract between the time it was opened and the time it was closed. Such amounts are recorded as net realized gains or losses on foreign currency related transactions.
f. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
g. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
h. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits are shown in the accompanying Statement of Operations.
i. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
j. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/ (losses) for financial statement purposes versus 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.
k. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
| | | | | | | |
Amount Outstanding at 06/30/08 | | Average Borrowing* | | Average Interest Rate* | |
$ | — | | $ | 785,232 | | 4.09 | % |
* | For the six months ended June 30, 2008. |
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 1.00%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Baillie Gifford Limited (“GBG”), a Scottish company owned jointly by GIAC and Baillie Gifford Overseas Limited (“BG Overseas”). As compensation for
| | |
20 | | RS Emerging Markets VIP Series |
GBG’s services, RS Investments pays fees to GBG at an annual rate of 0.95% of the average daily net assets of the Fund. Payment of the sub-advisory fee does not represent a separate or additional expense to the Fund. GBG has entered into a Sub-Sub-Investment Advisory Agreement with BG Overseas pursuant to which BG Overseas is responsible for providing day-to-day investment advisory services to the Fund subject to the supervision and direction of the Board of Trustees of the Trust and review by RS Investments. A sub-sub-investment advisory fee payable at the rate of 0.50% of the average daily net assets of the Fund 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 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 the Fund’s total annual fund operating expenses to 1.43% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | |
Ordinary Income Total | | Long-Term Capital Gain Total |
$ | 11,510,655 | | $ | 29,958,488 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | |
Undistributed Ordinary Income | | Undistributed Long-Term Capital Gains |
$ | 786,663 | | $ | 4,845,662 |
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.
During the year ended December 31, 2007, the Fund did not utilize capital loss carryovers and no capital loss carryovers are available for use in future offsets.
| | |
RS Emerging Markets VIP Series | | 21 |
| | |
| | Notes to Financial Statements — RS Emerging Markets VIP Series (unaudited) (continued) |
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, 2007, which is the most recently completed tax year, the Fund had $830,750 in deferred losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $145,382,922. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $63,695,639 and $(14,261,417), respectively, resulting in net unrealized appreciation of $49,434,222.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $52,407,481 and $69,491,487, respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to- market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are
| | |
22 | | RS Emerging Markets VIP Series |
available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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
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RS Emerging Markets VIP Series | | 23 |
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| | Notes to Financial Statements — RS Emerging Markets VIP Series (unaudited) (continued) |
defendants, the Court dismissed the claims arising under: Sections 34(b) and 36(a) of the 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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24 | | RS Emerging Markets VIP Series |
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| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 – 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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RS Emerging Markets VIP Series | | 25 |
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| | Supplemental Information — unaudited (continued) |
successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the management of the RS Funds as a whole and each of
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26 | | RS Emerging Markets VIP Series |
RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at
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RS Emerging Markets VIP Series | | 27 |
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| | Supplemental Information — unaudited (continued) |
the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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28 | | RS Emerging Markets VIP Series |
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| | Trustees and Officers Information Table |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s)
During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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RS Emerging Markets VIP Series | | 29 |
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| | Supplemental Information — unaudited (continued) |
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| | Trustees and Officers Information Table (continued) |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s)
During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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30 | | RS Emerging Markets VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
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| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served | | Principal Occupation(s)
During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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RS Emerging Markets VIP Series | | 31 |
RS Variable Products Trust
RS Investment Quality Bond VIP Series
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06.30.08 | | |
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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, 2008. 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 |
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| | Howard W. Chin Howard W. Chin (GIS) has been a co-portfolio manager of RS Investment Quality Bond VIP Series since 1998*. Mr. Chin has been a managing director at The Guardian Life Insurance Company of America (“Guardian Life”) since 1997. He also manages part of the fixed-income assets of Guardian Life and the 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. |
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| | Robert J. Crimmins, Jr. Robert J. Crimmins, Jr. (GIS) has been a co-portfolio manager of RS Investment Quality Bond VIP Series since 2004.* Mr. Crimmins has been a managing director of Guardian Life since 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 Fund’s predecessor fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | The RS Investment Quality Bond VIP Series outperformed the average fund in the Lipper Intermediate Investment Grade Debt Funds peer group by more than 0.85% in the first half of 2008. |
Ø | | The Fund underperformed its benchmark, the Lehman Brothers Aggregate Bond Index2 by 0.38%. |
Ø | | We expect the economy to remain in the doldrums due to the weakness in the housing market and a financial system under considerable stress. As a result, we remain cautious about corporate bonds and mortgage-backed securities (MBS). |
Market Overview
Contrary to the hopes of many investors, the first half of 2008 saw a continuation of the turmoil from the previous year’s credit crisis. Financial institutions recorded multi-billion dollar writedowns from their subprime and collaterized debt obligation holdings while the housing market witnessed declining home values, homeowners with negative equity in their houses, increasing delinquencies and foreclosures and much tighter lending standards from mortgage lenders. All this occurred in the context of an uncertain economy and sharply escalating energy prices. There was very little good news, although the Fed did cut the benchmark federal funds rate to 2.00% and the government implemented a $168 billion fiscal stimulus bill in an effort to stave off a potential recession.
For the period, we saw more market volatility in the first quarter than in the second quarter. As a result, some
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RS Investment Quality Bond VIP Series | | 3 |
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| | RS Investment Quality Bond VIP Series (continued) |
sectors performed poorly in the first quarter, but they recovered to some extent in the second quarter as market volatility declined. The first quarter saw a “flight to quality” to Treasuries, which led to a substantial decline in rates. For example, two-year Treasury yields dropped by 1.47% during the first quarter and 10-year yields dropped by 0.61%. As a result, the Treasury component of the Lehman Brothers Aggregate Bond Index returned 4.43% for the first quarter and outperformed all the other taxable fixed-income sectors on both an absolute and a relative basis. Corporate bonds, MBS and commercial mortgage-backed securities (CMBS) all underperformed the returns of their equal-duration Treasury counterparts for the first quarter by 4.27%, 0.77% and 7.77%, respectively.
In contrast, Treasuries posted a negative 2.1% return for the second quarter as interest rates rose in the wake of inflation fears and concerns regarding future Fed rate hikes. Two-year Treasury yields rose 1.03% to finish the quarter at 2.62% and 10-year yields rose by 0.56% to finish at 3.97%. Corporate bonds, MBS, and CMBS posted negative returns in the second quarter but in a reversal from the first quarter, they outperformed Treasuries by 1.34%, 0.52% and 2.60%, respectively. For the period, however, these sectors still underperformed Treasuries on both an absolute and a relative basis, as the rebound of these non-Treasury sectors was not enough to completely offset their weak first-quarter performance. In other words, Treasuries continued the trend from 2007 as the best-performing sector in the fixed-income market.
Performance
The RS Investment Quality Bond VIP Series had a total return of 0.75% for the six-month period ended June 30, 2008, compared with the average fund in the Lipper Intermediate Investment Grade Debt Funds peer group, which declined 0.14% for the same period. (The peer group consists of 64 variable subaccount funds that invest primarily in investment-grade debt with average maturities of five to 10 years.) In contrast, the Fund’s benchmark, the Lehman Brothers Aggregate Bond Index2, returned 1.13% in the first half of 2008.
Portfolio Review
While the Fund outperformed its Lipper peer group average, it underperformed its benchmark. Much of it was caused by the Fund’s relative posture within the structured products sector versus the Fund’s Index. Specifically, the Fund was overweighted in CMBS and asset-backed securities (ABS) while these sectors underperformed in the first half of 2008. In addition, the Fund was underweighted in MBS, which outperformed. This overall underperformance in sector allocation was partially mitigated by our decision to underweight corporate bonds, as that sector underperformed. The Fund’s out-of-index allocation to the collateralized mortgage obligation sector further contributed to the Fund’s performance.
We also note that the Fund had no exposure to subprime adjustable rate mortgages (ARMs) or CDOs during the period.
Given our expectations of a slowing economy and lower profits, we underweighted corporate bonds versus the benchmark, with a specific emphasis on underweighting the consumer sector (retail) and homebuilders. In April, we moved to an overweight position in the brokerage sector as attractive spread levels and a belief that the sector was working its way through its current issues (write-downs, capital raising needs and liquidity concerns) made the brokerage sector look attractive. As we moved toward the end of the quarter, however, we reduced our holdings in these sectors as concerns over additional write-downs and capital needs ramped up again. We were and remain overweighted in the defense, energy, metals and mining, and insurance sectors.
Our view of the residential mortgage market was that it was undergoing a significant change as the combined effects of falling housing prices, tighter lending standards, and higher transaction costs would lead to slower prepayment speeds and greater interest rate risk. Further, we did not envision a substantial increase in demand, as depository institutions, dealers, hedge funds, and the government-sponsored enterprises (Freddie Mac and Fannie Mae) were all in capital preservation (or capital-raising/replacement) mode. We had
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4 | | RS Investment Quality Bond VIP Series |
already favored premium coupons, but these factors led us to a more bearish view on the sector as a whole. As a result, we were comfortable with our decision to underweight the MBS sector, but we also chose to position the MBS portfolio with a premium coupon bias to take advantage of the anticipated speed slowdown.
Finally, our security selection helped to offset about one-third of the Fund’s sector selection underperformance. Notably, six holdings in CMBS and ABS performed very well, but that performance was offset by the underperformance of our holdings in Wachovia Bank, Lehman Brothers, USB Realty and Sprint.
Outlook
We maintain our view that the economy will continue to slow as it faces strong headwinds. The consumer continues to be challenged by falling home prices, increasing job losses, sluggish wage growth, uncertainty in the equities markets and increasing inability to obtain credit. We believe these negative factors are likely to persist, especially after the effects of the stimulus checks fade. In addition, the financial system remains stressed and finance companies will likely need to raise additional capital to offset growing losses in their portfolios. In the meantime, they will be hard-pressed to preserve their existing capital, which will drastically limit their ability to lend or commit capital to the bond markets.
As a result, we remain cautious about the credit sector because we are still expecting corporate profits to decline due to the economic slowdown. In addition, the finance sector is once again concerned about the prospect of more writedowns, especially in the bank sector. Our outlook on MBS remains largely unchanged. We still envision a slowdown in prepayment rates and would continue to favor a premium-biased portfolio. We also note the greater attractiveness of non-agency MBS and intend to look for opportunities to increase our exposure there by reducing our holdings of agency MBS. We remain positive about the CMBS sector due to the strong performance of the underlying loans and would look to increase our exposure if the sector presents any further buying opportunities.
We thank you for your investment and continued support.
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Howard W. Chin Co-Portfolio Manager | | Robert J. Crimmins, Jr. Co-Portfolio Manager |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. 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.
| | |
RS Investment Quality Bond VIP Series | | 5 |
| | |
| | RS Investment Quality Bond VIP Series (continued) |
| | |
Total Net Assets: $490,104,368 | | Data as of June 30, 2008 |
| | |
| | Asset Allocation |
| | |
| | Top Ten Holdings1 |
| | | | | | |
| | | |
Company | | Coupon | | Maturity Date | | Percentage of Total Net Assets |
U.S. Treasury Notes | | 4.500% | | 03/31/12 | | 5.13% |
U.S. Treasury Notes | | 3.875% | | 05/15/18 | | 4.26% |
FNMA Mortgage Pass-Through | | 5.500% | | 02/01/38 | | 3.99% |
U.S. Treasury Notes | | 3.125% | | 04/30/13 | | 2.53% |
FNMA Mortgage Pass-Through | | 5.000% | | 02/01/37 | | 2.21% |
FHLMC Mortgage Pass-Through | | 7.000% | | 04/01/38 | | 2.01% |
U.S. Treasury Bonds | | 5.000% | | 05/15/37 | | 1.76% |
FHLMC 3227 PR CMO | | 5.500% | | 09/15/35 | | 1.72% |
FHLB Agency | | 5.125% | | 07/17/18 | | 1.48% |
Banc of America Alternative Loan Trust 2004-1 | | 6.000% | | 02/25/34 | | 1.29% |
Total | | | | | | 26.38% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
2 | The Lehman Brothers Aggregate Bond Index is an unmanaged index that is generally considered to be representative of U.S. bond market activity. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
| | |
6 | | RS Investment Quality Bond VIP Series |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | | | |
| | | | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | 10 Years | | Since Inception |
RS Investment Quality Bond VIP Series | | 05/01/83 | | 0.75% | | 6.21% | | 3.61% | | 3.60% | | 5.35% | | 7.72% |
Lehman Brothers Aggregate Bond Index2 | | | | 1.13% | | 7.12% | | 4.08% | | 3.86% | | 5.68% | | 8.27% |
Since inception performance for the index is measured from 4/30/1983, the month end prior to the Fund’s commencement of operations.
| | |
| | Results of a Hypothetical $10,000 Investment |
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, Inc.; 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. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
RS Investment Quality 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $1,007.50 | | $2.90 | | 0.58% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,021.97 | | $2.92 | | 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 182/366 (to reflect the one-half year period). |
| | |
8 | | RS Investment Quality Bond VIP Series |
| | |
| | Schedule of Investments – RS Investment Quality Bond VIP Series |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Asset Backed Securities — 5.1% |
Ameriquest Mortgage Securities, Inc. 2003-5 A6 4.541% due 4/25/2033(1) | | $ | 2,418,789 | | $ | 2,111,907 |
Amresco Residential Securities Mortgage Loan Trust 1997-1 MIF 7.42% due 3/25/2027 | | | 120,067 | | | 116,146 |
Capital One Prime Auto Receivables Trust 2006-2 A4 4.94% due 7/15/2012 | | | 4,400,000 | | | 4,465,539 |
Carmax Auto Owner Trust 2005-1 A4 4.35% due 3/15/2010 | | | 2,492,909 | | | 2,501,917 |
Chase Funding Mortgage Loan Trust 2004-1 1A6 4.266% due 6/25/2015 | | | 422,735 | | | 384,860 |
Citibank Omni Master Trust 2008-A10A A10 4.05% due 3/20/2013(2) | | | 5,000,000 | | | 5,001,500 |
CitiFinancial Mortgage Securities, Inc. 2003-3 AF5 4.553% due 8/25/2033(1) | | | 1,306,653 | | | 1,159,884 |
Countrywide Asset-Backed Certificates Trust 2004-S1 A2 3.872% due 3/25/2020(1) | | | 137,369 | | | 131,875 |
Ford Credit Auto Owner Trust 2005-B A4 4.38% due 1/15/2010 | | | 1,128,117 | | | 1,129,445 |
GE Capital Credit Card Master Note Trust 2006-1 A 5.08% due 9/15/2012 | | | 2,450,000 | | | 2,488,325 |
Nissan Auto Receivables Owner Trust 2008-B A3 4.46% due 4/16/2012 | | | 3,450,000 | | | 3,463,659 |
Residential Asset Mortgage Products, Inc. | | | | | | |
2003-RZ4 A5 | | | | | | |
4.66% due 2/25/2032 | | | 581,558 | | | 575,065 |
2003-RS7 AI4 | | | | | | |
5.09% due 2/25/2031(1) | | | 684,683 | | | 679,178 |
Vanderbilt Acquisition Loan Trust 2002-1 A3 5.70% due 9/7/2023(1) | | | 909,685 | | | 902,466 |
| | | | | | |
Total Asset Backed Securities (Cost $25,478,275) | | | | | | 25,111,766 |
| | |
| | Principal Amount | | Value |
Collateralized Mortgage Obligations — 21.1% |
Banc of America Alternative Loan Trust 2004-1 2A1 6.00% due 2/25/2034 | | | 6,795,997 | | | 6,311,782 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Banc of America Commercial Mortgage, Inc. 2006-2 A4 5.929% due 5/10/2045 | | $ | 3,400,000 | | $ | 3,319,987 |
Banc of America Funding Corp. 2006-3 5A5 5.50% due 3/25/2036 | | | 3,075,872 | | | 2,925,126 |
Banc of America Mortgage Securities, Inc. | | | | | | |
2004-F 2A6 | | | | | | |
4.144% due 7/25/2034(1) | | | 1,350,000 | | | 1,319,936 |
2004-11 2A1 | | | | | | |
5.75% due 1/25/2035 | | | 6,248,804 | | | 5,934,668 |
Citicorp Mortgage Securities, Inc. 2007-8 1A3 6.00% due 9/25/2037 | | | 4,307,674 | | | 4,129,982 |
Countrywide Alternative Loan Trust | | | | | | |
2004-35T2 A1 | | | | | | |
6.00% due 2/25/2035 | | | 2,951,971 | | | 2,860,064 |
2006-19CB A15 | | | | | | |
6.00% due 8/25/2036 | | | 3,501,564 | | | 3,412,222 |
Countrywide Home Loans Trust 2002-19 1A1 6.25% due 11/25/2032 | | | 1,573,325 | | | 1,573,529 |
FHLMC | | | | | | |
2663 VQ | | | | | | |
5.00% due 6/15/2022 | | | 2,800,000 | | | 2,703,417 |
1534 Z | | | | | | |
5.00% due 6/15/2023 | | | 1,074,144 | | | 1,077,179 |
2500 TD | | | | | | |
5.50% due 2/15/2016 | | | 4,155 | | | 4,151 |
3227 PR | | | | | | |
5.50% due 9/15/2035 | | | 8,458,331 | | | 8,424,447 |
FNMA | | | | | | |
2006-45 AC | | | | | | |
5.50% due 6/25/2036 | | | 1,565,919 | | | 1,574,588 |
2002-52 PB | | | | | | |
6.00% due 2/25/2032 | | | 5,100,332 | | | 5,217,135 |
GNMA | | | | | | |
5.50% due 12/1/2038(3) | | | 3,700,000 | | | 3,681,500 |
1997-19 PG | | | | | | |
6.50% due 12/20/2027(1) | | | 4,364,873 | | | 4,569,783 |
GSR Mortgage Loan Trust 2006-2F 7A1 5.50% due 1/25/2021 | | | 4,698,159 | | | 4,564,558 |
J.P. Morgan Mortgage Trust 2005-S2 2A15 6.00% due 9/25/2035 | | | 5,053,278 | | | 4,844,831 |
Mastr Asset Securitization Trust 2003-10 3A7 5.50% due 11/25/2033 | | | 2,142,000 | | | 2,033,649 |
Prime Mortgage Trust 2006-1 1A1 5.50% due 6/25/2036 | | | 3,482,931 | | | 2,945,254 |
Residential Asset Mortgage Products, Inc. 2005-SL1 A4 6.00% due 5/25/2032 | | | 3,267,213 | | | 3,132,440 |
The accompanying notes are an integral part of these financial statements.
| | |
RS Investment Quality Bond VIP Series | | 9 |
| | |
| | Schedule of Investments – RS Investment Quality Bond VIP Series (continued) |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Residential Funding Mortgage Securities I 2006-S10 1A1 6.00% due 10/25/2036 | | $ | 4,342,945 | | $ | 4,163,799 |
Residential Funding Mortgage Securities Trust 2006-S3 A7 5.50% due 3/25/2036 | | | 3,642,343 | | | 3,495,306 |
Wells Fargo Mortgage Backed Securities Trust | | | | | | |
2003-11 1A3 | | | | | | |
4.75% due 10/25/2018 | | | 3,500,000 | | | 3,478,757 |
2005-5 1A1 | | | | | | |
5.00% due 5/25/2020 | | | 4,119,548 | | | 3,929,018 |
2006-1 A3 | | | | | | |
5.00% due 3/25/2021 | | | 2,303,078 | | | 2,196,560 |
2003-2 A7 | | | | | | |
5.25% due 2/25/2018 | | | 5,900,000 | | | 5,365,016 |
2007-13 A7 | | | | | | |
6.00% due 9/25/2037 | | | 4,254,804 | | | 4,058,019 |
| | | | | | |
Total Collateralized Mortgage Obligations (Cost $106,390,333) | | | | | | 103,246,703 |
| | |
| | Principal Amount | | Value |
Commercial Mortgage Backed Securities — 7.2% |
Bear Stearns Commercial Mortgage Securities 2006-T24 AM 5.568% due 10/12/2041(1) | | | 2,822,000 | | | 2,580,377 |
Chase Commercial Mortgage Securities Corp. 1998-2 A2 6.39% due 11/18/2030 | | | 303,977 | | | 304,737 |
Crown Castle Towers LLC 2005-1A AFX 4.643% due 6/15/2035(2) | | | 3,500,000 | | | 3,447,885 |
Four Times Square Trust 2000-4TS A2 7.795% due 4/15/2015(2) | | | 5,510,000 | | | 5,885,059 |
GMAC Commercial Mortgage Securities, Inc. 2006 C1 AM 5.29% due 11/10/2045(1) | | | 2,100,000 | | | 1,907,139 |
J.P. Morgan Chase Commercial Mortgage Securities Corp. | | | | | | |
2005-LDP3 A4 | | | | | | |
4.936% due 8/15/2042(1) | | | 4,000,000 | | | 3,775,442 |
2005-LDP5 A4 | | | | | | |
5.345% due 12/15/2044(1) | | | 2,880,000 | | | 2,774,003 |
2001-C1 A3 | | | | | | |
5.857% due 10/12/2035 | | | 4,000,000 | | | 4,041,127 |
J.P. Morgan Commercial Mortgage Finance Corp. 2000-C9 A2 7.77% due 10/15/2032 | | | 3,759,848 | | | 3,873,249 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
LB UBS Comm’l. Mortgage Trust 2006-C6 AM 5.413% due 9/15/2039 | | $ | 3,600,000 | | $ | 3,262,350 |
Merrill Lynch Mortgage Trust 2004-BPC1 A5 4.855% due 10/12/2041(1) | | | 3,500,000 | | | 3,334,960 |
| | | | | | |
Total Commercial Mortgage Backed Securities (Cost $36,034,725) | | | | | | 35,186,328 |
| | |
| | Principal Amount | | Value |
Corporate Bonds — 18.4% |
Aerospace & Defense — 0.3% |
General Dynamics Corp. 4.50% due 8/15/2010 | | | 500,000 | | | 510,714 |
L-3 Communications Corp. 6.125% due 1/15/2014 | | | 1,000,000 | | | 937,500 |
| | | | | | |
| | | | | | 1,448,214 |
Automotive — 0.2% |
DaimlerChrysler NA Holdings 6.50% due 11/15/2013 | | | 300,000 | | | 311,093 |
TRW, Inc. 7.75% due 6/1/2029 | | | 500,000 | | | 583,943 |
| | | | | | |
| | | | | | 895,036 |
Building Materials — 0.3% |
CRH America, Inc. 6.00% due 9/30/2016 | | | 1,350,000 | | | 1,252,008 |
| | | | | | |
| | | | | | 1,252,008 |
Computers — 0.2% |
Computer Sciences Corp. 6.50% due 3/15/2018(2) | | | 800,000 | | | 803,874 |
| | | | | | |
| | | | | | 803,874 |
Diversified Financial Services — 0.1% |
Allstate Life Global Funding Trust Nt. 5.375% due 4/30/2013 | | | 750,000 | | | 747,059 |
| | | | | | |
| | | | | | 747,059 |
Diversified Manufacturing — 0.5% |
Parker Hannifin Corp. Sr. Nt. 6.25% due 5/15/2038 | | | 400,000 | | | 404,854 |
Siemens Financieringsmat N.V. 6.125% due 8/17/2026(2) | | | 750,000 | | | 720,007 |
United Technologies Corp. | | | | | | |
4.375% due 5/1/2010 | | | 500,000 | | | 510,177 |
4.875% due 5/1/2015 | | | 1,000,000 | | | 994,008 |
| | | | | | |
| | | | | | 2,629,046 |
Electric — 0.4% |
Nevada Power Co. 6.65% due 4/1/2036 | | | 600,000 | | | 579,120 |
PacifiCorp 5.25% due 6/15/2035 | | | 350,000 | | | 303,306 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Investment Quality Bond VIP Series |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Electric (continued) |
PPL Electric Utilities Corp. 6.45% due 8/15/2037 | | $ | 1,000,000 | | $ | 1,023,455 |
| | | | | | |
| | | | | | 1,905,881 |
Electronics — 0.1% |
Koninklijke Philips Electronics NV 6.875% due 3/11/2038 | | | 600,000 | | | 619,451 |
| | | | | | |
| | | | | | 619,451 |
Energy — 0.6% |
Anadarko Petroleum Corp. 6.45% due 9/15/2036 | | | 600,000 | | | 592,253 |
Canadian Natural Resources Ltd. 6.25% due 3/15/2038 | | | 600,000 | | | 562,906 |
RAS Laffan Liquefied Natural Gas Co., Ltd. 3.437% due 9/15/2009(2) | | | 727,944 | | | 729,203 |
Western Oil Sands, Inc. 8.375% due 5/1/2012 | | | 1,000,000 | | | 1,087,916 |
| | | | | | |
| | | | | | 2,972,278 |
Energy – Refining — 0.1% |
Tosco Corp. 8.125% due 2/15/2030 | | | 500,000 | | | 615,088 |
| | | | | | |
| | | | | | 615,088 |
Entertainment — 0.4% |
Time Warner, Inc. 7.57% due 2/1/2024 | | | 1,450,000 | | | 1,474,724 |
Viacom, Inc. 6.875% due 4/30/2036 | | | 800,000 | | | 751,270 |
| | | | | | |
| | | | | | 2,225,994 |
Finance Companies — 1.0% |
Capital One Bank Co. 5.75% due 9/15/2010 | | | 1,000,000 | | | 996,468 |
General Electric Capital Corp. | | | | | | |
6.75% due 3/15/2032 | | | 850,000 | | | 855,907 |
Sr. Nt. | | | | | | |
5.625% due 5/1/2018 | | | 1,200,000 | | | 1,160,466 |
Household Finance Corp. 6.375% due 11/27/2012 | | | 1,000,000 | | | 1,025,399 |
SLM Corp. 4.00% due 1/15/2009 | | | 1,050,000 | | | 1,037,077 |
| | | | | | |
| | | | | | 5,075,317 |
Financial — 1.8% |
Bear Stearns Cos., Inc. 6.40% due 10/2/2017 | | | 800,000 | | | 790,553 |
Goldman Sachs Group, Inc. | | | | | | |
5.125% due 1/15/2015 | | | 1,650,000 | | | 1,579,380 |
5.625% due 1/15/2017 | | | 370,000 | | | 342,826 |
6.15% due 4/1/2018 | | | 1,600,000 | | | 1,552,254 |
Lehman Brothers Holdings Capital Trust VII 5.857% due 11/29/2049(4) | | | 1,000,000 | | | 652,500 |
Lehman Brothers Holdings, Inc. 6.50% due 7/19/2017 | | | 895,000 | | | 827,982 |
Merrill Lynch & Co. | | | | | | |
6.05% due 8/15/2012 | | | 1,000,000 | | | 978,716 |
6.875% due 4/25/2018 | | | 800,000 | | | 761,381 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Financial (continued) |
Morgan Stanley | | | | | | |
4.00% due 1/15/2010 | | $ | 500,000 | | $ | 491,014 |
5.95% due 12/28/2017 | | | 1,200,000 | | | 1,089,366 |
| | | | | | |
| | | | | | 9,065,972 |
Financial – Banks — 3.0% |
American Express Bank FSB 6.00% due 9/13/2017 | | | 500,000 | | | 482,431 |
Bank of America Corp. 4.875% due 9/15/2012 | | | 1,300,000 | | | 1,276,714 |
Bank One Corp. 5.25% due 1/30/2013 | | | 600,000 | | | 590,039 |
Citigroup, Inc. | | | | | | |
4.625% due 8/3/2010 | | | 1,300,000 | | | 1,294,609 |
Sr. Nt. | | | | | | |
6.125% due 5/15/2018 | | | 800,000 | | | 765,574 |
City National Corp. 5.125% due 2/15/2013 | | | 700,000 | | | 666,485 |
Credit Suisse First Boston USA, Inc. 6.50% due 1/15/2012 | | | 800,000 | | | 830,204 |
Deutsche Bank AG London 6.00% due 9/1/2017 | | | 800,000 | | | 807,760 |
HSBC USA, Inc. 4.625% due 4/1/2014 | | | 700,000 | | | 664,814 |
J.P. Morgan Chase Capital XXII 6.45% due 2/2/2037 | | | 400,000 | | | 342,854 |
JPMorgan Chase & Co. 5.75% due 1/2/2013 | | | 900,000 | | | 905,829 |
JPMorgan Chase Bank N.A. 6.00% due 10/1/2017 | | | 1,500,000 | | | 1,457,164 |
PNC Bank N.A. 6.875% due 4/1/2018 | | | 800,000 | | | 793,596 |
Sovereign Bank, Inc. 5.125% due 3/15/2013 | | | 600,000 | | | 478,329 |
Wachovia Capital Trust III 5.80% due 3/15/2042(4) | | | 1,000,000 | | | 680,000 |
Wachovia Corp. 5.25% due 8/1/2014 | | | 900,000 | | | 837,979 |
Washington Mutual Bank, FA 5.65% due 8/15/2014 | | | 600,000 | | | 468,000 |
Wells Fargo Bank NA 5.75% due 5/16/2016 | | | 1,200,000 | | | 1,190,626 |
| | | | | | |
| | | | | | 14,533,007 |
Food & Beverage — 0.2% |
Diageo Capital PLC 5.50% due 9/30/2016 | | | 500,000 | | | 489,271 |
Tesco PLC 6.15% due 11/15/2037(2) | | | 350,000 | | | 324,414 |
| | | | | | |
| | | | | | 813,685 |
Health Care — 0.2% |
Fisher Scientific International, Inc. 6.125% due 7/1/2015 | | | 800,000 | | | 793,087 |
| | | | | | |
| | | | | | 793,087 |
Insurance — 1.1% |
Ace INA Holdings, Inc. 5.80% due 3/15/2018 | | | 800,000 | | | 768,786 |
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, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Insurance (continued) |
Allied World Assurance Co. Hldgs., Ltd. 7.50% due 8/1/2016 | | $ | 600,000 | | $ | 561,563 |
AXA SA 6.463% due 12/31/2049(4)(2) | | | 800,000 | | | 639,976 |
Liberty Mutual Group, Inc. 7.50% due 8/15/2036(2) | | | 400,000 | | | 349,803 |
MetLife, Inc. 6.40% due 12/15/2036 | | | 500,000 | | | 436,560 |
Symetra Financial Corp. 6.125% due 4/1/2016(2) | | | 800,000 | | | 705,706 |
UnitedHealth Group, Inc. 6.50% due 6/15/2037 | | | 500,000 | | | 455,949 |
Unum Group 5.859% due 5/15/2009 | | | 600,000 | | | 605,951 |
UnumProvident Finance Co. Sr. Nt. 6.85% due 11/15/2015(2) | | | 1,100,000 | | | 1,091,870 |
| | | | | | |
| | | | | | 5,616,164 |
Iron – Steel — 0.3% |
ArcelorMittal Nt. 6.125% due 6/1/2018(2) | | | 800,000 | | | 781,805 |
Nucor Corp. 5.75% due 12/1/2017 | | | 550,000 | | | 550,759 |
| | | | | | |
| | | | | | 1,332,564 |
Media – Cable — 0.8% |
Comcast Cable Communications, Inc. 6.875% due 6/15/2009 | | | 1,050,000 | | | 1,078,331 |
Comcast Corp. | | | | | | |
6.45% due 3/15/2037 | | | 1,000,000 | | | 930,691 |
6.50% due 1/15/2017 | | | 400,000 | | | 402,378 |
Time Warner Cable, Inc. 5.85% due 5/1/2017 | | | 1,600,000 | | | 1,519,681 |
| | | | | | |
| | | | | | 3,931,081 |
Media – NonCable — 0.1% |
News America Holdings, Inc. 8.00% due 10/17/2016 | | | 500,000 | | | 555,632 |
| | | | | | |
| | | | | | 555,632 |
Metals & Mining — 0.4% |
Freeport-McMoRan Copper & Gold, Inc. Sr. Nt. 8.25% due 4/1/2015 | | | 250,000 | | | 262,813 |
Noranda, Inc. 6.00% due 10/15/2015 | | | 750,000 | | | 722,208 |
Steel Dynamics, Inc. 6.75% due 4/1/2015 | | | 700,000 | | | 670,250 |
Vale Overseas Ltd. 6.25% due 1/23/2017 | | | 400,000 | | | 387,190 |
| | | | | | |
| | | | | | 2,042,461 |
Natural Gas – Pipelines — 0.1% |
Enterprise Products Operating LP 8.375% due 8/1/2066(1) | | | 400,000 | | | 399,885 |
| | | | | | |
| | | | | | 399,885 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Office/Business Equipment — 0.2% |
Xerox Corp. Sr. Nt. 5.65% due 5/15/2013 | | $ | 800,000 | | $ | 792,046 |
| | | | | | |
| | | | | | 792,046 |
Oil & Gas — 0.7% |
Pemex Project Funding Master Trust 5.75% due 3/1/2018(2) | | | 700,000 | | | 691,250 |
Petrobras International Finance Co. 5.875% due 3/1/2018 | | | 1,000,000 | | | 961,944 |
Transocean, Inc. Sr. Nt. 6.00% due 3/15/2018 | | | 800,000 | | | 801,197 |
XTO Energy, Inc. Sr. Nt. 5.50% due 6/15/2018 | | | 1,000,000 | | | 954,981 |
| | | | | | |
| | | | | | 3,409,372 |
Oil & Gas Services — 0.2% |
Weatherford International Ltd. 5.15% due 3/15/2013 | | | 800,000 | | | 795,340 |
| | | | | | |
| | | | | | 795,340 |
Paper & Forest Products — 0.1% |
Weyerhaeuser Co. 6.75% due 3/15/2012 | | | 275,000 | | | 283,228 |
| | | | | | |
| | | | | | 283,228 |
Pharmaceuticals — 0.4% |
Amgen, Inc. 5.85% due 6/1/2017 | | | 400,000 | | | 393,986 |
Astrazeneca PLC 6.45% due 9/15/2037 | | | 600,000 | | | 610,828 |
Genentech, Inc. 4.75% due 7/15/2015 | | | 600,000 | | | 594,830 |
Wyeth 5.95% due 4/1/2037 | | | 475,000 | | | 458,488 |
| | | | | | |
| | | | | | 2,058,132 |
Railroads — 0.2% |
Norfolk Southern Corp. 6.75% due 2/15/2011 | | | 1,150,000 | | | 1,205,395 |
| | | | | | |
| | | | | | 1,205,395 |
Real Estate Investment Trusts — 1.1% |
ERP Operating LP 5.375% due 8/1/2016 | | | 775,000 | | | 703,837 |
Highwoods Realty Ltd. 5.85% due 3/15/2017 | | | 600,000 | | | 518,187 |
Liberty Property LP 7.25% due 3/15/2011 | | | 700,000 | | | 713,176 |
PPF Funding, Inc. 5.35% due 4/15/2012(2) | | | 750,000 | | | 727,037 |
Regency Centers LP 6.75% due 1/15/2012 | | | 375,000 | | | 376,639 |
Simon Property Group LP 5.25% due 12/1/2016 | | | 750,000 | | | 689,027 |
USB Realty Corp. 6.091% due 12/22/2049(2)(4) | | | 950,000 | | | 693,500 |
Westfield Group 5.40% due 10/1/2012(2) | | | 900,000 | | | 882,044 |
| | | | | | |
| | | | | | 5,303,447 |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS Investment Quality Bond VIP Series |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Retailers — 0.2% |
CVS Caremark Corp. 5.75% due 6/1/2017 | | $ | 475,000 | | $ | 467,187 |
Wal-Mart Stores, Inc. 4.50% due 7/1/2015 | | | 500,000 | | | 490,003 |
| | | | | | |
| | | | | | 957,190 |
Software — 0.2% |
Oracle Corp. Sr. Nt. 5.75% due 4/15/2018 | | | 800,000 | | | 799,316 |
| | | | | | |
| | | | | | 799,316 |
Technology — 0.3% |
Cisco Systems, Inc. 5.50% due 2/22/2016 | | | 450,000 | | | 454,008 |
International Business Machines Corp. 5.70% due 9/14/2017 | | | 400,000 | | | 405,966 |
National Semiconductor Corp. 6.60% due 6/15/2017 | | | 500,000 | | | 494,010 |
| | | | | | |
| | | | | | 1,353,984 |
Utilities – Electric — 0.8% |
Alabama Power Co. 5.65% due 3/15/2035 | | | 750,000 | | | 684,343 |
Exelon Corp. 4.45% due 6/15/2010 | | | 750,000 | | | 743,366 |
Florida Power & Light Co. 4.95% due 6/1/2035 | | | 750,000 | | | 641,635 |
Pacific Gas & Electric Co. 6.05% due 3/1/2034 | | | 450,000 | | | 433,905 |
Potomac Edison Co. 5.35% due 11/15/2014 | | | 850,000 | | | 832,997 |
Public Service Electric Gas Co. 5.125% due 9/1/2012 | | | 500,000 | | | 505,354 |
| | | | | | |
| | | | | | 3,841,600 |
Utilities – Electric & Water — 0.4% |
Public Service Co. of New Mexico 4.40% due 9/15/2008 | | | 2,000,000 | | | 1,993,084 |
| | | | | | |
| | | | | | 1,993,084 |
Wireless Communications — 0.3% |
New Cingular Wireless Services, Inc. 8.125% due 5/1/2012 | | | 1,250,000 | | | 1,369,121 |
Vodafone Group PLC 6.15% due 2/27/2037 | | | 350,000 | | | 320,081 |
| | | | | | |
| | | | | | 1,689,202 |
Wireline Communications — 1.1% |
AT&T, Inc. 6.30% due 1/15/2038 | | | 1,200,000 | | | 1,133,706 |
Deutsche Telekom International Finance BV 8.75% due 6/15/2030(1) | | | 850,000 | | | 975,271 |
France Telecom S.A. | | | | | | |
7.75% due 3/1/2011(1) | | | 800,000 | | | 847,232 |
8.50% due 3/1/2031(1) | | | 335,000 | | | 405,498 |
Telecom Italia Capital 5.25% due 10/1/2015 | | | 550,000 | | | 503,336 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Wireline Communications (continued) |
Verizon Communications, Inc. | | | | | | |
5.55% due 2/15/2016 | | $ | 800,000 | | $ | 779,235 |
6.40% due 2/15/2038 | | | 1,000,000 | | | 930,874 |
| | | | | | |
| | | | | | 5,575,152 |
| | | | | | |
Total Corporate Bonds (Cost $93,865,187) | | | | | | 90,329,272 |
Mortgage Pass-Through Securities — 20.7% |
FHLMC | | | | | | |
5.50% due 9/1/2034-12/1/2036 | | | 9,934,933 | | | 9,812,159 |
7.00% due 4/1/2038(1) | | | 9,382,690 | | | 9,847,060 |
FNMA | | | | | | |
5.00% due 1/1/2033-4/1/2038 | | | 22,456,538 | | | 21,639,827 |
5.50% due 4/1/2022-2/1/2038 | | | 37,944,073 | | | 37,522,761 |
5.755% due 12/1/2036(1) | | | 2,984,654 | | | 3,054,226 |
6.00% due 8/1/2021 | | | 1,219,195 | | | 1,252,481 |
6.197% due 8/1/2046(1) | | | 2,516,150 | | | 2,576,243 |
6.50% due 8/1/2010-8/1/2037 | | | 3,130,690 | | | 3,232,449 |
6.50% due 3/1/2037-11/1/2037 | | | 9,425,065 | | | 9,714,466 |
7.00% due 9/1/2014-6/1/2032 | | | 477,813 | | | 503,894 |
7.50% due 12/1/2029 | | | 389,103 | | | 419,965 |
8.00% due 1/1/2030-9/1/2030 | | | 126,875 | | | 137,429 |
GNMA | | | | | | |
6.00% due 10/15/2032-12/15/2033 | | | 1,006,473 | | | 1,025,954 |
6.50% due 2/15/2032-4/15/2033 | | | 811,190 | | | 842,232 |
| | | | | | |
Total Mortgage Pass-Through Securities (Cost $101,502,210) | | | | | | 101,581,146 |
| | |
| | Principal Amount | | Value |
Municipal Bonds — 0.8% |
Arizona Water Infrastructure Finance Authority Revenue Water Quality-Series A 5.00% due 10/1/2027 | | | 1,200,000 | | | 1,246,728 |
Connecticut State Series F 5.00% due 12/1/2021 | | | 1,200,000 | | | 1,268,268 |
New York State Dormitory Authority Columbia University-Series C 5.00% due 7/1/2025 | | | 1,200,000 | | | 1,251,192 |
| | | | | | |
Total Municipal Bonds (Cost $3,763,920) | | | | | | 3,766,188 |
| | |
| | Principal Amount | | Value |
Sovereign Debt Securities — 0.6% |
Pemex Project Funding Master Trust | | | | | | |
6.625% due 6/15/2035 | | | 275,000 | | | 271,316 |
7.875% due 2/1/2009 | | | 1,200,000 | | | 1,232,165 |
Quebec Province 4.60% due 5/26/2015 | | | 900,000 | | | 896,912 |
United Mexican States 4.625% due 10/8/2008 | | | 450,000 | | | 450,900 |
| | | | | | |
Total Sovereign Debt Securities (Cost $2,816,747) | | | | | | 2,851,293 |
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, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Taxable Municipal Securities — 0.1% |
Oregon — 0.1% |
Oregon School Board Association 4.759% due 6/30/2028 | | $ | 450,000 | | $ | 417,348 |
| | | | | | |
| | | | | | 417,348 |
| | | | | | |
Total Taxable Municipal Security (Cost $450,000) | | | | | | 417,348 |
U.S. Government Securities — 20.3% |
U.S. Government Agency Securities — 4.0% |
FHLB 5.125% due 7/17/2018 | | | 7,300,000 | | | 7,259,295 |
FHLMC 5.00% due 7/2/2018 | | | 4,255,000 | | | 4,197,081 |
FNMA | | | | | | |
4.375% due 7/17/2013 | | | 2,900,000 | | | 2,925,897 |
4.625% due 10/15/2013 | | | 5,350,000 | | | 5,453,747 |
| | | | | | |
| | | | | | 19,836,020 |
U.S. Treasury Bonds — 2.6% |
U.S. Treasury Bonds | | | | | | |
5.00% due 5/15/2037 | | | 8,045,000 | | | 8,645,865 |
6.00% due 2/15/2026 | | | 3,370,000 | | | 3,946,850 |
| | | | | | |
| | | | | | 12,592,715 |
U.S. Treasury Notes — 13.7% |
U.S. Treasury Notes | | | | | | |
2.625% due 5/31/2010 | | | 5,150,000 | | | 5,153,219 |
3.125% due 4/30/2013 | | | 12,517,000 | | | 12,412,370 |
3.50% due 5/31/2013 | | | 3,000,000 | | | 3,022,266 |
3.875% due 5/15/2018(5) | | | 21,054,000 | | | 20,878,010 |
4.125% due 8/31/2012 | | | 570,000 | | | 589,994 |
4.50% due 3/31/2012 | | | 24,000,000 | | | 25,141,872 |
| | | | | | |
| | | | | | 67,197,731 |
| | | | | | |
Total U.S. Government Securities (Cost $99,532,046) | | | | | | 99,626,466 |
| | |
| | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, ClassY(6) | | | 81 | | | 3,279 |
RS Emerging Growth Fund, ClassY(6) | | | 113 | | | 3,908 |
RS Emerging Markets Fund, ClassA(6) | | | 108 | | | 2,606 |
RS Equity Dividend Fund, Class Y(6) | | | 54 | | | 454 |
RS Global Natural Resources Fund, Class Y(6) | | | 58 | | | 2,529 |
RS Growth Fund, Class Y(6) | | | 156 | | | 1,923 |
RS Investment Quality Bond Fund, Class A(6) | | | 48 | | | 464 |
| | | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value | |
| | | | | | | |
Other Investments – For Trustee Deferred Compensation Plan (continued) | |
RS Investors Fund, Class Y(6) | | | 133 | | $ | 1,263 | |
RS MidCap Opportunities Fund, Class Y(6) | | | 69 | | | 832 | |
RS Partners Fund, Class Y(6) | | | 77 | | | 2,287 | |
RS S&P 500 Index Fund, Class A(6) | | | 50 | | | 443 | |
RS Smaller Company Growth Fund, Class Y(6) | | | 49 | | | 816 | |
RS Technology Fund, Class Y(6) | | | 77 | | | 1,137 | |
RS Value Fund, Class Y(6) | | | 151 | | | 3,866 | |
| | | | | | | |
Total Other Investments (Cost $26,314) | | | | | | 25,807 | |
| | |
| | Principal Amount | | Value | |
Short-Term Investments — 4.5% | |
BMW U.S. Capital LLC 2.25% due 7/1/2008 | | $ | 5,000,000 | | | 5,000,000 | |
ConocoPhillips 2.32% due 7/1/2008 | | | 3,400,000 | | | 3,400,000 | |
Rabobank USA Fin. Corp. 2.24% due 7/1/2008 | | | 5,000,000 | | | 5,000,000 | |
The Washington Post Co. 2.10% due 7/1/2008 | | | 5,000,000 | | | 5,000,000 | |
Toyota Motor Credit Corp. 2.20% due 7/21/2008 | | | 3,750,000 | | | 3,745,417 | |
| | | | | | | |
Total Short-Term Investments (Cost $22,145,417) | | | | | | 22,145,417 | |
| | |
| | Principal Amount | | Value | |
Repurchase Agreements — 5.3% | |
State Street Bank and Trust Co. Repurchase Agreement, 2.1% dated 6/30/2008, maturity value of $26,065,520, due 7/1/2008, collateralized by FNMA, 4.83%, due 1/22/2018, with a value of $26,585,763 | | $ | 26,064,000 | | | 26,064,000 | |
| | | | | | | |
Total Repurchase Agreements (Cost $26,064,000) | | | | | | 26,064,000 | |
| | | | | | | |
Total Investments — 104.1% (Cost $518,069,174) | | | | | | 510,351,734 | |
| | | | | | | |
Other Liabilities, Net — (4.1)% | | | | | | (20,247,366 | ) |
| | | | | | | |
Total Net Assets — 100.0% | | | | | $ | 490,104,368 | |
(1) | Variable rate securities, which may include step-up bonds or adjustable rate mortgages. The rate shown is the rate in effect at June 30, 2008. |
(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, 2008, the aggregate market value of these securities amounted to $23,474,933, representing 4.8% of net assets. These securities have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
The accompanying notes are an integral part of these financial statements.
| | |
14 | | RS Investment Quality Bond VIP Series |
(4) | Maturity is perpetual. Maturity date presented represents the next call date. |
(5) | Positions, or portions thereof, with a market value of $18,841,179 have been segregated to collateralize reverse repurchase agreement. |
(6) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | | | |
Valuation Inputs | | | | Investments in Securities |
Level 1 – Quoted Prices | | | | $ | 127,064,085 |
Level 2 – Significant Other Observable Inputs | | | | | 383,287,649 |
Level 3 – Significant Unobservable Inputs | | | | | — |
Total | | | | $ | 510,351,734 |
The accompanying notes are an integral part of these financial statements.
| | |
RS Investment Quality Bond VIP Series | | 15 |
| | |
| | Financial Information — RS Investment Quality Bond VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 510,351,734 | |
Cash and cash equivalents | | | 390 | |
Dividends/interest receivable | | | 3,760,698 | |
Receivable for fund shares subscribed | | | 431,852 | |
Prepaid expenses | | | 13,587 | |
| | | | |
Total Assets | | | 514,558,261 | |
| | | | |
Liabilities | | | | |
Reverse repurchase agreement | | | 18,435,452 | |
Payable for investments purchased | | | 5,543,163 | |
Payable to adviser | | | 199,374 | |
Payable for fund shares redeemed | | | 88,344 | |
Trustees’ deferred compensation | | | 25,807 | |
Accrued expenses/other liabilities | | | 161,753 | |
| | | | |
Total Liabilities | | | 24,453,893 | |
| | | | |
Total Net Assets | | $ | 490,104,368 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 484,334,930 | |
Accumulated undistributed net investment income | | | 10,732,768 | |
Accumulated net realized gain from investments | | | 2,754,110 | |
Net unrealized depreciation on investments | | | (7,717,440 | ) |
| | | | |
Total Net Assets | | $ | 490,104,368 | |
| | | | |
Investments, at Cost | | $ | 518,069,174 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 40,708,012 | |
| |
Net Asset Value Per Share | | | $12.04 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 12,147,193 | |
Dividends | | | 6 | |
| | | | |
Total Investment Income | | | 12,147,199 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 1,192,184 | |
Shareholder reports | | | 53,960 | |
Professional fees | | | 43,394 | |
Custodian fees | | | 38,354 | |
Administrative service fees | | | 31,859 | |
Trustees’ fees and expenses | | | 14,538 | |
Insurance expense | | | 6,947 | |
Other expense | | | 10,495 | |
| | | | |
Total Expenses | | | 1,391,731 | |
Less: Custody credits | | | (6 | ) |
| | | | |
Total Expenses, Net | | | 1,391,725 | |
| | | | |
Net Investment Income | | | 10,755,474 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized gain from investments | | | 7,054,600 | |
Net change in unrealized depreciation on investments | | | (14,088,282 | ) |
| | | | |
Net Loss on Investments | | | (7,033,682 | ) |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 3,721,792 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
16 | | RS Investment Quality Bond VIP Series |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 10,755,474 | | | $ | 20,630,615 | |
Net realized gain/(loss) from investments | | | 7,054,600 | | | | (185,489 | ) |
Net change in unrealized appreciation/(depreciation) on investments | | | (14,088,282 | ) | | | 6,287,489 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 3,721,792 | | | | 26,732,615 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (21,201,211 | ) |
Net realized loss on investments | | | — | | | | — | |
Return of capital | | | — | | | | (19,342 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (21,220,553 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 49,491,002 | | | | 114,721,034 | |
Reinvestment of distributions | | | — | | | | 21,220,553 | |
Cost of shares redeemed | | | (36,512,666 | ) | | | (54,084,625 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 12,978,336 | | | | 81,856,962 | |
| | | | | | | | |
Net Increase in Net Assets | | | 16,700,128 | | | | 87,369,024 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 473,404,240 | | | | 386,035,216 | |
| | | | | | | | |
End of period | | $ | 490,104,368 | | | $ | 473,404,240 | |
| | | | | | | | |
Distributions in Excess of Net Investment Income Included in Net Assets | | $ | — | | | $ | (22,706 | ) |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 10,732,768 | | | $ | — | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 4,092,588 | | | | 9,565,972 | |
Reinvested | | | — | | | | 1,778,755 | |
Redeemed | | | (3,013,192 | ) | | | (4,484,670 | ) |
| | | | | | | | |
Net Increase | | | 1,079,396 | | | | 6,860,057 | |
| | | | | | | | |
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 (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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 11.95 | | $ | 0.26 | | $ | (0.17 | ) | | $ | 0.09 | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 11.78 | | | 0.53 | | | 0.20 | | | | 0.73 | | | (0.56 | )4 | | | — | | | | (0.56 | ) |
| | | | | | | |
Year Ended 12/31/06 | | | 11.82 | | | 0.52 | | | (0.03 | ) | | | 0.49 | | | (0.53 | ) | | | (0.00 | )5 | | | (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 | 5 | | | 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 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
18 | | RS Investment Quality Bond VIP Series |
| | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | Net Ratio of Net Investment Income to Average Net Assets3 | | Gross Ratio of Net Investment Income to Average Net Assets | | Portfolio Turnover Rate |
| | | | | | | |
$ | 12.04 | | 0.75% | | $ | 490,104 | | 0.58% | 6 | | 0.58% | | 4.51% | | 4.51% | | 71% |
| | | | | | | |
| 11.95 | | 6.22% | | | 473,404 | | 0.59% | | | 0.59% | | 4.79% | | 4.79% | | 145% |
| | | | | | | |
| 11.78 | | 4.19% | | | 386,035 | | 0.60% | 6 | | 0.60% | | 4.61% | | 4.61% | | 130% |
| | | | | | | |
| 11.82 | | 2.35% | | | 328,708 | | 0.59% | 6 | | 0.59% | | 4.06% | | 4.06% | | 169% |
| | | | | | | |
| 12.11 | | 4.21% | | | 345,993 | | 0.57% | | | 0.57% | | 4.02% | | 4.02% | | 217% |
| | | | | | | |
| 12.25 | | 4.73% | | | 384,642 | | 0.56% | | | 0.56% | | 3.75% | | 3.75% | | 215% |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratios for periods of less than one year have been annualized, except for total return and portfolio turnover. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets include the effect of fee waivers, expense limitations and custody credits, if applicable. |
| 4 | Includes return of capital distribution of less than $0.00 per share. |
| 5 | Rounds to $0.00 per share. |
| 6 | Expense ratio includes interest expense associated with reverse repurchase agreements. Excluding the interest expense, the expense ratio is 0.58% for the six-months ended 6/30/2008, 0.59% in 2006 and 0.58% in 2005. |
The accompanying notes are an integral part of these financial statements.
| | |
RS Investment Quality Bond VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS Investment Quality Bond VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Investment Quality Bond VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. Investment Valuations
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 are valued by the Service at estimated market value based on methods which may 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.
Other 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 is generally 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 4b). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a
| | |
20 | | RS Investment Quality Bond VIP Series |
timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Investment Income
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
e. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
f. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of unin-
| | |
RS Investment Quality Bond VIP Series | | 21 |
| | |
| | Notes to Financial Statements — RS Investment Quality Bond VIP Series (unaudited) (continued) |
vested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
g. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
h. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
i. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.50%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with GIS. GIS is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision and direction of the Board of Trustees of the Trust and review by 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 the Fund. Payment of the sub-advisory fee 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 the Fund’s total annual fund operating expenses to 0.59% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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
| | |
22 | | RS Investment Quality Bond VIP Series |
the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | | | | |
Ordinary Income Total | | Long-Term Capital Gain Total | | Return of Capital Total |
$ | 21,201,211 | | $ | — | | $ | 19,342 |
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 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. 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.
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.
Capital loss carryovers available to the Fund at December 31, 2007 were as follows:
| | | |
Expiring | | Amount |
2014 | | $ | 3,858,020 |
2015 | | | 143,184 |
| | | |
Total | | $ | 4,001,204 |
During the year ended December 31, 2007, the Fund did not utilize capital loss carryovers.
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, 2007, which is the most recently completed tax year, the Fund had $88,272 in deferred losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $518,338,562. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $2,330,341 and $(10,317,169), respectively, resulting in net unrealized appreciation of $(7,986,828).
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments and U.S. government agency obligations sold (excluding short-term investments) for the six months ended June 30, 2008, were as follows:
| | | | | | |
| | Investments | | U.S. Government Agency Obligations |
Purchases | | $ | 129,183,378 | | $ | 219,569,328 |
Sales | | $ | 64,102,428 | | $ | 264,841,436 |
| | |
RS Investment Quality Bond VIP Series | | 23 |
| | |
| | Notes to Financial Statements — RS Investment Quality Bond VIP Series (unaudited) (continued) |
b. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
c. Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements with banks or third party broker/dealers to borrow funds. Interest payable on a reverse repurchase agreement is based upon competitive market rates at the time of issuance. When the Fund enters into a reverse repurchase agreement, it 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 a buyer of the securities sold by the Fund may be unable to deliver the securities when the Fund seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in the Fund’s net asset value and may be viewed as a form of leverage.
d. Dollar Rolls
The Fund may enter into dollar rolls (principally using TBAs) in which the Fund sells mortgage-related 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 from the same party. 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. The Fund 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 a buyer of the securities sold by the Fund may be unable to deliver the replacement securities when it is required to do so. Dollar rolls may increase fluctuations in the Fund’s net asset value and may be viewed as a form of leverage.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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 7. 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’
| | |
24 | | RS Investment Quality Bond VIP Series |
frequent trading of shares of RS Emerging Growth Fund 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged a variety of theories for
| | |
RS Investment Quality Bond VIP Series | | 25 |
| | |
| | Notes to Financial Statements — RS Investment Quality Bond VIP Series (unaudited) (continued) |
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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
| | |
26 | | RS Investment Quality Bond VIP Series |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 – 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
| | |
RS Investment Quality Bond VIP Series | | 27 |
| | |
| | Supplemental Information — unaudited (continued) |
continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
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28 | | RS Investment Quality Bond VIP Series |
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as
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RS Investment Quality Bond VIP Series | | 29 |
| | |
| | Supplemental Information — unaudited (continued) |
well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating
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30 | | RS Investment Quality Bond VIP Series |
to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be 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 Investment Quality Bond VIP Series | | 31 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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32 | | RS Investment Quality Bond VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS Investment Quality Bond VIP Series | | 33 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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34 | | RS Investment Quality Bond VIP Series |
RS Variable Products Trust
RS Low Duration Bond VIP Series
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06.30.08 | | |
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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, 2008. 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 Low Duration Bond VIP Series |
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| | Howard W. Chin Howard W. Chin (GIS) has been a co-portfolio manager of RS Low Duration Bond VIP Series since 2003.* Mr. Chin has been a managing director at The Guardian Life Insurance Company of America (“Guardian Life”) since 1997. He also manages part of the fixed-income assets of Guardian Life and the 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. |
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| | Robert J. Crimmins, Jr. Robert J. Crimmins, Jr. (GIS) has been a co-portfolio manager of RS Low Duration Bond VIP Series since 2004.* Mr. Crimmins has been a managing director of Guardian Life since 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 Fund’s predecessor fund for periods prior to October 9, 2006, the commencement of operations of the Fund. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | The RS Low Duration Bond VIP Series outperformed the average fund in the Lipper Short-Intermediate Investment Grade Debt Funds peer group by more than 1.5% during the first half of 2008. |
Ø | | The Fund underperformed its benchmark, the Lehman Brothers U.S. Government 1-3 Year Bond Index2 by 0.29%. |
Ø | | We expect the economy to remain in the doldrums due to the weakness in the housing market and a financial system under considerable stress. As a result, we remain cautious about corporate bonds overall but continue to find value in shorter-maturity issues. |
Market Overview
Contrary to the hopes of many investors, the first half of 2008 saw a continuation of the turmoil from the previous year’s credit crisis. Financial institutions recorded multi-billion dollar writedowns from their subprime and collaterized debt obligation (CDO) holdings while the housing market witnessed declining home values, homeowners with negative equity in their houses, increasing delinquencies and foreclosures and much tighter lending standards from mortgage lenders. All this occurred in the context of an uncertain economy and amid sharply escalating energy prices. There was very little good news, although the Federal Reserve Board did cut the benchmark federal funds rate to 2.00% and the government implemented a $168 billion fiscal stimulus bill in an effort to stave off a potential recession.
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RS Low Duration Bond VIP Series | | 3 |
| | |
| | RS Low Duration Bond VIP Series (continued) |
For the period, we saw more market volatility in the first quarter than in the second quarter. Not surprisingly, some sectors performed poorly in the first quarter but they recovered to some extent in the second quarter as market volatility declined. The first quarter saw a flight to quality to Treasuries, which led to a substantial decline in rates. For example, two-year Treasury yields dropped by 1.47% during the first quarter and 10-year yields dropped by 0.61%. As a result, the Treasury component of the Lehman Brothers Aggregate Bond Index3 returned 4.43% for the first quarter and outperformed all the other taxable fixed income sectors on both an absolute and a relative basis. Corporate bonds, mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) all underperformed the returns of their equal-duration Treasury counterparts for the first quarter by 4.27%, 0.77% and 7.77%, respectively.
In contrast, Treasuries posted a negative 2.1% return during the second quarter, as interest rates rose in the wake of inflation fears and concerns regarding future Fed rate hikes. Two-year Treasury yields rose 1.03% to finish the quarter at 2.62%, and 10-year yields rose by 0.56% to finish at 3.97%. Corporate bonds, MBS and CMBS posted negative returns in the second quarter but in a reversal from the first quarter, they outperformed Treasuries by 1.34%, 0.52% and 2.60%, respectively. For the period, however, these sectors still underperformed Treasuries on both an absolute and a relative basis as the rebound of these non-Treasury sectors was not enough to completely offset their weak first-quarter performance. In other words, the Treasury sector continued the trend from 2007 as the best-performing sector in the fixed-income market.
Performance
The RS Low Duration Bond VIP Series had a total return of 1.82% for the six-month period ended June 30, 2008, compared with the average fund in the Lipper Short-Intermediate Investment Grade Debt Funds peer group, which returned 0.27% for the same period. (The peer group consists of 38 variable subaccounts funds that invest primarily in short-term investment grade-debt with average maturities of one to three years.) In contrast, the Fund’s benchmark, the Lehman Brothers U.S. Government 1-3 Year Bond Index returned 2.11% in the first half of 2008.
Portfolio Review
Although the Fund outperformed its Lipper peer group average, it underperformed its benchmark, due largely to our portfolio positioning relative to the benchmark, which is comprised solely of Treasury and agency securities. As noted above, the Treasury sector performed very well in the first quarter during the market’s “flight to quality,” outperforming every non-Treasury sector. Even though the Treasury sector gave back some of that performance in the second quarter as investor sentiment improved, Treasuries posted enough of a performance cushion in the first quarter to retain its status as the best-performing sector for the first half of the year. We believed (and continue to believe) that there were very attractive values in the non-Treasury/agency sectors: but because these sectors underperformed during the credit crisis, our holdings there detracted from the Fund’s return.
We came into 2008 favoring short-maturity corporate bonds and asset-backed securities (ABS)—our two largest sector exposures—over comparable-maturity Treasuries and agency debt. We believed that these assets provided sufficient yield to bolster the Fund’s returns. Though we believe the economy is slowing, we expect these asset classes will continue to help the Fund outpace its peers.
Our ABS exposure was focused away from the mortgage area. (The Fund had no exposure to subprime adjustable-rate mortgages (ARMs) or CDOs during the period). We saw good value in securities backed by credit card receivables and auto loans. Given our view of a slowing economy, we recognized the potential for greater delinquencies in the consumer debt sector, but we analyzed the adequacy of such securities’ credit support and believed that they would continue to perform well.
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4 | | RS Low Duration Bond VIP Series |
We also had significant exposure to short-maturity CMBS. We conducted similar analysis of our CMBS holdings and believed that they had enough credit support to withstand the projected losses that might occur in a severe real estate downturn.
Outlook
We maintain our view that the economy will continue to slow as it faces strong headwinds. The consumer continues to be challenged by falling home prices, increasing job losses, sluggish wage growth, uncertainty in the equities markets and increasing inability to obtain credit. We believe these negative factors are likely to persist, especially after the effects of the stimulus checks fade. In addition, the financial system remains stressed and finance companies will likely need to raise additional capital to offset growing losses in their portfolios. In the meantime, they will be hard-pressed to preserve their existing capital, which will drastically limit their ability to lend or commit capital to the bond markets.
That said, we still believe that investors are sufficiently compensated for bearing the risk of non-Treasury assets at the very short end of the yield curve, even in these uncertain times. As a result, we continue to favor short-maturity corporate bonds, ABS, and CMBS. Twenty-five percent of the Fund’s corporate bond holdings will mature in the next six months. We intend to look for opportunities to reinvest those proceeds within the corporate sector.
We thank you for your investment and continued support.
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Howard W. Chin Co-Portfolio Manager | | Robert J. Crimmins, Jr. Co-Portfolio Manager |
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RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. 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.
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RS Low Duration Bond VIP Series | | 5 |
| | |
| | RS Low Duration Bond VIP Series (continued) |
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Total Net Assets: $29,293,294 | | Data as of June 30, 2008 |
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| | Asset Allocation |
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| | Top Ten Holdings1 |
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| | | |
Company | | Coupon | | Maturity Date | | Percentage of Total Net Assets |
U.S. Treasury Notes | | 2.125% | | 04/30/10 | | 6.31% |
U.S. Treasury Notes | | 2.000% | | 02/28/10 | | 5.15% |
FHLMC Agency | | 5.125% | | 08/23/10 | | 3.86% |
FNMA Agency | | 5.125% | | 04/15/11 | | 3.83% |
U.S. Treasury Notes | | 4.875% | | 05/31/11 | | 3.49% |
FNMA Agency | | 5.000% | | 02/16/12 | | 2.74% |
U.S. Treasury Notes | | 3.375% | | 06/30/13 | | 2.55% |
FNMA Agency | | 5.000% | | 10/15/11 | | 1.95% |
U.S. Treasury Notes | | 4.500% | | 02/28/11 | | 1.94% |
Morgan Stanley Capital I CMBS | | 7.212% | | 12/15/31 | | 1.93% |
Total | | | | | | 33.75% |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
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. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
3 | The Lehman Brothers Aggregate Bond Index is an unmanaged index that is generally considered to be representative of U.S. bond market activity. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
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6 | | RS Low Duration Bond VIP Series |
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| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | |
| | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Years | | Since Inception |
RS Low Duration Bond VIP Series | | 08/28/03 | | 1.82% | | 5.25% | | 3.98% | | 2.99% |
Lehman Brothers U.S. Government 1-3 Year Bond Index2 | | | | 2.11% | | 7.07% | | 4.69% | | 3.55% |
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| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 08/28/03 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 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 0.79%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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RS Low Duration 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $1,018.20 | | $3.26 | | 0.65% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,021.63 | | $3.27 | | 0.65% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
8 | | RS Low Duration Bond VIP Series |
| | |
| | Schedule of Investments – RS Low Duration Bond VIP Series |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Asset Backed Securities — 19.0% |
American Express Credit Account Master Trust 2004-3 A 4.35% due 12/15/2011 | | $ | 260,000 | | $ | 262,112 |
Ameriquest Mortgage Securities, Inc. 2003-5 A6 4.541% due 4/25/2033(1) | | | 221,792 | | | 193,652 |
Bank One Issuance Trust 2003-A7 A7 3.35% due 3/15/2011 | | | 280,000 | | | 280,063 |
Capital Auto Receivables Asset Trust 2006-SN1A A3 5.31% due 10/20/2009(2) | | | 261,397 | | | 261,901 |
Capital One Prime Auto Receivables Trust 2006-2 A4 4.94% due 7/15/2012 | | | 400,000 | | | 405,958 |
Carmax Auto Owner Trust 2005-1 A4 4.35% due 3/15/2010 | | | 240,436 | | | 241,305 |
Chase Funding Mortgage Loan Trust 2004-1 1A6 4.266% due 6/25/2015 | | | 327,278 | | | 297,956 |
Chase Issuance Trust 2007-A15 A 4.96% due 9/17/2012 | | | 420,000 | | | 426,666 |
Chase Manhattan Auto Owner Trust 2005-A A3 3.87% due 6/15/2009 | | | 33,471 | | | 33,505 |
Citibank Credit Card Master Trust I 1999-2 A 5.875% due 3/10/2011 | | | 394,000 | | | 400,819 |
Citibank Omni Master Trust 2008-A10A A10 4.05% due 3/20/2013(2) | | | 300,000 | | | 300,090 |
CitiFinancial Mortgage Securities, Inc. 2003-3 AF5 4.553% due 8/25/2033(1) | | | 260,772 | | | 231,481 |
Countrywide Asset-Backed Certificates Trust 2004-S1 A2 3.872% due 3/25/2020(1) | | | 62,908 | | | 60,392 |
Detroit Edison Securitization Funding LLC 2001-1 A4 6.19% due 3/1/2013 | | | 170,000 | | | 175,684 |
Ford Credit Auto Owner Trust 2005-B A4 4.38% due 1/15/2010 | | | 200,298 | | | 200,534 |
GE Capital Credit Card Master Note Trust 2006-1 A 5.08% due 9/15/2012 | | | 265,000 | | | 269,145 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Nissan Auto Receivables Owner Trust 2008-B A3 4.46% due 4/16/2012 | | $ | 290,000 | | $ | 291,148 |
Peco Energy Transition Trust 2000-A A4 7.65% due 3/1/2010 | | | 265,000 | | | 276,684 |
PSE&G Transition Funding LLC 2001-1 A5 6.45% due 3/15/2013 | | | 365,000 | | | 381,227 |
Residential Asset Mortgage Products, Inc. | | | | | | |
2003-RZ4 A5 4.66% due 2/25/2032 | | | 263,730 | | | 260,786 |
2002-RS4 AI5 6.163% due 8/25/2032(1) | | | 27,798 | | | 18,829 |
World Omni Auto Receivables Trust 2005-A A4 3.82% due 11/12/2011 | | | 306,155 | | | 306,999 |
| | | | | | |
Total Asset Backed Securities (Cost $5,606,455) | | | | | | 5,576,936 |
| | |
| | Principal Amount | | Value |
Collateralized Mortgage Obligations — 9.1% |
Banc of America Mortgage Securities, Inc. 2004-F 2A6 4.144% due 7/25/2034(1) | | | 260,000 | | | 254,210 |
Countrywide Alternative Loan Trust 2004-35T2 A1 6.00% due 2/25/2035 | | | 187,235 | | | 181,405 |
Countrywide Home Loans Trust 2002-19 1A1 6.25% due 11/25/2032 | | | 93,930 | | | 93,942 |
FHLMC | | | | | | |
2598 QC 4.50% due 6/15/2027 | | | 176,938 | | | 177,742 |
1534 Z 5.00% due 6/15/2023 | | | 146,662 | | | 147,076 |
2500 TD 5.50% due 2/15/2016 | | | 1,181 | | | 1,180 |
20 H 5.50% due 10/25/2023 | | | 68,490 | | | 69,619 |
2470 VB 6.00% due 8/15/2018 | | | 90,652 | | | 91,311 |
1650 J 6.50% due 6/15/2023 | | | 72,760 | | | 73,539 |
FNMA | | | | | | |
2003-24 PU 3.50% due 11/25/2015 | | | 126,043 | | | 124,815 |
2003-63 GU 4.00% due 7/25/2033 | | | 67,481 | | | 67,399 |
2005-39 CL 5.00% due 12/25/2021 | | | 244,349 | | | 247,249 |
The accompanying notes are an integral part of these financial statements.
| | |
RS Low Duration Bond VIP Series | | 9 |
| | |
| | Schedule of Investments – RS Low Duration Bond VIP Series (continued) |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
FNMA (continued) | | | | | | |
2003-13 ME 5.00% due 2/25/2026 | | $ | 56,381 | | $ | 56,474 |
2006-45 AC 5.50% due 6/25/2036 | | | 112,242 | | | 112,864 |
2002-52 PB 6.00% due 2/25/2032 | | | 377,425 | | | 386,068 |
GNMA | | | | | | |
2002-93 NV 4.75% due 2/20/2032 | | | 10,049 | | | 10,042 |
GSR Mortgage Loan Trust 2006-2F 7A1 5.50% due 1/25/2021 | | | 287,309 | | | 279,139 |
J.P. Morgan Mortgage Trust 2005-S2 2A15 6.00% due 9/25/2035 | | | 141,645 | | | 135,802 |
Residential Asset Mortgage Products, Inc. 2005-SL1 A4 6.00% due 5/25/2032 | | | 112,198 | | | 107,570 |
Wells Fargo Mortgage-Backed Securities Trust 2005-14 2A1 5.50% due 12/25/2035 | | | 44,614 | | | 42,188 |
| | | | | | |
Total Collateralized Mortgage Obligations (Cost $2,672,464) | | | | | | 2,659,634 |
| | |
| | Principal Amount | | Value |
Commercial Mortgage Backed Securities — 10.3% |
Chase Commercial Mortgage Securities Corp. 1998-2 A2 6.39% due 11/18/2030 | | | 193,440 | | | 193,924 |
Commercial Mortgage Asset Trust 1999-C1 A3 6.64% due 1/17/2032 | | | 287,090 | | | 290,182 |
Crown Castle Towers LLC 2005-1A AFX 4.643% due 6/15/2035(2) | | | 185,000 | | | 182,245 |
Four Times Square Trust 2000-4TS A2 7.795% due 4/15/2015(2) | | | 365,000 | | | 389,845 |
GMAC Commercial Mortgage Securities, Inc. 1999-C2 A2 6.945% due 9/15/2033 | | | 215,843 | | | 218,820 |
Greenwich Capital Commercial Funding Corp. 2005-GG3 A2 4.305% due 8/10/2042 | | | 274,000 | | | 272,032 |
GS Mortgage Securities Corp. II 2004-GG2 A3 4.602% due 8/10/2038 | | | 270,000 | | | 269,748 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
J.P. Morgan Chase Commercial Mortgage Securities Corp. | | | | | | |
2004-C1 A1 3.053% due 1/15/2038 | | $ | 243,568 | | $ | 240,730 |
2001-C1 A3 5.857% due 10/12/2035 | | | 250,000 | | | 252,570 |
J.P. Morgan Commercial Mortgage Finance Corp. 2000-C9 A2 7.77% due 10/15/2032 | | | 122,349 | | | 126,039 |
LB UBS Commercial Mortgage Trust 2003-C1 A2 3.323% due 3/15/2027 | | | 14,201 | | | 14,151 |
Morgan Stanley Capital I 1999-RM1 E 7.212% due 12/15/2031(1) | | | 560,000 | | | 565,003 |
| | | | | | |
Total Commercial Mortgage Backed Securities (Cost $3,039,648) | | | | | | 3,015,289 |
| | |
| | Principal Amount | | Value |
Corporate Bonds — 20.7% |
Diversified Financial Services — 1.6% |
Citigroup, Inc. 4.25% due 7/29/2009 | | | 225,000 | | | 223,708 |
Goldman Sachs Group, LP Sr. Nt. 4.50% due 6/15/2010 | | | 250,000 | | | 250,335 |
| | | | | | |
| | | | | | 474,043 |
Electric — 1.5% |
Alabama Power Co. 5.375% due 10/1/2008 | | | 250,000 | | | 250,848 |
Pacific Gas & Electric 3.60% due 3/1/2009 | | | 200,000 | | | 199,838 |
| | | | | | |
| | | | | | 450,686 |
Energy — 0.4% |
RAS Laffan Liquefied Natural Gas Co. Ltd. 3.437% due 9/15/2009(2) | | | 114,660 | | | 114,858 |
| | | | | | |
| | | | | | 114,858 |
Environmental — 0.7% |
Allied Waste North America, Inc. Sr. Sec. Nt. 6.50% due 11/15/2010 | | | 200,000 | | | 200,000 |
| | | | | | |
| | | | | | 200,000 |
Finance Companies — 3.9% |
Capital One Bank 4.25% due 12/1/2008 | | | 200,000 | | | 199,633 |
General Electric Capital Corp. 3.50% due 2/2/2009 | | | 250,000 | | | 250,287 |
Popular NA, Inc. 3.875% due 10/1/2008 | | | 250,000 | | | 249,475 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Low Duration Bond VIP Series |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Finance Companies (continued) |
SLM Corp. 4.00% due 1/15/2009 | | $ | 200,000 | | $ | 197,538 |
Textron Financial Corp. 5.125% due 11/1/2010 | | | 250,000 | | | 253,430 |
| | | | | | |
| | | | | | 1,150,363 |
Financial — 0.7% |
Morgan Stanley 3.875% due 1/15/2009 | | | 200,000 | | | 199,225 |
| | | | | | |
| | | | | | 199,225 |
Financial – Banks — 0.8% |
PNC Funding Corp. 4.50% due 3/10/2010 | | | 250,000 | | | 248,815 |
| | | | | | |
| | | | | | 248,815 |
Food & Beverage — 0.9% |
Pepsi Bottling Holdings, Inc. 5.625% due 2/17/2009(2) | | | 250,000 | | | 252,621 |
| | | | | | |
| | | | | | 252,621 |
Health Care – Services — 0.8% |
UnitedHealth Group, Inc. Sr. Nt. 5.125% due 11/15/2010 | | | 250,000 | | | 247,601 |
| | | | | | |
| | | | | | 247,601 |
Insurance — 2.0% |
Genworth Financial, Inc. Sr. Nt. Class A 4.75% due 6/15/2009 | | | 250,000 | | | 248,724 |
Metropolitan Life Global Funding I Sr. Sec. Nt. 4.50% due 5/5/2010(2) | | | 80,000 | | | 80,398 |
Unum Group 5.859% due 5/15/2009 | | | 250,000 | | | 252,480 |
| | | | | | |
| | | | | | 581,602 |
Media – Cable — 1.7% |
Comcast Corp. 5.45% due 11/15/2010 | | | 250,000 | | | 254,138 |
Cox Communications, Inc. 4.625% due 1/15/2010 | | | 250,000 | | | 248,621 |
| | | | | | |
| | | | | | 502,759 |
Natural Gas – Distributors — 0.9% |
ONEOK, Inc. 7.125% due 4/15/2011 | | | 240,000 | | | 250,943 |
| | | | | | |
| | | | | | 250,943 |
Paper & Forest Products — 0.9% |
Packaging Corp. of America 4.375% due 8/1/2008 | | | 250,000 | | | 250,066 |
| | | | | | |
| | | | | | 250,066 |
Retailers — 1.7% | | | | | | |
CVS Caremark Corp. 4.00% due 9/15/2009 | | | 250,000 | | | 248,643 |
Federated Department Stores, Inc. 6.625% due 9/1/2008 | | | 255,000 | | | 255,292 |
| | | | | | |
| | | | | | 503,935 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Telecommunications — 0.9% |
AT&T, Inc. Sr. Nt. 4.125% due 9/15/2009 | | $ | 250,000 | | $ | 250,292 |
| | | | | | |
| | | | | | 250,292 |
Utilities – Electric & Water — 0.5% |
Public Service Co. of New Mexico 4.40% due 9/15/2008 | | | 150,000 | | | 149,481 |
| | | | | | |
| | | | | | 149,481 |
Wireline Communications — 0.8% |
Telecom Italia Capital 4.00% due 11/15/2008 | | | 250,000 | | | 249,963 |
| | | | | | |
| | | | | | 249,963 |
| | | | | | |
Total Corporate Bonds (Cost $6,073,620) | | | | | | 6,077,253 |
| | |
| | Principal Amount | | Value |
Mortgage Pass-Through Securities — 1.7% |
FHLMC 7.00% due 4/1/2038(1) | | | 299,447 | | | 314,268 |
FNMA 6.197% due 8/1/2046(1) | | | 188,866 | | | 193,376 |
| | | | | | |
Total Mortgage Pass-Through Securities (Cost $506,228) | | | | | | 507,644 |
| | |
| | Principal Amount | | Value |
Sovereign Debt Security — 0.9% |
United Mexican States 4.625% due 10/8/2008 | | | 250,000 | | | 250,500 |
| | | | | | |
Total Sovereign Debt Security (Cost $249,564) | | | | | | 250,500 |
| | |
| | Principal Amount | | Value |
U.S. Government Securities — 33.6% |
U.S. Government Agency Securities — 12.4% |
FHLMC 5.125% due 8/23/2010 | | | 1,090,000 | | | 1,131,600 |
FNMA | | | | | | |
5.00% due 10/15/2011-2/16/2012 | | | 1,325,000 | | | 1,376,326 |
5.125% due 4/15/2011 | | | 1,080,000 | | | 1,123,268 |
| | | | | | |
| | | | | | 3,631,194 |
U.S. Treasury Notes — 21.2% |
U.S. Treasury Notes | | | | | | |
2.00% due 2/28/2010 | | | 1,520,000 | | | 1,508,956 |
2.125% due 4/30/2010 | | | 1,863,000 | | | 1,849,463 |
3.375% due 6/30/2013 | | | 745,000 | | | 746,339 |
4.50% due 2/28/2011-11/30/2011 | | | 770,000 | | | 803,551 |
4.875% due 5/31/2011 | | | 970,000 | | | 1,023,653 |
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, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
U.S. Treasury Notes (continued) |
5.00% due 2/15/2011 | | $ | 270,000 | | $ | 285,124 |
| | | | | | |
| | | | | | 6,217,086 |
| | | | | | |
Total U.S. Government Securities (Cost $9,758,594) | | | | | | 9,848,280 |
| | |
| | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3) | | | 5 | | | 205 |
RS Emerging Growth Fund, Class Y(3) | | | 7 | | | 243 |
RS Emerging Markets Fund, Class A(3) | | | 7 | | | 162 |
RS Equity Dividend Fund, Class Y(3) | | | 3 | | | 27 |
RS Global Natural Resources Fund, Class Y(3) | | | 4 | | | 153 |
RS Growth Fund, Class Y(3) | | | 10 | | | 123 |
RS Investment Quality Bond Fund, Class A(3) | | | 3 | | | 28 |
RS Investors Fund, Class Y(3) | | | 9 | | | 85 |
RS MidCap Opportunities Fund, Class Y(3) | | | 5 | | | 55 |
RS Partners Fund, Class Y(3) | | | 5 | | | 139 |
RS S&P 500 Index Fund, Class A(3) | | | 3 | | | 27 |
RS Smaller Company Growth Fund, Class Y(3) | | | 3 | | | 50 |
RS Technology Fund, Class Y(3) | | | 5 | | | 72 |
RS Value Fund, Class Y(3) | | | 9 | | | 242 |
| | | | | | |
Total Other Investments (Cost $1,646) | | | | | | 1,611 |
| | |
| | Principal Amount | | Value |
Repurchase Agreements — 1.1% |
State Street Bank and Trust Co. Repurchase Agreement, 2.1%, dated 6/30/2008, maturity value of $316,018, due 7/1/2008, collateralized by FHLMC, 5.00%, due 6/11/2018, with a value of $325,875 | | $ | 316,000 | | | 316,000 |
| | | | | | |
Total Repurchase Agreements (Cost $316,000) | | | | | | 316,000 |
| | | | | | |
Total Investments — 96.4% (Cost $28,224,219) | | | | | | 28,253,147 |
| | | | | | |
Other Assets, Net — 3.6% | | | | | | 1,040,147 |
| | | | | | |
Total Net Assets — 100.0% | | | | | $ | 29,293,294 |
(1) | Variable rate securities, which may include step-up bonds or adjustable mortgages. The rate shown is the rate in effect at June 30, 2008. |
(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, 2008, the aggregate market value of these securities amounted to $1,581,958, representing 5.4% 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 2b in Notes to Financial Statements. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 – Quoted Prices | | $ | 10,416,391 |
Level 2 – Significant Other Observable Inputs | | | 17,836,756 |
Level 3 – Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 28,253,147 |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS Low Duration Bond VIP Series |
| | |
| | Financial Information — RS Low Duration Bond VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 28,253,147 | |
Cash and cash equivalents | | | 290 | |
Interest receivable | | | 223,590 | |
Receivable for investments sold | |
| 1,482,779
|
|
Receivable for fund shares subscribed | | | 129,367 | |
Prepaid expenses | | | 800 | |
Other receivables | | | 4,293 | |
| | | | |
Total Assets | | | 30,094,266 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 747,068 | |
Payable to adviser | | | 10,678 | |
Payable for fund shares redeemed | | | 9,987 | |
Trustees’ deferred compensation | | | 1,611 | |
Accrued expenses/other liabilities | | | 31,628 | |
| | | | |
Total Liabilities | | | 800,972 | |
| | | | |
Total Net Assets | | $ | 29,293,294 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 29,081,542 | |
Accumulated undistributed net investment income | | | 532,917 | |
Accumulated net realized loss from investments | | | (350,093 | ) |
Net unrealized appreciation on investments | | | 28,928 | |
| | | | |
Total Net Assets | | $ | 29,293,294 | |
| | | | |
Investments, at Cost | | $ | 28,224,219 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 2,903,022 | |
| |
Net Asset Value Per Share | | | $10.09 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 626,060 | |
| | | | |
Total Investment Income | | | 626,060 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 63,937 | |
Shareholder reports | | | 9,355 | |
Custodian fees | |
| 10,369
|
|
Professional fees | | | 5,183 | |
Administrative service fees | | | 1,884 | |
Trustees’ fees and expenses | | | 817 | |
Insurance expense | | | 455 | |
Other expense | | | 301 | |
| | | | |
Total Expenses | | | 92,301 | |
| | | | |
Net Investment Income | | | 533,759 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized gain from investments | | | 98,499 | |
Net change in unrealized depreciation on investments | | | (148,400 | ) |
| | | | |
Net Loss on Investments | | | (49,901 | ) |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 483,858 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS Low Duration Bond VIP Series | | 13 |
| | |
| | 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 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 533,759 | | | $ | 1,163,951 | |
Net realized gain/(loss) from investments | | | 98,499 | | | | (60,983 | ) |
Net change in unrealized appreciation/(depreciation) on investments | | | (148,400 | ) | | | 322,306 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 483,858 | | | | 1,425,274 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | — | | | | (1,164,593 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (1,164,593 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 4,909,331 | | | | 5,552,640 | |
Reinvestment of distributions | | | — | | | | 1,164,595 | |
Cost of shares redeemed | | | (3,035,310 | ) | | | (8,011,391 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | 1,874,021 | | | | (1,294,156 | ) |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | 2,357,879 | | | | (1,033,475 | ) |
| | |
Net Assets | | | | | | | | |
Beginning of period | | | 26,935,415 | | | | 27,968,890 | |
| | | | | | | | |
End of period | | $ | 29,293,294 | | | $ | 26,935,415 | |
| | | | | | | | |
Distributions in Excess of Net Investment Income Included in Net Assets | | $ | — | | | $ | (842 | ) |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 532,917 | | | $ | — | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 487,412 | | | | 553,202 | |
Reinvested | | | — | | | | 117,636 | |
Redeemed | | | (301,503 | ) | | | (801,616 | ) |
| | | | | | | | |
Net Increase/(Decrease) | | | 185,909 | | | | (130,778 | ) |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
14 | | RS Low Duration Bond VIP Series |
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| | |
RS Low Duration Bond VIP Series | | 15 |
| | |
| | Financial Information — RS Low Duration 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 (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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 9.91 | | $ | 0.18 | | $ | — | | | $ | 0.18 | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 9.82 | | | 0.45 | | | 0.09 | | | | 0.54 | | | (0.45 | ) | | | — | | | | (0.45 | ) |
| | | | | | | |
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 08/28/035 to 12/31/031 | | | 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.
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16 | | RS Low Duration Bond VIP Series |
| | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | Net Ratio of Net Investment Income to Average Net Assets3 | | | Gross Ratio of Net Investment Income to Average Net Assets | | Portfolio Turnover Rate |
| | | | | | | |
$10.09 | | 1.82% | | $ | 29,293 | | 0.65% | | | 0.65% | | 3.76% | | | 3.76% | | 37% |
| | | | | | | |
9.91 | | 5.48% | | | 26,935 | | 0.70% | | | 0.79% | | 4.38% | | | 4.29% | | 69% |
| | | | | | | |
9.82 | | 4.07% | | | 27,969 | | 0.71% | 4 | | 0.72% | | 3.88% | | | 3.87% | | 78% |
| | | | | | | |
9.81 | | 1.25% | | | 27,378 | | 0.79% | | | 0.79% | | 2.94% | | | 2.94% | | 109% |
| | | | | | | |
9.97 | | 0.91% | | | 23,657 | | 0.81% | | | 0.81% | | 2.11% | | | 2.11% | | 90% |
| | | | | | | |
10.06 | | 0.97% | | | 10,840 | | 1.74% | | | 1.74% | | 0.93% | | | 0.93% | | 92% |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratios for periods less than one year have been annualized, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Income to Average Net Assets includes the effect of fee waivers, expense limitations and custody credits, if applicable. |
| 4 | Before offset of custody credits. Including the custody credits, the expense ratio is 0.70%. |
| 5 | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
| | |
RS Low Duration Bond VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Low Duration Bond VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Low Duration Bond VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. Investment Valuations
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 are valued by the Service at estimated market value based on methods which may 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.
Other 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 is generally 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 4b). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely
| | |
18 | | RS Low Duration Bond VIP Series |
transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Investment Income
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
e. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
f. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of unin-
| | |
RS Low Duration Bond VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS Low Duration Bond VIP Series (unaudited) (continued) |
vested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
g. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
h. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
i. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.45%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with GIS. GIS is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision and direction of the Board of Trustees of the Trust and review by 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 the Fund. Payment of the sub-advisory fee 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 the Fund’s total annual fund operating expenses to 0.70% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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
| | |
20 | | RS Low Duration Bond VIP Series |
the Trustee. The Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
| |
Ordinary Income Total |
$ | 1,164,593 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
| |
Undistributed Ordinary Income |
$ | 609 |
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.
Capital loss carryovers available to the Fund at December 31, 2007 were as follows:
| | | |
Expiring | | Amount |
2012 | | $ | 15,848 |
2013 | | | 220,126 |
2014 | | | 145,732 |
2015 | | | 18,421 |
| | | |
Total | | $ | 400,127 |
During the year ended December 31, 2007, the Fund did not utilize capital loss carryovers.
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, 2007, which is the most recently completed tax year, the Fund had $48,465 in deferred losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $28,226,642. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $246,357 and $(219,852), respectively, resulting in net unrealized appreciation of $26,505.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments and U.S. government agency obligations sold (excluding short-term investments) for the six months ended June 30, 2008 were as follows:
| | | | | | |
| | Investments | | U.S. Government Agency Obligations |
Purchases | | $ | 4,091,983 | | $ | 9,866,594 |
Sales | | $ | 2,558,309 | | $ | 7,920,727 |
| | |
RS Low Duration Bond VIP Series | | 21 |
| | |
| | Notes to Financial Statements — RS Low Duration Bond VIP Series (unaudited) (continued) |
b. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
c. Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements with banks or third party broker/dealers to borrow funds. Interest payable on a reverse repurchase agreement is based upon competitive market rates at the time of issuance. When the Fund enters into a reverse repurchase agreement, it 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 a buyer of the securities sold by the Fund may be unable to deliver the securities when the Fund seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in the Fund’s net asset value and may be viewed as a form of leverage.
d. Dollar Rolls
The Fund may enter into dollar rolls (principally using TBAs) in which the Fund sells mortgage-related 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 from the same party. 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. The Fund 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 a buyer of the securities sold by the Fund may be unable to deliver the replacement securities when it is required to do so. Dollar rolls may increase fluctuations in the Fund’s net asset value and may be viewed as a form of leverage.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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’
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22 | | RS Low Duration Bond VIP Series |
frequent trading of shares of RS Emerging Growth Fund 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged that defendants violated, or caused to be violated,
| | |
RS Low Duration Bond VIP Series | | 23 |
| | |
| | Notes to Financial Statements — RS Low Duration Bond VIP Series (unaudited) (continued) |
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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
| | |
24 | | RS Low Duration Bond VIP Series |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 - 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees of the Funds were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
| | |
RS Low Duration Bond VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
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26 | | RS Low Duration Bond VIP Series |
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio
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RS Low Duration Bond VIP Series | | 27 |
| | |
| | Supplemental Information — unaudited (continued) |
transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 800-221-3253.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to
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28 | | RS Low Duration Bond VIP Series |
portfolio securities, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 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 | | 29 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s)
During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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30 | | RS Low Duration Bond VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s)
During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS Low Duration Bond VIP Series | | 31 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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32 | | RS Low Duration Bond VIP Series |
RS Variable Products Trust
RS High Yield Bond VIP Series
| | |
06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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 High Yield Bond VIP Series |
| | |
| | Leslie Barbi (GIS) has been a member of the investment management team of RS High Yield Bond VIP Series since July 2008. She is a managing director and head of public fixed income at The Guardian Life Insurance Company of America (“Guardian Life”). Ms. Barbi is the primary top-down strategist for the Fund’s investment team, responsible for providing assessments of the economy and providing oversight of portfolio construction and risk management. Her previous investment management experience includes serving as managing director of fixed income at Goldman Sachs Asset Management from July 2001 through March 2003, where she served as a member of the investment strategy group and head of U.S. investment grade corporates. Previously, Ms. Barbi was portfolio manager and executive vice president of fixed income at Pacific Investment Management Co., from July 1993 to February 2001. Ms. Barbi holds an A.B. in economics from Harvard University and an M.B.A. in finance from the University of Chicago Graduate School of Business. |
| |
| | Marc Gross (GIS) has been a member of the investment management team of RS High Yield Bond VIP Series since July 2008. He is a senior director of Guardian Life. Mr. Gross is responsible for issuer and security selection for the Fund, as well as industry allocations. Prior to joining Guardian Life as a senior credit analyst in October 2005, Mr. Gross was employed by the Clinton Group, a registered investment adviser, where he was responsible for high yield and distressed credit analysis, idea generation and trade execution. From 2002 to 2004, Mr. Gross worked as a senior analyst at RBC Dain Rauscher, where he focused on special situations research and trading in high yield securities. Mr. Gross holds a B.A. in history from the University of North Carolina at Chapel Hill and an M.B.A. in finance from the New York University Stern School of Business. |
| |
| | Howard G. Most (GIS) has been a member of the investment management team of RS High Yield Bond VIP Series since July 2008. He is a managing director and head of fixed income credit research at Guardian Life. Mr. Most is the head of research for the Funds’ investment team, responsible for overseeing the analyst team that provides the investment research that is used in making industry, issuer, and security selections. Mr. Most has over 20 years of investment experience, and is responsible for oversight of the credit analyst team at Guardian Life. Prior to joining Guardian Life in 1998, Mr. Most was a managing director at Salomon Smith Barney, having earlier been at UBS Securities and Drexel Burnham Lambert. Mr. Most began his bond research career at Moody’s Investors Service and Standard & Poor’s Corporation. Mr. Most received a B.A. from City College of New York, a J.D. from Fordham University, and an M.B.A. from Columbia University. |
The Statement of Additional Information provides further information about the portfolio manager, including information regarding his compensation, other accounts he manages, and his ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
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RS High Yield Bond VIP Series | | 3 |
| | |
| | RS High Yield Bond VIP Series (continued) |
Highlights
Ø | | New portfolio management team appointed July 2008. |
Ø | | The RS High Yield Bond VIP Series underperformed its benchmark, the Lehman Brothers U.S. High Yield Index3, by 0.84% during the first half of the year in a highly volatile high yield market. |
Ø | | Performance was adversely affected by exposure to the utilities and gaming sectors. |
Ø | | These losses were partially offset by strengths in the non-captive consumer finance and energy sectors. |
Market Overview
The environment for high yield bonds in the first half of 2008 was quite difficult. High yield bonds recorded negative returns in the first quarter on elevated concerns regarding subprime mortgages as well as an uncertain economy. After positive returns in April and May, the high yield market was notably lower in June. The market continues to contend with the credit crisis, depreciating housing values and an overhang of new-issue backlog. An uncertain economy and tightening credit conditions, as well as increasing default rates, are some issues that continue to weigh on the markets.
The environment for high yield primary issuance was and remains challenging. During the first half of 2008, $43 billion of new issuance was priced. The pace of supply was considerably less than in 2007, when $138 billion of new issuance was priced during the year. Although the backlog of funded high yield bond and loan issuance was considerably reduced during the period, a substantial backlog remains.
Performance
The RS High Yield Bond VIP Series declined 2.15% for the six month period ended June 30, 2008. The Fund underperformed its benchmark, the Lehman Brothers U.S. Corporate High Yield Index, which declined 1.31% for the same period.
Portfolio Review
The Fund’s overweighted position in the non-captive consumer finance sector contributed positively to performance in the first half of the year. Within the sector, we primarily held bonds of Residential Capital LLC due June 9th 2008, which were redeemed at par. We correctly assessed that Residential Capital would have access to funds to redeem the bonds.
Our overweight allocation in the energy sector also contributed to the Fund’s performance during the first half of the year, particularly in the independent energy and oilfield services sectors. Traditionally a defensive sector, energy companies have also benefited from record crude oil and natural gas prices. Oilfield services companies have been the beneficiaries of increased capital spending in the energy and petroleum sector. We believe that these positive trends may persist given the robust commodity price environment, though we remain cognizant of the mid to longer-term demand implications of higher energy prices.
The gaming sector was one of the bottom-performing sectors in the first half for the Fund’s benchmark. Traditionally viewed as a defensive sector, gaming has been under pressure from ongoing concerns about the weakening U.S. economy and the impact of slowing consumer spending on casino company revenues and cash flows. Announced capacity cuts by major airlines serving Las Vegas and rising airfares and fees are contributing additional pressure. While we reduced exposure to the gaming sector during the period, the Fund was overweighted in the sector and ended the period with a small overweight.
The Fund underperformed in utilities, which was attributable primarily to our underweighting in the sector. For the first half of 2008, the independent power producers and unregulated utilities sector outperformed because of the sector’s defensive nature. As market volatility increased, the utility sector became more attractive. Consequently, over the first half of the year, utilities outperformed other sectors despite concerns of a recession.
On an issuer basis, the largest detractor from performance came from IndyMac Bancorp, which is primarily an Alt-A mortgage lender that has been negatively affected by the deterioration in the overall mortgage market. As of June 30, 2008, this security constituted 0.05% of the Fund’s portfolio.
| | |
4 | | RS High Yield Bond VIP Series |
Outlook
The positive performance in April and May was overshadowed by the June market correction. We believe the correction was attributable to reduced investor demand, high market volatility, constrained bank lending ability, and fear of a recession. Although the backlog in both the high yield bond and the bank loan markets was considerably reduced, we believe that further reduction in the backlog is necessary to permit normalized market conditions. Even though aggressive Federal Reserve Board and government intervention through both monetary and fiscal measures was taken to enhance liquidity in the financial markets, we expect an extended period of economic weakness primarily due to constrained lending and weak consumer spending due to lower income growth, rising unemployment, falling home prices and a limited ability to borrow.
For 2008, we believe the high yield market’s performance and credit spreads will be affected by monetary policy, inflation, labor markets, energy, housing, the new-issue calendar and the uncertain economic environment. Lower freight rates, a decrease in paper container volume and a slowdown in corporate earnings and cash flow indicate a slowing in economic growth. The relatively low default rates, flexible monetary policy and sufficient liquidity that have been present have provided a counterbalance to an elevated backlog and increased risk aversion. However, if, as we expect, a longer period of slow economic growth persists, it could lead to decelerating earnings growth, an increasing default rate and a further widening in spreads. Therefore, as the new portfolio management team appointed in July 2008, we intend to continue to structure the portfolio conservatively on a credit-quality basis and closely monitor both individual credits and the economic trends.
We thank you for your continued investment and support.
| | |
Leslie Barbi Co-Portfolio Manager Howard G. Most Co-Portfolio Manager | | Marc Gross Co-Portfolio Manager |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. 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.
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RS High Yield Bond VIP Series | | 5 |
| | |
| | RS High Yield Bond VIP Series (continued) |
| | |
Total Net Assets: $58,524,607 | | Data as of June 30, 2008 |
| | |
| | Bond Quality1 |
| | |
| | Top Ten Holdings2 |
| | | | | | |
| | | |
Company | | Coupon | | Maturity | | Percentage of Total Net Assets |
HCA, Inc. | | 9.125% | | 11/15/14 | | 1.88% |
Ford Motor Credit Co. | | 7.250% | | 10/25/11 | | 1.58% |
HCA, Inc. | | 9.250% | | 11/15/16 | | 1.53% |
Block Communications, Inc. | | 8.250% | | 12/15/15 | | 1.43% |
Caraustar Inds., Inc. | | 7.375% | | 06/01/09 | | 1.41% |
Texas Competitive Electric Holdings Co. LLC | | 10.250% | | 11/01/15 | | 1.31% |
Iron Mountain, Inc. | | 8.625% | | 04/01/13 | | 1.29% |
Graphic Packaging International, Inc. | | 9.500% | | 08/15/13 | | 1.25% |
Rainbow National Services LLC | | 8.750% | | 09/01/12 | | 1.21% |
CDX North America High Yield | | 8.875% | | 06/29/13 | | 1.20% |
Total | | | | | | 14.09% |
1 | Source: Standard and Poor’s Rating or equivalent rating. |
2 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
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. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
| | |
6 | | RS High Yield Bond VIP Series |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | | | |
| | | | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | Since Inception | | |
RS High Yield Bond VIP Series | | 09/13/99 | | -2.15% | | -3.50% | | 3.37% | | 5.33% | | 4.37% | | |
Lehman Brothers U.S. Corporate High Yield Index3 | | | | -1.31% | | -2.26% | | 4.55% | | 6.93% | | 5.75% | | |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 09/13/99 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 0.80%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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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. The example below 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 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $978.50 | | $3.73 | | 0.76% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,021.09 | | $3.81 | | `0.76% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
8 | | RS High Yield Bond VIP Series |
| | |
| | Schedule of Investments – RS High Yield Bond VIP Series |
| | | | | | | | |
June 30, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Corporate Bonds — 91.7% | | | |
Advertising — 1.5% | | | |
Lamar Media Corp. Sr. Nt. 6.625% due 8/15/2015 | | Ba3/BB- | | $ | 370,000 | | $ | 336,700 |
RH Donnelley, Inc. 11.75% due 5/15/2015(1) | | B3/B+ | | | 565,688 | | | 511,947 |
| | | | | | | | |
| | | | | | | | 848,647 |
Aerospace & Defense — 2.6% | | | |
BE Aerospace, Inc. Sr. Nt. 8.50% due 7/1/2018 | | Ba3/BB+ | | | 130,000 | | | 130,487 |
Communications & Power Industries, Inc. Sr. Sub. Nt. 8.00% due 2/1/2012 | | B3/B- | | | 370,000 | | | 361,675 |
DRS Technologies, Inc. Sr. Sub. Nt. 7.625% due 2/1/2018 | | B3/B | | | 442,000 | | | 467,415 |
L-3 Communications Corp. | | | | | | | | |
Sr. Sub. Nt. | | | | | | | | |
5.875% due 1/15/2015 | | Ba3/BB+ | | | 130,000 | | | 119,925 |
6.375% due 10/15/2015 | | Ba3/BB+ | | | 150,000 | | | 140,250 |
Moog, Inc. Sr. Sub. Nt. 7.25% due 6/15/2018(1) | | Ba3/BB- | | | 325,000 | | | 321,750 |
| | | | | | | | |
| | | | | | | | 1,541,502 |
Auto Parts & Equipment — 0.2% | | | |
Tenneco, Inc. Sr. Nt. 8.125% due 11/15/2015(1) | | B2/BB- | | | 130,000 | | | 117,650 |
| | | | | | | | |
| | | | | | | | 117,650 |
Automotive — 5.9% | | | |
American Axle & Manufacturing, Inc. Sr. Nt. 7.875% due 3/1/2017 | | B1/BB- | | | 100,000 | | | 73,000 |
Ford Motor Credit Co. | | | | | | | | |
Nt. | | | | | | | | |
6.75% due 8/15/2008 | | B1/B | | | 700,000 | | | 694,779 |
Sr. Nt. | | | | | | | | |
7.25% due 10/25/2011 | | B1/B | | | 1,190,000 | | | 922,203 |
8.00% due 12/15/2016 | | B1/B | | | 300,000 | | | 218,029 |
9.75% due 9/15/2010 | | B1/B | | | 457,000 | | | 398,450 |
9.875% due 8/10/2011 | | B1/B | | | 430,000 | | | 362,304 |
General Motors Corp. Sr. Deb. 8.375% due 7/15/2033 | | Caa1/B | | | 540,000 | | | 319,950 |
Goodyear Tire & Rubber Co. | | | | | | | | |
6.678% due 12/1/2009(2) | | Ba3/BB- | | | 110,000 | | | 109,175 |
Sr. Nt. | | | | | | | | |
8.625% due 12/1/2011 | | Ba3/BB- | | | 72,000 | | | 72,720 |
TRW Automotive, Inc. 7.25% due 3/15/2017(1) | | Ba3/BB | | | 338,000 | | | 283,920 |
| | | | | | | | |
| | | | | | | | 3,454,530 |
| | | | | | | | |
June 30, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Building Materials — 0.6% | | | |
Norcraft Cos. L.P. Sr. Sub. Nt. 9.00% due 11/1/2011 | | B1/B+ | | $ | 375,000 | | $ | 376,875 |
| | | | | | | | |
| | | | | | | | 376,875 |
Chemicals — 2.1% | | | | | | | | |
Airgas, Inc. 7.125% due 10/1/2018(1) | | Ba2/BB+ | | | 210,000 | | | 211,575 |
Koppers, Inc. Sr. Nt. 9.875% due 10/15/2013 | | Ba3/B+ | | | 298,000 | | | 312,900 |
Momentive Performance Materials, Inc. Sr. Nt. 9.75% due 12/1/2014(2) | | B3/B | | | 460,000 | | | 393,300 |
Nalco Co. Sr. Sub. Nt. 8.875% due 11/15/2013 | | B3/B- | | | 315,000 | | | 322,875 |
| | | | | | | | |
| | | | | | | | 1,240,650 |
Computers — 0.7% | | | | | | | | |
Seagate Technology HDD Holdings 6.80% due 10/1/2016 | | Ba1/BB+ | | | 420,000 | | | 383,250 |
| | | | | | | | |
| | | | | | | | 383,250 |
Construction Machinery — 0.8% | | | |
Titan International, Inc. Sr. Nt. 8.00% due 1/15/2012 | | Caa1/B- | | | 120,000 | | | 117,600 |
United Rentals NA, Inc. Sr. Sub. Nt. 7.75% due 11/15/2013 | | B2/B | | | 448,000 | | | 358,400 |
| | | | | | | | |
| | | | | | | | 476,000 |
Consumer Products — 0.9% | | | |
Elizabeth Arden, Inc. Sr. Sub. Nt. 7.75% due 1/15/2014 | | B1/B+ | | | 555,000 | | | 520,313 |
| | | | | | | | |
| | | | | | | | 520,313 |
Diversified Financial Services — 3.3% | | | |
CDX North America High Yield Ser. 10 -T 8.875% due 6/29/2013(1) | | B3/NR | | | 760,000 | | | 702,050 |
GMAC LLC Sr. Nt. 6.875% due 9/15/2011 | | B3/B | | | 260,000 | | | 186,829 |
Rainbow National Services LLC 8.75% due 9/1/2012(1) | | B1/BB | | | 700,000 | | | 710,500 |
Stallion Oilfield Services Sr. Nt. 9.75% due 2/1/2015(1) | | Caa1/B | | | 420,000 | | | 357,000 |
| | | | | | | | |
| | | | | | | | 1,956,379 |
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, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Diversified Manufacturing — 0.1% | | | |
ESCO Corp. Sr. Nt. 8.625% due 12/15/2013(1) | | B2/B | | $ | 65,000 | | $ | 65,650 |
| | | | | | | | |
| | | 65,650 |
Electric — 6.1% | | | | | | | | |
AES Corp. | | | | | | | | |
Sr. Nt. | | | | | | | | |
8.00% due 10/15/2017 | | B1/BB- | | | 260,000 | | | 254,800 |
8.00% due 6/1/2020(1) | | B1/BB- | | | 520,000 | | | 501,800 |
Dynegy Holdings, Inc. Sr. Nt. 7.75% due 6/1/2019 | | B2/B | | | 340,000 | | | 309,400 |
Edison Mission Energy Sr. Nt. 7.00% due 5/15/2017 | | B1/BB- | | | 270,000 | | | 252,450 |
NRG Energy, Inc. Sr. Nt. 7.375% due 1/15/2017 | | B1/B | | | 475,000 | | | 448,875 |
Reliant Energy, Inc. | | | | | | | | |
Sr. Nt. | | | | | | | | |
7.625% due 6/15/2014 | | B1/BB- | | | 270,000 | | | 263,250 |
7.875% due 6/15/2017 | | B1/BB- | | | 135,000 | | | 131,962 |
Sierra Pacific Resources Sr. Nt. 8.625% due 3/15/2014 | | Ba3/BB | | | 390,000 | | | 408,843 |
Texas Competitive Electric Holdings Co. LLC | | | | | | | | |
10.25% due 11/1/2015(1) | | B3/CCC | | | 1,040,000 | | | 1,019,200 |
| | | | | | | | |
| | | | | | | | 3,590,580 |
Electrical Components & Equipment — 0.2% | | | |
Belden, Inc. Sr. Sub. Nt. 7.00% due 3/15/2017 | | Ba1/BB- | | | 135,000 | | | 129,600 |
| | | | | | | | |
| | | | | | | | 129,600 |
Electronics — 0.7% | | | |
Jabil Circuit, Inc. Sr. Nt. 8.25% due 3/15/2018(1) | | Ba1/BB+ | | | 420,000 | | | 418,950 |
| | | | | | | | |
| | | | | | | | 418,950 |
Energy — 8.2% | | | |
Allis-Chalmers Energy, Inc. Sr Nt. 9.00% due 1/15/2014 | | B2/B | | | 210,000 | | | 203,175 |
Chaparral Energy, Inc. Sr. Nt. 8.50% due 12/1/2015 | | Caa1/B- | | | 635,000 | | | 550,862 |
Chesapeake Energy Corp. Sr. Nt. 7.625% due 7/15/2013 | | Ba3/BB | | | 255,000 | | | 255,638 |
Cimarex Energy Co. Sr. Nt. 7.125% due 5/1/2017 | | B1/BB | | | 215,000 | | | 211,238 |
| | | | | | | | |
June 30, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Energy — (continued) | | | |
Compagnie Generale de Geophysique-Veritas Sr. Nt. 7.75% due 5/15/2017 | | Ba3/BB | | $ | 65,000 | | $ | 65,081 |
Complete Production Services, Inc. Sr. Nt. 8.00% due 12/15/2016 | | B2/BB- | | | 390,000 | | | 389,512 |
El Paso Corp. Sr. Nt. 7.00% due 6/15/2017 | | Ba3/BB- | | | 390,000 | | | 381,688 |
Encore Acquisition Co. Sr. Sub. Nt. 7.25% due 12/1/2017 | | B1/B+ | | | 450,000 | | | 438,750 |
Hilcorp Energy I L.P. | | | | | | | | |
Sr. Nt. | | | | | | | | |
7.75% due 11/1/2015(1) | | B3/BB- | | | 125,000 | | | 120,000 |
9.00% due 6/1/2016(1) | | B3/BB- | | | 170,000 | | | 172,975 |
Mariner Energy, Inc. Sr. Nt. 8.00% due 5/15/2017 | | B3/B+ | | | 215,000 | | | 208,013 |
OPTI Canada, Inc. | | | | | | | | |
Sr. Sec. Nt. | | | | | | | | |
7.875% due 12/15/2014 | | B1/BB+ | | | 150,000 | | | 148,125 |
8.25% due 12/15/2014 | | B1/BB+ | | | 470,000 | | | 467,650 |
Peabody Energy Corp. 6.875% due 3/15/2013 | | Ba1/BB | | | 360,000 | | | 360,900 |
Southwestern Energy Co. Sr. Nt. 7.50% due 2/1/2018(1) | | Ba2/BB+ | | | 520,000 | | | 535,033 |
Whiting Petroleum Corp. Sr. Sub. Nt. 7.00% due 2/1/2014 | | B1/BB- | | | 300,000 | | | 294,375 |
| | | | | | | | |
| | | | | | | | 4,803,015 |
Energy-Refining — 0.4% | | | |
Petroplus Finance Ltd. | | | | | | | | |
Sr. Nt. | | | | | | | | |
6.75% due 5/1/2014(1) | | B1/BB- | | | 75,000 | | | 67,875 |
7.00% due 5/1/2017(1) | | B1/BB- | | | 210,000 | | | 185,325 |
| | | | | | | | |
| | | | | | | | 253,200 |
Entertainment — 0.4% | | | |
Scientific Games Corp. 7.875% due 6/15/2016(1) | | Ba3/BB- | | | 210,000 | | | 208,950 |
| | | | | | | | |
| | | | | | | | 208,950 |
Environmental — 0.4% | | | |
Allied Waste NA, Inc. Sr. Nt. 7.875% due 4/15/2013 | | B1/BB | | | 250,000 | | | 254,375 |
| | | | | | | | |
| | | | | | | | 254,375 |
Food & Beverage — 3.3% | | | |
Aramark Corp. | | | | | | | | |
Sr. Nt. | | | | | | | | |
6.373% due 2/1/2015(2) | | B3/B | | | 108,000 | | | 100,980 |
8.50% due 2/1/2015 | | B3/B | | | 658,000 | | | 644,840 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS High Yield Bond VIP Series |
| | | | | | | | |
June 30, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Food & Beverage (continued) | | | |
ASG Consolidated LLC Sr. Disc. Nt. 11.50% due 11/1/2011(3) | | B3/B+ | | $ | 420,000 | | $ | 388,500 |
Constellation Brands, Inc. 7.25% due 5/15/2017 | | Ba3/BB- | | | 270,000 | | | 252,450 |
Michael Foods, Inc. Sr. Sub. Nt. 8.00% due 11/15/2013 | | B3/B- | | | 580,000 | | | 571,300 |
| | | | | | | | |
| | | | | | | | 1,958,070 |
Gaming — 3.5% | | | |
Boyd Gaming Corp. | | | | | | | | |
Sr. Sub. Nt. | | | | | | | | |
6.75% due 4/15/2014 | | B1/BB | | | 170,000 | | | 130,900 |
7.125% due 2/1/2016 | | B1/BB | | | 340,000 | | | 250,750 |
Buffalo Thunder Development Authority Sr. Sec. Nt. 9.375% due 12/15/2014(1) | | B2/B | | | 110,000 | | | 73,700 |
MGM Mirage, Inc. Sr. Nt. 7.50% due 6/1/2016 | | Ba2/BB | | | 445,000 | | | 366,013 |
Pokagon Gaming Authority Sr. Nt. 10.375% due 6/15/2014(1) | | B3/B | | | 158,000 | | | 169,455 |
Seminole Hard Rock Entertainment, Inc. Sr. Sec. Nt. 5.276% due 3/15/2014(1)(2) | | B1/BB | | | 60,000 | | | 50,400 |
Seneca Gaming Corp. Sr. Nt. 7.25% due 5/1/2012 | | Ba2/BB | | | 505,000 | | | 473,437 |
Shingle Springs Tribal Gaming Authority Sr. Nt. 9.375% due 6/15/2015(1) | | B3/B | | | 270,000 | | | 219,375 |
Snoqualmie Entertainment Authority Nt. 9.125% due 2/1/2015(1) | | B3/B | | | 420,000 | | | 310,800 |
| | | | | | | | |
| | | | | | | | 2,044,830 |
Health Care — 8.4% | | | |
Alliance Imaging, Inc. | | | | | | | | |
Sr. Sub. Nt. 7.25% due 12/15/2012 | | B3/B- | | | 800,000 | | | 752,000 |
Community Health Systems, Inc. 8.875% due 7/15/2015 | | B3/B | | | 690,000 | | | 694,313 |
DaVita, Inc. 7.25% due 3/15/2015 | | B2/B | | | 430,000 | | | 418,175 |
Fresenius Medical Care Capital Tr. 7.875% due 6/15/2011 | | Ba3/BB | | | 310,000 | | | 320,850 |
HCA, Inc. | | | | | | | | |
Sr. Nt. | | | | | | | | |
6.75% due 7/15/2013 | | Caa1/B- | | | 430,000 | | | 377,325 |
Sec. Nt. | | | | | | | | |
9.125% due 11/15/2014 | | B2/BB- | | | 1,077,000 | | | 1,101,232 |
9.25% due 11/15/2016 | | B2/BB- | | | 870,000 | | | 896,100 |
| | | | | | | | |
June 30, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Health Care (continued) | | | |
Health Management Associates, Inc. Sr. Nt. 6.125% due 4/15/2016 | | NR/BB- | | $ | 395,000 | | $ | 345,625 |
| | | | | | | | |
| | | | | | | | 4,905,620 |
Insurance — 0.5% | | | |
UnumProvident Finance Co. Sr. Nt. 6.85% due 11/15/2015(1) | | Ba1/BB+ | | | 300,000 | | | 297,783 |
| | | | | | | | |
| | | | | | | | 297,783 |
Iron-Steel — 1.0% | | | |
Steel Dynamics, Inc. Sr. Nt. 7.375% due 11/1/2012(1) | | Ba2/BB+ | | | 600,000 | | | 600,000 |
| | | | | | | | |
| | | | | | | | 600,000 |
Leisure Time — 1.0% | | | |
Royal Caribbean Cruises Ltd. | | | | | | | | |
Sr. Nt. | | | | | | | | |
6.875% due 12/1/2013 | | Ba1/BB+ | | | 260,000 | | | 226,200 |
7.00% due 6/15/2013 | | Ba1/BB+ | | | 390,000 | | | 345,150 |
| | | | | | | | |
| | | | | | | | 571,350 |
Lodging — 2.5% | | | |
Harrah’s Operating Co., Inc. 10.75% due 2/1/2016(1) | | B3/B+ | | | 650,000 | | | 539,500 |
Host Marriott L.P. Sr. Nt. Ser. O 6.375% due 3/15/2015 | | Ba1/BB | | | 675,000 | | | 597,375 |
Station Casinos, Inc. Sr. Nt. 7.75% due 8/15/2016 | | B2/B+ | | | 390,000 | | | 298,350 |
| | | | | | | | |
| | | | | | | | 1,435,225 |
Media—Cable — 5.1% | | | |
Cablevision Systems Corp. Sr. Nt. 8.00% due 4/15/2012(2) | | B2/B+ | | | 435,000 | | | 411,075 |
Charter Communications Operating LLC | | | | | | | | |
Sr. Sec. Nt. | | | | | | | | |
8.00% due 4/30/2012(1) | | B3/B- | | | 278,000 | | | 262,710 |
10.875% due 9/15/2014(1) | | B3/B- | | | 110,000 | | | 113,025 |
Clear Channel Communications, Inc. Sr. Nt. 5.75% due 1/15/2013 | | Baa3/CCC+ | | | 440,000 | | | 296,450 |
CSC Holdings, Inc. | | | | | | | | |
Sr. Nt. Ser. B | | | | | | | | |
7.625% due 4/1/2011 | | B1/BB | | | 315,000 | | | 308,700 |
Sr. Nt. | | | | | | | | |
8.50% due 6/15/2015(1) | | B1/BB | | | 325,000 | | | 319,312 |
DirecTV Holdings LLC Sr. Nt. 7.625% due 5/15/2016(1) | | Ba3/BB | | | 260,000 | | | 256,100 |
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, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Media—Cable (continued) | | | |
Quebecor Media, Inc. Sr. Nt. 7.75% due 3/15/2016 | | B2/B | | $ | 405,000 | | $ | 376,650 |
Sinclair Television Group, Inc. 8.00% due 3/15/2012 | | Ba3/BB- | | | 390,000 | | | 392,925 |
Videotron Ltee. Sr. Nt. 9.125% due 4/15/2018(1) | | Ba2/BB- | | | 210,000 | | | 219,450 |
Virgin Media Finance PLC Sr. Nt. 9.125% due 8/15/2016 | | B2/B- | | | 42,000 | | | 39,375 |
| | | | | | | | |
| | | | | | | | 2,995,772 |
Media – NonCable — 4.1% | | | |
Block Communications, Inc. Sr. Nt. 8.25% due 12/15/2015(1) | | B1/B+ | | | 880,000 | | | 836,000 |
Bonten Media Acquisition Co. Sr. Sub. Nt. 9.00% due 6/1/2015(1)(4) | | Caa1/CCC+ | | | 215,000 | | | 156,950 |
DirecTV Holdings LLC Sr. Nt. 8.375% due 3/15/2013 | | Ba3/BB | | | 465,000 | | | 478,950 |
EchoStar DBS Corp. Sr. Nt. 6.375% due 10/1/2011 | | Ba3/BB- | | | 530,000 | | | 511,450 |
Hughes Network Systems LLC Sr. Nt. 9.50% due 4/15/2014 | | B1/B | | | 85,000 | | | 85,956 |
Idearc, Inc. Sr. Nt. 8.00% due 11/15/2016 | | B3/B- | | | 390,000 | | | 245,213 |
Mediacom Broadband LLC Sr. Nt. 8.50% due 10/15/2015 | | B3/B- | | | 120,000 | | | 107,250 |
R.H. Donnelley Corp. Sr. Nt. Ser. A-4 8.875% due 10/15/2017(1) | | B3/B- | | | 10,000 | | | 5,950 |
| | | | | | | | |
| | | | | | | | 2,427,719 |
Metals & Mining — 1.0% | | | |
Freeport-McMoRan Copper & Gold, Inc. | | | | | | | | |
Sr. Nt. | | | | | | | | |
8.25% due 4/1/2015 | | Ba2/BBB- | | | 135,000 | | | 141,919 |
8.375% due 4/1/2017 | | Ba2/BBB- | | | 395,000 | | | 416,725 |
| | | | | | | | |
| | | | | | | | 558,644 |
Natural Gas-Distributors — 1.0% | | | |
Amerigas Partners L.P. | | | | | | | | |
Sr. Nt. | | | | | | | | |
7.125% due 5/20/2016 | | B1/NR | | | 510,000 | | | 473,025 |
7.25% due 5/20/2015 | | B1/NR | | | 110,000 | | | 102,850 |
| | | | | | | | |
| | | | | | | | 575,875 |
| | | | | | | | |
June 30, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Natural Gas – Pipelines — 1.9% | | | |
El Paso Performance-Linked Tr. Nt. 7.75% due 7/15/2011(1) | | Ba3/BB | | $ | 170,000 | | $ | 171,263 |
MarkWest Energy Partners L.P. Sr. Nt. Ser. B 8.50% due 7/15/2016 | | B2/B+ | | | 340,000 | | | 345,100 |
SemGroup L.P. Sr. Nt. 8.75% due 11/15/2015(1) | | B1/NR | | | 600,000 | | | 582,000 |
| | | | | | | | |
| | | | | | | | 1,098,363 |
Oil & Gas — 3.4% | | | | | | | | |
Atlas Energy Resources LLC Sr. Nt. 10.75% due 2/1/2018(1) | | B3/B | | | 210,000 | | | 218,400 |
Chesapeake Energy Corp. | | | | | | | | |
6.875% due 1/15/2016 | | Ba3/BB | | | 260,000 | | | 250,900 |
7.50% due 9/15/2013 | | Ba3/BB | | | 130,000 | | | 130,000 |
PetroHawk Energy Corp. Sr. Nt. 7.875% due 6/1/2015(1) | | B3/B | | | 210,000 | | | 205,012 |
Plains Exploration & Production Co. 7.625% due 6/1/2018 | | B1/BB | | | 260,000 | | | 260,000 |
Quicksilver Resources, Inc. 7.75% due 8/1/2015 | | Ba3/B | | | 390,000 | | | 386,100 |
Range Resources Corp. 7.25% due 5/1/2018 | | Ba3/BB | | | 134,000 | | | 132,995 |
SandRidge Energy, Inc. Sr. Nt. 8.00% due 6/1/2018(1) | | B3/B- | | | 390,000 | | | 391,950 |
| | | | | | | | |
| | | | | | | | 1,975,357 |
Oil & Gas Services — 1.0% | | | |
Allis-Chalmers Energy, Inc. 8.50% due 3/1/2017 | | B2/B | | | 260,000 | | | 240,500 |
Seitel, Inc. 9.75% due 2/15/2014 | | B3/B- | | | 390,000 | | | 348,563 |
| | | | | | | | |
| | | | | | | | 589,063 |
Packaging — 1.3% | | | |
Crown Americas LLC | | | | | | | | |
7.625% due 11/15/2013 | | B1/B | | | 135,000 | | | 134,663 |
7.75% due 11/15/2015 | | B1/B | | | 600,000 | | | 600,000 |
| | | | | | | | |
| | | | | | | | 734,663 |
Paper & Forest Products — 3.9% | | | |
Abitibi-Consol of Canada Sr. Sec. Nt. 13.75% due 4/1/2011(1) | | B1/B+ | | | 210,000 | | | 221,550 |
Caraustar Inds., Inc. Nt. 7.375% due 6/1/2009 | | Caa2/B- | | | 940,000 | | | 822,500 |
Catalyst Paper Corp. Sr. Nt. Ser. D 8.625% due 6/15/2011 | | B2/B- | | | 100,000 | | | 85,000 |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS High Yield Bond VIP Series |
| | | | | | | | |
June 30, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Paper & Forest Products (continued) | | | |
Graphic Packaging International, Inc. Sr. Sub. Nt. 9.50% due 8/15/2013 | | B3/B- | | $ | 764,000 | | $ | 729,620 |
Rock-Tenn Co. | | | | | | | | |
Sr. Nt. | | | | | | | | |
8.20% due 8/15/2011 | | Ba3/BB | | | 260,000 | | | 267,800 |
9.25% due 3/15/2016(1) | | Ba3/BB- | | | 130,000 | | | 137,800 |
| | | | | | | | |
| | | | | | | | 2,264,270 |
Pipelines — 0.9% | | | |
Atlas Pipeline Partners L.P. 8.75% due 6/15/2018(1) | | B3/B- | | | 520,000 | | | 516,100 |
| | | | | | | | |
| | | | | | | | 516,100 |
Retailers — 0.9% | | | |
Inergy LP/Inergy Finance Corp. 8.25% due 3/1/2016(1) | | NR/B+ | | | 400,000 | | | 394,000 |
Rent-A-Center Sr. Sub. Nt. Ser. B 7.50% due 5/1/2010 | | B2/B+ | | | 160,000 | | | 154,800 |
| | | | | | | | |
| | | | | | | | 548,800 |
Services — 1.2% | | | |
NCO Group, Inc. | | | | | | | | |
Sr. Nt. | | | | | | | | |
7.551% due 11/15/2013(2) | | B3/B- | | | 250,000 | | | 200,625 |
Sr. Sub. Nt. | | | | | | | | |
11.875% due 11/15/2014 | | Caa1/B- | | | 130,000 | | | 106,600 |
Travelport LLC Sr. Nt. 7.307% due 9/1/2014(2) | | B3/B | | | 510,000 | | | 408,000 |
| | | | | | | | |
| | | | | | | | 715,225 |
Software — 0.2% | | | |
First Data Corp. 9.875% due 9/24/2015(1) | | B3/B | | | 130,000 | | | 113,100 |
| | | | | | | | |
| | | | | | | | 113,100 |
Supermarkets — 0.6% | | | |
Delhaize America, Inc. Debt. 9.00% due 4/15/2031 | | Baa3/BBB- | | | 314,000 | | | 369,642 |
| | | | | | | | |
| | | | | | | | 369,642 |
Technology — 3.1% | | | |
Amkor Technologies, Inc. Sr. Nt. 7.75% due 5/15/2013 | | B1/B+ | | | 400,000 | | | 371,000 |
Freescale Semiconductor, Inc. Sr. Nt. | | | | | | | | |
6.651% due 12/15/2014(2) | | B2/B- | | | 130,000 | | | 102,700 |
8.875% due 12/15/2014 | | B2/B- | | | 130,000 | | | 105,625 |
Iron Mountain, Inc. Sr. Sub. Nt. 8.625% due 4/1/2013 | | B2/B+ | | | 750,000 | | | 753,750 |
| | | | | | | | |
June 30, 2008 (unaudited) | | Rating Moody’s/ S&P | | Principal Amount | | Value |
| | | | | | | | |
Technology (continued) | | | |
Nortel Networks Ltd. | | | | | | | | |
Sr. Nt. | | | | | | | | |
6.963% due 7/15/2011(2) | | B3/B- | | $ | 305,000 | | $ | 288,225 |
10.75% due 7/15/2016 | | B3/B- | | | 170,000 | | | 168,300 |
| | | | | | | | |
| | | | | | | | 1,789,600 |
Telecommunications — 1.1% | | | |
American Tower Corp. Sr. Nt. 7.00% due 10/15/2017(1) | | Ba1/BB+ | | | 520,000 | | | 514,800 |
Nortel Networks Ltd. 10.75% due 7/15/2016(1) | | B3/B- | | | 130,000 | | | 128,700 |
| | | | | | | | |
| | | | | | | | 643,500 |
Tobacco — 0.9% | | | |
Reynolds American, Inc. Sr. Sec. Nt. 7.25% due 6/1/2013 | | Baa3/BBB | | | 510,000 | | | 527,203 |
| | | | | | | | |
| | | | | | | | 527,203 |
Transportation — 1.1% | | | |
American Railcar Industries, Inc. Sr. Nt. 7.50% due 3/1/2014 | | B1/BB- | | | 340,000 | | | 316,200 |
Avis Budget Car Rental LLC | | | | | | | | |
Sr. Nt. | | | | | | | | |
5.176% due 5/15/2014(2) | | Ba3/BB- | | | 85,000 | | | 65,875 |
7.625% due 5/15/2014 | | Ba3/BB- | | | 85,000 | | | 68,000 |
7.75% due 5/15/2016 | | Ba3/BB- | | | 255,000 | | | 195,713 |
| | | | | | | | |
| | | | | | | | 645,788 |
Wireless Communications — 2.2% | | | |
Inmarsat Finance PLC Sr. Nt. 7.625% due 6/30/2012 | | Ba3/BB | | | 222,000 | | | 226,440 |
Intelsat Bermuda, Ltd. Sr. Nt. 9.25% due 6/15/2016 | | B3/BB- | | | 85,000 | | | 85,637 |
iPCS, Inc. Sec. Nt. 6.123% due 5/1/2014(2)(4) | | Caa1/CCC | | | 430,000 | | | 365,500 |
Sprint Capital Corp. 6.90% due 5/1/2019 | | Baa3/BB | | | 680,000 | | | 596,700 |
| | | | | | | | |
| | | | | | | | 1,274,277 |
Wireline Communications — 1.5% | | | |
Nordic Telephone Co. Holdings Sr. Nt. 8.875% due 5/1/2016(1) | | B2/B+ | | | 170,000 | | | 166,600 |
Qwest Corp. | | | | | | | | |
Sr. Nt. | | | | | | | | |
7.625% due 6/15/2015 | | Ba1/BBB- | | | 375,000 | | | 360,937 |
7.875% due 9/1/2011 | | Ba1/BBB- | | | 340,000 | | | 340,000 |
| | | | | | | | |
| | | | | | | | 867,537 |
| | | | | | | | |
Total Corporate Bonds (Cost $56,294,026) | | | | | | 53,683,492 |
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, 2008 (unaudited) | | | | Shares | | Value |
| | | | | | | |
Preferred Stocks — 0.1% | | | |
Thrift & Mortgage Finance — 0.1% | | | |
IndyMac Bank FSB(1)(5) | | | | 32,000 | | $ | 32,000 |
| | | | | | | |
| | | | | | | 32,000 |
| | | | | | | |
Total Preferred Stocks (Cost $800,000) | | | | | 32,000 |
| | | |
| | | | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% | | | |
RS Core Equity Fund, Class Y(6) | | | | 11 | | | 455 |
RS Emerging Growth Fund, Class Y(6) | | | | 15 | | | 530 |
RS Emerging Markets Fund, Class A(6) | | | | 15 | | | 363 |
RS Equity Dividend Fund, Class Y(6) | | | | 7 | | | 57 |
RS Global Natural Resources Fund, Class Y(6) | | | | 8 | | | 336 |
RS Growth Fund, Class Y(6) | | | | 23 | | | 289 |
RS Investment Quality Bond Fund, Class A(6) | | | | 6 | | | 57 |
RS Investors Fund, Class Y(6) | | | | 21 | | | 203 |
RS MidCap Opportunities Fund, Class Y(6) | | | | 11 | | | 132 |
RS Partners Fund, Class Y(6) | | | | 10 | | | 304 |
RS S&P 500 Index Fund, Class A(6) | | | | 6 | | | 56 |
RS Smaller Company Growth Fund, Class Y(6) | | | | 6 | | | 102 |
RS Technology Fund, Class Y(6) | | | | 11 | | | 163 |
RS Value Fund, Class Y(6) | | | | 21 | | | 538 |
| | | | | | | |
Total Other Investments (Cost $3,682) | | | | | 3,585 |
| | | | | | | | |
| | | |
June 30, 2008 (unaudited) | | | | Principal Amount | | Value |
| | | | | | | | |
Repurchase Agreements — 6.2% | | | |
State Street Bank and Trust Co. Repurchase Agreement, 2.10% dated 6/30/2008, maturity value of $3,610,211 due 7/1/2008, collateralized by FHMLC, 5.500%, due 8/23/2017, with a value of $3,682,962 | | $ | 3,610,000 | | $ | 3,610,000 |
| | | | | | | | |
Total Repurchase Agreements (Cost $3,610,000) | | | 3,610,000 |
| | | | | | | | |
Total Investments — 98.0% (Cost $60,707,708) | | | 57,329,077 |
Other Assets, Net — 2.0% | | | | | | | | 1,195,530 |
| | | | | | | | |
Total Net Assets — 100.0% | | | | | $ | 58,524,607 |
(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, 2008, the aggregate market value of these securities amounted to $14,735,935, representing 25.6% of net assets of which $14,703,935 have been deemed liquid by the investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees. |
(2) | Variable rate demand note. The rate shown is the rate in effect at June 30, 2008. |
(4) | Payment-in-kind security for which part of the income earned may be paid as additional principal. |
(5) | Security deemed illiquid by the investment adviser. |
(6) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 – Quoted Prices | | $ | 3,613,585 |
Level 2 – Significant Other Observable Inputs | | | 53,715,492 |
Level 3 – Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 57,329,077 |
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, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 57,329,077 | |
Cash and cash equivalents | | | 183 | |
Interest receivable | | | 976,968 | |
Receivable for investments sold | | | 441,676 | |
Receivable for fund shares subscribed | | | 1,649 | |
Prepaid expenses | | | 1,471 | |
| | | | |
| | | | |
Total Assets | | | 58,751,024 | |
| | | | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 130,747 | |
Payable to adviser | | | 29,273 | |
Accrued shareholder reports expense | | | 25,159 | |
Payable for fund shares redeemed | | | 17,151 | |
Accrued audit fees | | | 13,839 | |
Trustees’ deferred compensation | | | 3,585 | |
Accrued expenses/other liabilities | | | 6,663 | |
| | | | |
Total Liabilities | | | 226,417 | |
| | | | |
Total Net Assets | | $ | 58,524,607 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 67,636,004 | |
Accumulated undistributed net investment income | | | 2,397,099 | |
Accumulated net realized loss from investments | | | (8,129,865 | ) |
Net unrealized depreciation on investments | | | (3,378,631 | ) |
| | | | |
Total Net Assets | | $ | 58,524,607 | |
| | | | |
Investments, at Cost | | $ | 60,707,708 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 7,572,936 | |
| |
Net Asset Value Per Share | | | $7.73 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 2,608,547 | |
Dividends | | | 16,961 | |
| | | | |
Total Investment Income | | | 2,625,508 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 177,974 | |
Custodian fees | | | 17,379 | |
Shareholder reports | | | 12,873 | |
Professional fees | | | 8,594 | |
Administrative service fees | | | 4,330 | |
Trustees’ fees and expenses | | | 1,909 | |
Insurance expense | | | 1,147 | |
Other expense | | | 716 | |
| | | | |
Total Expenses | | | 224,922 | |
| | | | |
Net Investment Income | | | 2,400,586 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized loss from investments | | | (2,989,104 | ) |
Net change in unrealized depreciation on investments | | | (763,807 | ) |
| | | | |
Net Loss on Investments | | | (3,752,911 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (1,352,325 | ) |
| | | | |
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 06/30/08 | | | For the Year Ended 12/31/07 | | | |
Operations | | | | | | | | | | |
Net investment income | | $ | 2,400,586 | | | $ | 4,841,506 | | | |
Net realized gain/(loss) from investments | | | (2,989,104 | ) | | | 125,260 | | | |
Net change in unrealized depreciation on investments | | | (763,807 | ) | | | (4,190,359 | ) | | |
| | | | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Operations | | | (1,352,325 | ) | | | 776,407 | | | |
| | | | | | | | | | |
| | | |
Distributions to Shareholders | | | | | | | | | | |
Net investment income | | | — | | | | (4,868,494 | ) | | |
| | | | | | | | | | |
Total Distributions | | | — | | | | (4,868,494 | ) | | |
| | | | | | | | | | |
| | | |
Capital Share Transactions | | | | | | | | | | |
Proceeds from sales of shares | | | 1,670,248 | | | | 6,858,045 | | | |
Reinvestment of distributions | | | — | | | | 4,868,494 | | | |
Cost of shares redeemed | | | (4,217,250 | ) | | | (9,568,386 | ) | | |
| | | | | | | | | | |
Net Increase/(Decrease) in Net Assets Resulting from Capital Share Transactions | | | (2,547,002 | ) | | | 2,158,153 | | | |
| | | | | | | | | | |
Net Decrease in Net Assets | | | (3,899,327 | ) | | | (1,933,934 | ) | | |
| | | |
Net Assets | | | | | | | | | | |
| | | |
Beginning of period | | | 62,423,934 | | | | 64,357,868 | | | |
| | | | | | | | | | |
End of period | | $ | 58,524,607 | | | $ | 62,423,934 | | | |
| | | | | | | | | | |
Distributions in Excess of Net Investment Income Included in Net Assets | | $ | — | | | $ | (3,487 | ) | | |
| | | | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 2,397,099 | | | $ | — | | | |
| | | | | | | | | | |
| | | |
Other Information: | | | | | | | | | | |
| | | |
Shares | | | | | | | | | | |
Sold | | | 215,384 | | | | 795,331 | | | |
Reinvested | | | — | | | | 617,829 | | | |
Redeemed | | | (546,796 | ) | | | (1,106,746 | ) | | |
| | | | | | | | | | |
Net Increase/(Decrease) | | | (331,412 | ) | | | 306,414 | | | |
| | | | | | | | | | |
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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 7.90 | | $ | 0.32 | | $ | (0.49 | ) | | $ | (0.17 | ) | | $ | — | | | $ | — | | $ | — | |
| | | | | | | |
Year Ended 12/31/07 | | | 8.47 | | | 0.67 | | | (0.57 | ) | | | 0.10 | | | | (0.67 | ) | | | — | | | (0.67 | ) |
| | | | | | | |
Year Ended 12/31/06 | | | 8.33 | | | 0.61 | | | 0.14 | | | | 0.75 | | | | (0.61 | ) | | | — | | | (0.61 | ) |
| | | | | | | |
Year Ended 12/31/05 | | | 8.60 | | | 0.55 | | | (0.27 | ) | | | 0.28 | | | | (0.55 | ) | | | — | | | (0.55 | ) |
| | | | | | | |
Year Ended 12/31/04 | | | 8.43 | | | 0.58 | | | 0.17 | | | | 0.75 | | | | (0.58 | ) | | | — | | | (0.58 | ) |
| | | | | | | |
Year Ended 12/31/03 | | | 7.61 | | | 0.53 | | | 0.82 | | | | 1.35 | | | | (0.53 | ) | | | — | | | (0.53 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
18 | | RS High Yield Bond VIP Series |
| | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return3 | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets2 | | | Gross Ratio of Expenses to Average Net Assets | | Net Ratio of Net Investment Income to Average Net Assets2 | | | Gross Ratio of Net Investment Income to Average Net Assets | | Portfolio Turnover Rate |
| | | | | | | |
$ | 7.73 | | (2.15)% | | $ | 58,525 | | 0.76% | | | 0.76% | | 8.09% | | | 8.09% | | 43% |
| | | | | | | |
| 7.90 | | 1.19% | | | 62,424 | | 0.76% | | | 0.80% | | 7.49% | | | 7.45% | | 97% |
| | | | | | | |
| 8.47 | | 9.17% | | | 64,358 | | 0.76% | | | 0.77% | | 6.94% | | | 6.93% | | 88% |
| | | | | | | |
| 8.33 | | 3.30% | | | 63,890 | | 0.80% | | | 0.80% | | 6.35% | | | 6.35% | | 88% |
| | | | | | | |
| 8.60 | | 9.22% | | | 63,340 | | 0.79% | | | 0.79% | | 6.97% | | | 6.97% | | 90% |
| | | | | | | |
| 8.43 | | 17.95% | | | 54,424 | | 0.81% | | | 0.81% | | 7.17% | | | 7.17% | | 165% |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratios for periods of 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 fee waivers and expense limitations and custody credits, if applicable. |
| 3 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’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.
| | |
RS High Yield Bond VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS High Yield Bond VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS High Yield Bond VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. Investment Valuations
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 are valued by the Service at estimated market value based on methods which may 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.
Other 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 is generally 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 4b). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
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 can
| | |
20 | | RS High Yield Bond VIP Series |
involve a substantially greater risk of default than higher-rated securities, and their values can decline significantly over short periods of time. Lower-quality debt securities tend to be more sensitive to adverse news about the issuer, or the market economy in general, than higher quality debt securities. The market for these securities can be less liquid, especially during periods of recession or general market decline.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Investment Income
Dividend income is generally recorded on the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
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RS High Yield Bond VIP Series | | 21 |
| | |
| | Notes to Financial Statements — RS High Yield Bond VIP Series (unaudited) (continued) |
e. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
f. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
g. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
h. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
i. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.60%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with GIS. GIS is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision and direction of the Board of Trustees of the Trust and review by 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 the Fund. Payment of the sub-advisory fee 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 the Fund’s total annual fund operating expenses to 0.76% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
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22 | | RS High Yield Bond VIP Series |
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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
| |
Ordinary Income Total |
$ | 4,868,494 |
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 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. 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.
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.
Capital loss carryovers available to the Fund at December 31, 2007 were as follows:
| | | |
Expiring | | Amount |
2009 | | $ | 2,047,830 |
2010 | | | 2,886,016 |
| | | |
Total | | $ | 4,933,846 |
During the year ended December 31, 2007, the Fund utilized capital loss carryovers of $307,362.
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, 2007, which is the most recently completed tax year, the Fund had $190,851 in deferred losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $60,710,359. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $334,848 and $(3,716,130), respectively, resulting in net unrealized depreciation of $(3,381,282).
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) for the six months ended June 30, 2008, were as follows:
| | | |
| | Investments |
Purchases | | $ | 23,804,503 |
Sales | | $ | 25,358,097 |
b. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon)
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RS High Yield Bond VIP Series | | 23 |
| | |
| | Notes to Financial Statements — RS High Yield Bond VIP Series (unaudited) (continued) |
and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
c. Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreements with banks or third party broker/dealers to borrow funds. Interest payable on a reverse repurchase agreement is based upon competitive market rates at the time of issuance. When the Fund enters into a reverse repurchase agreement, it 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 a buyer of the securities sold by the Fund may be unable to deliver the securities when the Fund seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in the Fund’s net asset value and may be viewed as a form of leverage.
d. Dollar Rolls
The Fund may enter into dollar rolls (principally using TBAs) in which the Fund sells mortgage-related 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 from the same party. 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. The Fund 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 a buyer of the securities sold by the Fund may be unable to deliver the replacement securities when it is required to do so. Dollar rolls may increase fluctuations in the Fund’s net asset value and may be viewed as a form of leverage.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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.
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24 | | RS High Yield Bond VIP Series |
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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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.
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RS High Yield Bond VIP Series | | 25 |
| | |
| | Notes to Financial Statements — RS High Yield Bond VIP Series (unaudited) (continued) |
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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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26 | | RS High Yield Bond VIP Series |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 – 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger,
* The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting.
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RS High Yield Bond VIP Series | | 27 |
| | |
| | Supplemental Information — unaudited (continued) |
deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the
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28 | | RS High Yield Bond VIP Series |
management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout
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RS High Yield Bond VIP Series | | 29 |
| | |
| | Supplemental Information — unaudited (continued) |
the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
| | |
30 | | RS High Yield Bond VIP Series |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
| | |
RS High Yield Bond VIP Series | | 31 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
| | |
32 | | RS High Yield Bond VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
| | |
RS High Yield Bond VIP Series | | 33 |
RS Variable Products Trust
RS Money Market VIP Series
| | |
06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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, Jr. Alexander M. Grant, Jr. (GIS) has managed RS Money Market VIP Series since 1986.* Mr. Grant has been managing director at The Guardian Life Insurance Company of America (“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 operations of the Fund. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | As of June 30, 2008, the Federal Funds target rate was 2.00% and the discount rate was 2.25%, both lower by 2.25% and 2.50%, respectively, during the first half of the year. |
Ø | | After cutting rates by 2.00% in the first quarter of 2008, the Federal Open Market Committee (FOMC) further cut rates by 0.25% in the first month of the second quarter, and held rates steady at the June meeting. |
Ø | | The Federal Reserve Board introduced a series of new programs to bring liquidity back into the markets, which included the Term Auction Facility, the Primary Dealer Credit Facility and the Term Securities Lending Facility. These programs seem likely to stay in place into 2009. |
Performance
As of June 30th, 2008, the effective 7-day net annualized yield for the RS Money Market VIP Series was 1.75%. The effective 7-day annualized yield of Tier One money market funds was 1.83% as measured by iMoneyNet, Inc., a research firm that tracks money market funds.
Market Overview
Money market funds are directly affected by the actions of the Federal Reserve Board (the “Fed”), and at the beginning of the second quarter of 2008, the Federal Funds rate stood at 2.25%. The Federal Funds rate 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, the Fed can move member banks in the direction of that target rate. Throughout the year, money market issuers altered their rate offerings in response to monetary policy and interest rate expectations.
Since last summer, financial markets in the United States have been under considerable strain. The financial turmoil was triggered by investors’ concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates. Investors began questioning the reliability of credit ratings on a range of financial products. Issuers of asset-backed commercial paper (ABCP) were forced to exercise their extension options as investors began to shun new ABCP offerings, and the amount of ABCP outstanding dropped dramatically as investors sought safe havens for maturing cash positions. Problems also arose for issuers of structured investment vehicles (SIVs), as the value of the assets held within these programs declined, making the programs unattractive to potential investors.
As 2008 began, market stress continued as money center banks and other large financial firms came under pressure to remove assets from off-balance-sheet vehicles onto their own balance sheets. In addition,
| | |
RS Money Market VIP Series | | 3 |
| | |
| | RS Money Market VIP Series (continued) |
banks began reporting large losses, which led to valuation uncertainty and a further tightening of credit markets. Market participants became more protective of their liquidity as lending to firms and households became more restrictive.
In an attempt to ease the liquidity crisis in the first quarter of 2008, the FOMC cut the Federal Funds rate by 2.00% to 2.25% and lowered the discount rate to 2.50%. The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility — the discount window. At the first FOMC meeting of the second quarter on April 30, 2008, the Federal Funds rate was lowered to 2.00% and the discount rate was lowered to 2.25%. The Fed has also introduced a series of new programs that sought to bring liquidity back into the markets, these include the Term Auction Facility, the Primary Dealer Credit Facility and the Terms Securities Lending Facility. These programs now seem likely to stay in place into 2009. On June 25, 2008, at the final FOMC meeting of the second quarter, the Federal Funds rate was held at 2.00%, while the discount rate remained at 2.25%.
Portfolio Review
The Fund primarily invests in money market instruments that pay a fixed, variable, or floating interest rate. Money market instruments may include, for example, bank certificates of deposit and other obligations, notes, commercial paper, U.S. government securities, agencies and repurchase agreements.
Our investment strategy is to create a diversified portfolio of money market instruments that present minimal credit risks according to our criteria. To best accommodate all of our investors, we will continue to try to provide a strong, seven-day yield, while offering safety and security.
The Fund seeks to diversify its holdings across a range of instruments. These include commercial paper, floating-rate taxable municipal bonds, repurchase agreements, certificates of deposit, short-maturity corporate bonds, and U.S. government agencies. At the end of the second quarter, the Fund did not hold any extendible ABCP, SIVs, structured liquidity notes, or collateralized debt obligations. As of June 24, 2008, the portfolio’s average maturity was 43 days whereas the average Tier One Money Market Fund, as measured by iMoney Net, Inc., had an average maturity of 45 days.
Outlook
There is still considerable stress at the front end of the credit markets and several indicators (including Federal Funds’ futures contracts and eurodollar synthetic futures) suggest that the FOMC could begin a series of rate hikes later this year. In this environment the Fund will seek to keep its weighted average maturity in line with its peer group and to avoid exposure to ABCP and SIV products. This view and investment strategy will of course be dependent on the inflation outlook, economic growth, the housing market and consumer spending. The Fund may make adjustments to its portfolio as incoming information is evaluated.
I thank you for your investment and continued support.
Alexander M. Grant, Jr.
Portfolio Manager
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
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 |
Total Net Assets: $264,745,073
| | |
| | Sector Allocation |
Data as of June 30, 2008
| | |
| | Portfolio Statistics |
| | | |
Average Maturity (days) | | 41 | |
Yields | | | |
Effective 7-Day Yield | | 1.75
| %
|
Current 7-Day Yield | | 1.75 | % |
| | |
| | Top Ten Holdings1 |
| | | | | | |
Company | | Discount/Coupon | | Maturity date | | Percentage of Total Net Assets |
General Electric Capital Group | | 2.200% and 2.350% | | 08/01/08 | | 3.77% |
Anheuser-Busch Companies, Inc. | | 2.350% | | 07/01/08 | | 2.53% |
FNMA Agency | | 3.375% | | 12/15/08 | | 1.90% |
FNMA Agency | | 4.000% | | 07/25/08 | | 1.89% |
FHLB Agency | | 2.450% | | 05/07/09 | | 1.89% |
Lehman Brothers Holdings, Inc. | | 2.600% | | 07/01/08 | | 1.89% |
FHLB Agency | | 2.250% | | 02/13/09 | | 1.89% |
Genetech Technology Berhad | | 2.160% | | 07/03/08 | | 1.89% |
Unilever Capital Corp. | | 2.130% | | 07/07/08 | | 1.89% |
Pitney Bowes Inc. | | 2.200% | | 07/07/08 | | 1.89% |
Total | | | | | | 21.43% |
| | |
| | Performance Update Average Annual Returns as of 06/30/08 |
| | | | | | | | | | | | | | |
| | | | | | | |
| | Inception Date | | Year-to-Date | | 1 Year | | 3 Years | | 5 Years | | 10 Years | | Since Inception |
RS Money Market VIP Series | | 12/29/81 | | 1.26% | | 3.59% | | 4.04% | | 2.85% | | 3.27% | | 5.39% |
Lehman Brothers 3 Month Treasury-Bill Index2 | | | | 1.30% | | 3.81% | | 4.35% | | 3.22% | | 3.66% | | 5.58% |
Since | inception performance for the index is measured from 11/30/1981, the month end prior to the Fund’s commencement of operations. |
1 | Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities. |
2 | The Lehman Brothers 3 month T-Bill Index is an unmanaged index that is generally considered to be representative of the average yield of three-month Treasury Bills. You may not invest in the index, and, unlike the Fund, the Index does not incur fees or expenses. |
Performance quoted represents past performance and does not guarantee future results. The Fund is the successor to The Guardian Cash Fund, Inc.; 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 0.54%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com
| | |
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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $1,012.60 | | $2.63 | | 0.53% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,022.25 | | $2.64 | | 0.53% |
* | Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
6 | | RS Money Market VIP Series |
| | |
| | Schedule of Investments — RS Money Market VIP Series |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Corporate Bonds — 6.1% |
Conglomerates — 3.8% |
General Electric Capital Corp. | | | | | | |
2.20% due 8/1/2008 | | $ | 5,000,000 | | $ | 4,990,528 |
2.35% due 8/1/2008 | | | 5,000,000 | | | 4,989,882 |
| | | | | | |
| | | | | | 9,980,410 |
Diversified Financial Services — 1.1% |
Goldman Sachs Group, Inc. 2.716% due 11/14/2008(1) | | | 3,000,000 | | | 2,992,900 |
| | | | | | |
| | | | | | 2,992,900 |
Financial – Banks — 1.2% |
Bank One Corp. 6.00% due 2/17/2009 | | | 1,170,000 | | | 1,192,919 |
Wachovia Corp. 3.625% due 2/17/2009 | | | 2,000,000 | | | 1,998,955 |
| | | | | | |
| | | | | | 3,191,874 |
| | | | | | |
Total Corporate Bonds (Cost $16,165,184) | | | | | | 16,165,184 |
| | |
| | Principal Amount | | Value |
U.S. Government Securities — 9.5% |
U.S. Government Agency Securities — 9.5% |
FHLB | | | | | | |
2.25% due 2/13/2009 | | | 5,000,000 | | | 4,999,712 |
2.45% due 5/7/2009 | | | 5,000,000 | | | 5,000,000 |
FNMA | | | | | | |
2.03% due 7/23/2008 | | | 5,000,000 | | | 4,993,797 |
3.375% due 12/15/2008 | | | 5,000,000 | | | 5,020,739 |
4.00% due 7/25/2008 | | | 5,000,000 | | | 5,005,589 |
| | | | | | |
| | | | | | 25,019,837 |
| | | | | | |
Total U.S. Government Securities (Cost $25,019,836) | | | | | | 25,019,837 |
| | |
| | Principal Amount | | Value |
Commercial Paper — 84.4% | | | | | | |
Agricultural — 1.1% | | | | | | |
Archer Daniels Midland Co. 2.22% due 7/10/2008 | | | 3,070,000 | | | 3,068,296 |
| | | | | | |
| | | | | | 3,068,296 |
Automotive — 1.9% | | | | | | |
Toyota Motor Credit Corp. 2.35% due 8/21/2008 | | | 5,000,000 | | | 4,983,354 |
| | | | | | |
| | | | | | 4,983,354 |
Chemicals — 3.8% | | | | | | |
E.I. du Pont de Nemours and Co. | | | | | | |
2.10% due 7/14/2008 | | | 5,000,000 | | | 4,996,208 |
2.17% due 7/16/2008 | | | 5,000,000 | | | 4,995,479 |
| | | | | | |
| | | | | | 9,991,687 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Computers — 3.8% | | | | | | |
International Business Machines Corp. | | | | | | |
2.09% due 9/2/2008 | | $ | 5,000,000 | | $ | 4,981,713 |
2.23% due 8/14/2008 | | | 5,000,000 | | | 4,986,372 |
| | | | | | |
| | | | | | 9,968,085 |
Consumer Products — 1.9% |
Colgate-Palmolive Co. 2.14% due 7/11/2008 | | | 5,000,000 | | | 4,997,028 |
| | | | | | |
| | | | | | 4,997,028 |
Diversified Financial Services — 5.6% |
J.P. Morgan Chase & Co. | | | | | | |
2.20% due 8/1/2008 | | | 5,000,000 | | | 4,990,528 |
2.55% due 7/10/2008 | | | 5,000,000 | | | 4,996,812 |
Lehman Brothers Holdings, Inc. 2.60% due 7/1/2008 | | | 5,000,000 | | | 5,000,000 |
| | | | | | |
| | | | | | 14,987,340 |
Diversified Manufacturing — 7.5% |
Danaher Corp. 2.05% due 7/18/2008-8/7/2008 | | | 10,000,000 | | | 9,984,625 |
Genetech Technology Berhad 2.16% due 7/3/2008 | | | 5,000,000 | | | 4,999,400 |
Siemens Capital Co. LLC 2.08% due 7/23/2008 | | | 5,000,000 | | | 4,993,645 |
| | | | | | |
| | | | | | 19,977,670 |
Electric — 1.9% |
FPL Group Capital Inc. 2.42% due 7/9/2008 | | | 5,000,000 | | | 4,997,311 |
| | | | | | |
| | | | | | 4,997,311 |
Energy — 1.9% |
FPL Fuels, Inc. 2.30% due 8/4/2008 | | | 5,000,000 | | | 4,989,139 |
| | | | | | |
| | | | | | 4,989,139 |
Entertainment — 1.9% |
The Walt Disney Co. 2.13% due 7/31/2008 | | | 5,000,000 | | | 4,991,125 |
| | | | | | |
| | | | | | 4,991,125 |
Finance Companies — 1.9% |
Private Export Funding Corp. 2.28% due 9/19/2008 | | | 5,000,000 | | | 4,974,667 |
| | | | | | |
| | | | | | 4,974,667 |
Financial – Banks — 7.5% |
Bank of America Corp. 2.54% due 8/5/2008 | | | 5,000,000 | | | 4,987,653 |
Caterpillar Financial Services Corp. 2.15% due 7/21/2008 | | | 5,000,000 | | | 4,994,028 |
John Deere Credit Ltd. 2.40% due 7/30/2008 | | | 5,000,000 | | | 4,990,333 |
Rabobank USA Fin. Corp.
| | | | | | |
2.58% due 8/1/2008 | | | 5,000,000 | | | 4,988,891 |
| | | | | | |
| | | | | | 19,960,905 |
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, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Food & Beverage — 11.9% |
Anheuser-Busch Companies, Inc. 2.35% due 7/1/2008 | | $ | 6,700,000 | | $ | 6,700,000 |
Nestle Capital Corp. 2.14% due 7/14/2008 | | | 5,000,000 | | | 4,996,136 |
The Coca-Cola Co. | | | | | | |
2.03% due 7/28/2008 | | | 5,000,000 | | | 4,992,387 |
2.11% due 7/25/2008 | | | 5,000,000 | | | 4,992,967 |
Unilever Capital Corp. | | | | | | |
2.13% due 7/7/2008 | | | 5,000,000 | | | 4,998,225 |
2.17% due 7/28/2008 | | | 5,000,000 | | | 4,991,863 |
| | | | | | |
| | | | | | 31,671,578 |
Food & Staples Retaling — 3.8% |
Walgreen Co. 2.25% due 7/8/2008-7/11/2008 | | | 10,000,000 | | | 9,994,687 |
| | | | | | |
| | | | | | 9,994,687 |
Office/Business Equipment — 1.9% |
Pitney Bowes Inc. 2.20% due 7/7/2008 | | | 5,000,000 | | | 4,998,167 |
| | | | | | |
| | | | | | 4,998,167 |
Personal Products — 1.9% |
L’Oreal U.S.A., Inc. 2.12% due 7/10/2008 | | | 5,000,000 | | | 4,997,350 |
| | | | | | |
| | | | | | 4,997,350 |
Pharmaceuticals — 16.6% |
Abbot Laboratories 1.97% due 7/1/2008 | | | 4,000,000 | | | 4,000,000 |
Astrazeneca PLC 2.40% due 10/15/2008 | | | 5,000,000 | | | 4,964,667 |
Johnson & Johnson 2.03% due 7/22/2008 | | | 5,000,000 | | | 4,994,079 |
Medtronic, Inc. 2.20% due 7/17/2008 | | | 5,000,000 | | | 4,995,111 |
Novartis Finance Corp. | | | | | | |
2.04% due 8/18/2008 | | | 5,000,000 | | | 4,986,400 |
2.30% due 8/28/2008 | | | 5,000,000 | | | 4,981,472 |
Pfizer, Inc. | | | | | | |
2.10% due 7/8/2008 | | | 5,000,000 | | | 4,997,958 |
2.65% due 7/7/2008 | | | 5,000,000 | | | 4,997,792 |
Smithkline Beecham Corp. 2.30% due 7/23/2008 | | | 5,000,000 | | | 4,992,972 |
| | | | | | |
| | | | | | 43,910,451 |
Telecommunications — 3.8% |
AT&T, Inc. | | | | | | |
2.12% due 7/11/2008 | | | 5,000,000 | | | 4,997,056 |
2.21% due 8/28/2008 | | | 5,000,000 | | | 4,982,197 |
| | | | | | |
| | | | | | 9,979,253 |
Utilities – Electric & Water — 3.8% |
Natural Rural Utilities Cooperative Finance Corp. 2.25% due 7/8/2008 | | | 5,000,000 | | | 4,997,813 |
| | | | | | |
June 30, 2008 (unaudited) | | Principal Amount | | Value |
| | | | | | |
Utilities – Electric & Water (continued) |
Southern Co. 2.20% due 7/24/2008 | | $ | 5,000,000 | | $ | 4,992,972 |
| | | | | | |
| | | | | | 9,990,785 |
| | | | | | |
Total Commercial Paper (Cost $223,428,878) | | | | | | 223,428,878 |
| | |
| | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(2) | | | 46 | | | 1,851 |
RS Emerging Growth Fund, Class Y(2) | | | 64 | | | 2,222 |
RS Emerging Markets Fund, Class A(2) | | | 60 | | | 1,460 |
RS Equity Dividend Fund, Class Y(2) | | | 31 | | | 265 |
RS Global Natural Resources Fund, Class Y(2) | | | 32 | | | 1,416 |
RS Growth Fund, Class Y(2) | | | 86 | | | 1,063 |
RS Investment Quality Bond Fund, Class A(2) | | | 28 | | | 269 |
RS Investors Fund, Class Y(2) | | | 74 | | | 698 |
RS MidCap Opportunities Fund, Class Y(2) | | | 38 | | | 455 |
RS Partners Fund, Class Y(2) | | | 43 | | | 1,284 |
RS S&P 500 Index Fund, Class A(2) | | | 29 | | | 258 |
RS Smaller Company Growth Fund, Class Y(2) | | | 28 | | | 476 |
RS Technology Fund, Class Y(2) | | | 43 | | | 634 |
RS Value Fund, Class Y(2) | | | 85 | | | 2,178 |
| | | | | | |
Total Other Investments (Cost $14,783) | | | | | | 14,529 |
| | | | | | |
Total Investments — 100.0% (Cost $264,628,681) | | | | | | 264,628,428 |
| | | | | | |
Other Assets, Net — 0.0% | | | | | | 116,645 |
| | | | | | |
Total Net Assets — 100.0% | | | | | $ | 264,745,073 |
(1) | Variable rate demand note. The rate shown is the rate in effect at June 30, 2008. |
(2) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 – Quoted Prices | | $ | 14,529 |
Level 2 – Significant Other Observable Inputs | | | 264,613,899 |
Level 3 – Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 264,628,428 |
The accompanying notes are an integral part of these financial statements.
| | |
8 | | RS Money Market VIP Series |
| | |
| | Financial Information — RS Money Market VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 264,628,428 | |
Cash and cash equivalents | | | 96,995 | |
Interest receivable | | | 198,842 | |
Receivable for fund shares subscribed | | | 509,732 | |
Prepaid expenses | | | 8,128 | |
| | | | |
Total Assets | | | 265,442,125 | |
| | | | |
Liabilities | | | | |
Payable for fund shares redeemed | | | 498,322 | |
Payable to adviser | | | 97,595 | |
Accrued shareholder reports expense | | | 49,776 | |
Trustees’ deferred compensation | | | 14,529 | |
Payable for investments purchased | | | 3,521 | |
Accrued expenses/other liabilities | | | 33,309 | |
| | | | |
Total Liabilities | | | 697,052 | |
| | | | |
Total Net Assets | | $ | 264,745,073 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 264,745,352 | |
Accumulated undistributed net investment income | | | 14,975 | |
Accumulated net realized loss from investments | | | (15,001 | ) |
Unrealized depreciation on investments | | | (253 | ) |
| | | | |
Total Net Assets | | $ | 264,745,073 | |
| | | | |
Investments, at Cost | | $ | 264,628,681 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 26,474,594 | |
| |
Net Asset Value Per Share | | | $10.00 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 4,129,896 | |
Dividends | | | 3 | |
| | | | |
Total Investment Income | | | 4,129,899 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 607,432 | |
Shareholder reports | | | 30,372 | |
Professional fees | | | 24,508 | |
Custodian fees | | | 16,911 | |
Administrative service fees | | | 16,655 | |
Trustees’ fees and expenses | | | 7,612 | |
Insurance expense | | | 3,662 | |
Other expense | | | 2,076 | |
| | | | |
Total Expenses | | | 709,228 | |
Less: Custody credits | | | (1 | ) |
| | | | |
Total Expenses, Net | | | 709,227 | |
| | | | |
Net investment income | | | 3,420,672 | |
| | | | |
Realized Gain/(Loss) and Changes in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized loss from investments | | | (13,082 | ) |
Net change in unrealized appreciation on investments for trustee deferred compensation plan | | | 205 | |
| | | | |
Net Loss on Investments | | | (12,877 | ) |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 3,407,795 | |
| | | | |
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 |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Year Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income | | $ | 3,420,672 | | | $ | 10,530,524 | |
Net realized loss from investments | | | (13,082 | ) | | | (3,788 | ) |
Net change in unrealized appreciation/(depreciation) on investments for trustee deferred compensation plan | | | 205 | | | | (458 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 3,407,795 | | | | 10,526,278 | |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | (3,406,687 | ) | | | (10,527,665 | ) |
| | | | | | | | |
Total Distributions | | | (3,406,687 | ) | | | (10,527,665 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 91,044,255 | | | | 163,179,769 | |
Reinvestment of distributions | | | 3,406,687 | | | | 10,527,665 | |
Cost of shares redeemed | | | (73,466,257 | ) | | | (150,216,627 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 20,984,685 | | | | 23,490,807 | |
| | | | | | | | |
Net Increase in Net Assets | | | 20,985,793 | | | | 23,489,420 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 243,759,280 | | | | 220,269,860 | |
| | | | | | | | |
End of period | | $ | 264,745,073 | | | $ | 243,759,280 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Income Included in Net Assets | | $ | 14,975 | | | $ | 14,006 | |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 9,104,426 | | | | 16,317,977 | |
Reinvested | | | 340,669 | | | | 1,052,829 | |
Redeemed | | | (7,346,626 | ) | | | (15,021,667 | ) |
| | | | | | | | |
Net Increase | | | 2,098,469 | | | | 2,349,139 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Money Market VIP Series |
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| | |
RS Money Market VIP Series | | 11 |
| | |
| | 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 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 From Net Investment Income | | | Distributions From Net Realized Capital Gains | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 10.00 | | $ | 0.13 | | $ | — | | $ | 0.13 | | $ | (0.13 | ) | | $ | — | | $ | (0.13 | ) |
| | | | | | | |
Year Ended 12/31/07 | | | 10.00 | | | 0.46 | | | — | | | 0.46 | | | (0.46 | ) | | | — | | | (0.46 | ) |
| | | | | | | |
Year Ended 12/31/06 | | | 10.00 | | | 0.44 | | | — | | | 0.44 | | | (0.44 | ) | | | — | | | (0.44 | ) |
| | | | | | | |
Year Ended 12/31/05 | | | 10.00 | | | 0.27 | | | — | | | 0.27 | | | (0.27 | ) | | | — | | | (0.27 | ) |
| | | | | | | |
Year Ended 12/31/04 | | | 10.00 | | | 0.08 | | | — | | | 0.08 | | | (0.08 | ) | | | — | | | (0.08 | ) |
| | | | | | | |
Year Ended 12/31/03 | | | 10.00 | | | 0.07 | | | — | | | 0.07 | | | (0.07 | ) | | | — | | | (0.07 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS Money Market VIP Series |
| | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return3 | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets2 | | | Gross Ratio of Expenses to Average Net Assets | | Net Ratio of Net Investment Income to Average Net Assets2 | | | Gross Ratio of Net Investment Income to Average Net Assets | | Portfolio Turnover Rate |
| | | | | | | |
$ | 10.00 | | 1.26% | | $ | 264,745 | | 0.53% | | | 0.53% | | 2.53% | | | 2.53% | | N/A |
| | | | | | | |
| 10.00 | | 4.71% | | | 243,759 | | 0.58% | | | 0.58% | | 4.61% | | | 4.61% | | N/A |
| | | | | | | |
| 10.00 | | 4.52% | | | 220,270 | | 0.59% | | | 0.59% | | 4.45% | | | 4.45% | | N/A |
| | | | | | | |
| 10.00 | | 2.69% | | | 217,511 | | 0.58% | | | 0.58% | | 2.60% | | | 2.60% | | N/A |
| | | | | | | |
| 10.00 | | 0.85% | | | 295,800 | | 0.57% | | | 0.57% | | 0.84% | | | 0.84% | | N/A |
| | | | | | | |
| 10.00 | | 0.66% | | | 356,271 | | 0.56% | | | 0.56% | | 0.67% | | | 0.67% | | N/A |
Distributions reflect actual per-share amounts distributed for the period.
| 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 fee waivers, expense limitations and custody credits, if applicable. |
| 3 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’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 (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Money Market VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class I shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. Investment Valuations
Repurchase agreements are carried at cost, which approximates market value (see Note 4a). The Fund values its investments based on amortized cost in accordance with Rule 2a-7 of the 1940 Act. Investments in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
| | |
14 | | RS Money Market VIP Series |
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Investment Income
Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
e. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
f. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
g. Distributions to Shareholders
Distributions of net investment income, which includes any net realized capital gains or losses, are typically declared and accrued daily and paid monthly. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund, recorded on the ex-dividend date.
h. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee and Expense Limitation
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investment Management Co. LLC (“RS Investments”). Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.45%. The Fund has also entered into an agreement with GIS for distribution services with respect to its shares.
RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with GIS. GIS is responsible for providing day-to-day investment advisory services to the Fund, subject to the supervision and direction of the Board of Trustees of the Trust and review by 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 the Fund. Payment of the sub-advisory fee does not represent a separate or additional expense to the Fund.
| | |
RS Money Market VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS Money Market VIP Series (unaudited) (continued) |
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 the Fund’s total annual fund operating expenses to 0.54% of the average daily net assets of the Fund.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the year ended December 31, 2007, which is the most recently completed tax year, was as follows:
| |
Ordinary Income Total |
$ | 10,527,665 |
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 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. 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.
The tax basis of distributable earnings as of December 31, 2007, which is the most recently completed tax year, was as follows:
| |
Undistributed Ordinary Income |
$ | 26,277 |
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.
Capital loss carryovers available to the Fund at December 31, 2007, were as follows:
| | | |
Expiring | | Amount |
2011 | | $ | 7,909 |
2012 | | | 3,238 |
2015 | | | 3,788 |
| | | |
Total | | $ | 14,935 |
During the year ended December 31, 2007, the Fund did not utilize capital loss carryovers.
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, 2007, which is the most recently completed tax year, the Fund had no such losses.
| | |
16 | | RS Money Market VIP Series |
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $264,628,929. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $301 and $(802), respectively, resulting in net unrealized depreciation of $(501).
a. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
| | |
RS Money Market VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Money Market VIP Series (unaudited) (continued) |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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18 | | RS Money Market VIP Series |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain 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 August 13 — 14, 2007, to consider the continuation of the investment advisory and sub-advisory agreements (collectively, the “Advisory Agreements”) for the one-year period commencing September 1, 2007 for certain funds of the Trust, including RS Core Equity VIP Series, RS Small Cap Core Equity VIP Series, and RS Partners VIP Series (the “RS-Managed Funds”); and RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS Emerging Markets VIP Series, RS International Growth VIP Series, RS Large Cap Value VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series (the “Sub-Advised Funds” and together with the RS-Managed Funds, the “Funds”).
RS Investment Management Co. LLC (“RS Investments”) is responsible for the day-to-day investment management of the RS-Managed Funds; various Sub-Advisers (the “Sub-Advisers”) overseen by RS Investments are responsible for the day-to-day investment management of the Sub-Advised Funds. Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), serves as Sub-Adviser to RS Money Market VIP Series, RS High Yield Bond VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS S&P 500 Index VIP Series, and RS Asset Allocation VIP Series; Guardian Baillie Gifford Limited serves as Sub-Adviser, and Baillie Gifford Overseas Limited serves as Sub-Sub-Adviser to RS International Growth VIP Series and RS Emerging Markets VIP Series (the sub-advisory and sub-sub-advisory agreements relating to these Funds are also considered “Advisory Agreements” for purposes of this discussion, and the sub-sub-adviser is also considered a Sub-Adviser for purposes of this discussion); UBS Global Asset Management (Americas) Inc. serves as Sub-Adviser to RS Large Cap Value VIP Series.
At their meeting, the Trustees considered a number of factors in determining to approve the continuation of the Advisory Agreements. In all of their deliberations regarding the Advisory Agreements, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions on a number of occasions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees and, with the assistance of independent counsel to the disinterested Trustees, prepared a written report on the key factors for the Trustees. That written report discussed a number of the factors described below and concluded that the information that RS Investments had provided to the Trustees provided a reasonable basis for the Trustees to conclude that the advisory fees proposed in connection with the continuation of the Advisory Agreements were reasonable with respect to each Fund.
The Trustees were also assisted in their review by two independent consultants retained by the Trustees. The consultants provided assistance in a variety of aspects of the Trustees’ review, including, among other things, the development of appropriate expense and performance peer groups for the Funds, review of expense and performance data received by the Trustees, consideration of economies of scale, analysis of profitability data from RS Investments and the Sub-Advisers, and evaluation of industry trends. The consultants met with the Trustees on a number of occasions, both by telephone and at the August 2007 in-person meeting.
In their consideration of the Advisory Agreements, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by GIS, a subsidiary of Guardian Life, of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management orga-
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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RS Money Market VIP Series | | 19 |
| | |
| | Supplemental Information — unaudited (continued) |
nization. The Trustees had also discussed the integration with management and observed its effects over the course of the preceding year.
The Trustees considered the fees charged by RS Investments to the Funds under the Advisory Agreements and the fees paid to the various Sub-Advisers. In this connection, representatives of RS Investments noted to the Trustees that the fees charged by RS Investments to the Funds reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers. They also noted that, as to the Sub-Advised Funds, RS Investments pays the majority, in most cases the large majority, of the fees it receives to the Sub-Advisers.
RS Investments furnished information to the Trustees compiled by the independent Lipper organization showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds. In his report, the Chief Compliance Officer noted that the advisory fees for the Funds, particularly the RS Large Cap Value VIP Series, although the same as the retail RS Funds, are relatively high compared to peer funds; and that the advisory fee for RS Money Market VIP Series was among the highest, though not the highest, in its peer group, though he noted that the advisory fees for RS Money Market VIP Series’ peer group fell within a relatively narrow band. Because of the relatively higher advisory fees for RS Money Market VIP Series, the disinterested Trustees proposed that the annual advisory fee rate for that Fund be reduced by 5 basis points, to an annual rate of 0.45% of the Fund’s average daily net assets. RS Investments agreed to implement that reduction in the near future. The Trustees considered the total expense ratios of the Funds and noted that a number of them were higher than the median of their peer funds. They noted that in some cases that appeared to be due to the level of the Funds’ advisory fees and, in many cases, the Funds’ custodial fees were relatively high. They noted in this regard that RS Investments may in the future voluntarily waive fees with respect to certain of the Funds. They also noted in this regard that the Funds’ recently renegotiated custodial arrangements were likely to result in substantial savings to the Funds in the coming year. The disinterested Trustees plan to monitor whether those expected savings occur.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Funds, including institutional separate accounts and mutual funds for which RS Investments serves as Sub-Adviser. RS Investments generally charges lower fees to those accounts. In a number of cases, such an account pays fees at the same rate as the comparable Fund on assets up to a specified level, and then at lower rates on additional assets. In some cases, an account’s fee rate will be lower at all levels than that of the comparable Fund. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. They also explained that the services and resources required of RS Investments where it sub-advises mutual funds sponsored by others are substantially less than in the case of the Funds, since many of the compliance and regulatory responsibilities related to the management function are retained by the primary adviser. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients.
RS Investments furnished detailed financial information, in the form of a consolidated profit and loss statement, showing the revenues and expenses related to the
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20 | | RS Money Market VIP Series |
management of the RS Funds as a whole and each of RS Investments’ other categories of advisory clients, respectively. That information showed the substantial costs of providing services to the Funds. RS Investments also furnished a detailed profitability analysis with respect to RS Partners VIP Series for the three months ended December 31, 2006 and the five months ended May 31, 2007. The Chief Compliance Officer reported on the profitability levels for that Fund. The Trustees noted that RS Investments’ profitability on its mutual fund business as a whole was higher than the profitability of the separate account advisory business; the Chief Compliance Officer noted in his report that the higher profit margin appeared justifiable by the higher risk and responsibilities associated with the mutual fund business.
The Trustees considered whether economies of scale would likely be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints would be appropriate. In his report, the Chief Compliance Officer noted that RS Investments had decided some time ago to eliminate its hedge fund business and the related revenue to focus its existing investment management resources on its mutual fund and institutional business. He noted that the profits from the Funds enable RS Investments to devote greater resources to the management of the Funds, including organizational enhancements and financial incentives for the portfolio managers, analysts, and other personnel who in many cases have lucrative alternative employment and business opportunities available to them. He noted, as well, that the investment management process for certain investment disciplines does not necessarily benefit from economies of scale. He also noted that shareholders of the Funds are likely to benefit to some degree to the extent that the expenses of the Funds are reduced over time simply by virtue of their increased sizes, even in the absence of management fee reductions. The Trustees also considered a report provided to them by their independent consultants as to economies of scale, both generally and as to the Funds specifically, and the consultants’ recommendations that the Trustees give careful consideration in the future to the manner in which shareholders might realize some of the benefit of such economies over time, as the Funds grow in size. The Trustees noted that the Funds had already benefited from certain economies resulting from the combination of RS Investments and GIS, including, for example, through the reduced custodial fees the combined firm had been able to negotiate.
The Trustees considered the nature, extent, and quality of the services provided by RS Investments. In this regard, the Trustees took into account the experience of the Funds’ portfolio management teams and of RS Investments’ senior management, and the time and attention devoted by each to the Funds. The Trustees considered the performance of each Fund (although only for relatively recent periods in most cases), while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees also received information throughout the year regarding the capabilities of RS Investments in securities trading, and changes in personnel in RS Investments’ trading staff. The Trustees also considered RS Investments’ significant responsibilities in monitoring the services provided by the Sub-Advisers.
The Trustees reviewed performance information for each Fund for various periods. That review included an examination of comparisons of the performance of the Funds to relevant securities indexes and various peer groups of mutual funds prepared by the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the Funds compared to peer funds during various periods. The Trustees noted that, in his report, the Chief Compliance Officer had found that none of the Funds appeared to have substantially lagged all peer mutual funds and indexes for all relevant periods.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it places the Funds’ (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker- dealers have arrangements. The Trustees receive
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RS Money Market VIP Series | | 21 |
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| | Supplemental Information — unaudited (continued) |
information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Funds) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Funds also benefited from them.
The Trustees reviewed detailed information regarding the various Sub-Advisers to the Funds, including information as to compliance with federal securities laws, capabilities and experience of portfolio management personnel and any changes in such personnel in the past year, financial information as to the Sub-Advisers, information as to their trading practices, and general information as to the pricing of the Sub-Advisers’ services.
The Trustees considered generally the nature and quality of the administrative services provided to the Funds by RS Investments and by GIS, including, among other things, changes in and enhancements to the firms’ personnel and capabilities, their performance during the course of the preceding year, and the responsiveness of senior management to the Trustees’ requests.
The Trustees noted a number of specific recent enhancements to the services provided by RS Investments, including, among others, the following factors cited by the Chief Compliance Officer:
Ø | | RS Investments has seen significant organizational changes after its transaction with GIS, including many changes that have strengthened the organization and its ability to devote greater resources to the services provided to the Funds. Integration work continues, but the Chief Compliance Officer believes RS Investments is a more robust organization as a result of the transaction. |
Ø | | RS Investments has been responsive to concerns raised by the Trustees in the past year. |
Ø | | RS Investments has added significant managerial talent in the areas of finance, fund administration, and accounting. |
Ø | | RS Investments has provided necessary staffing, training, and other compliance resources necessary for the Chief Compliance Officer to perform his responsibilities as the Chief Compliance Officer. |
The Trustees also considered the Chief Compliance Officer’s conclusion that RS Investments provides high quality advisory and related services to the Funds.
After considering all of the information described above, including the Chief Compliance Officer’s written report, the Trustees unanimously voted to approve the continuation of the Advisory Agreements, including the advisory fees proposed in connection with that continuation, subject to the planned reduction noted above, for the one year period commencing September 1, 2007.
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22 | | RS Money Market VIP Series |
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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RS Money Market VIP Series | | 23 |
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| | Supplemental Information — unaudited (continued) |
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| | Trustees and Officers Information Table |
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Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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24 | | RS Money Market VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
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| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS Money Market VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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26 | | RS Money Market VIP Series |
RS Variable Products Trust
RS MidCap Opportunities VIP Series
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06.30.08 | | |
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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, 2008. 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.
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| | RS MidCap Opportunities VIP Series |
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| | Stephen J. Bishop Stephen J. Bishop (RS Investments) has been co-portfolio manager of RS MidCap Opportunities VIP Series since August 2008. Mr. Bishop joined RS Investments in 1996 as a research analyst, primarily covering the technology sector. Prior to joining the firm, he worked as an analyst in the corporate finance department of Dean Witter Reynolds, Inc. for three years. Mr. Bishop holds a B.A. in economics from the University of Notre Dame and an M.B.A. from Harvard Business School. |
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| | Melissa Chadwick-Dunn Melissa Chadwick-Dunn (RS Investments) has been a co-portfolio manager of RS MidCap Opportunities VIP Series since August 2008. Before joining the firm in 2001, she was an equity analyst at Putnam Investments for two years. Prior to that, she spent four years in investment banking, working on corporate finance and mergers-and-acquisition transactions for Lehman Brothers and McDaniels S.A. Ms. Chadwick-Dunn holds a B.A. in economics and an M.A. in international relations from the University of Chicago and an M.B.A. from the Wharton School of Business. |
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| | John H. Seabern, CFA John H. Seabern (RS Investments) has been a co-portfolio manager of RS MidCap Opportunities VIP Series since July 2007. Prior to joining the firm in 1993, he was a performance analyst at Duncan-Hearst Capital Management for two years. Mr. Seabern holds a B.S. in finance from the University of Colorado. |
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| | Allison K. Thacker Allison K. Thacker (RS Investments) has been a co-portfolio manager of RS MidCap Opportunities VIP Series since August 2008. Prior to joining RS Investments in 2000 as an analyst covering Internet and consumer discretionary stocks, she worked as a summer associate at Putnam Investments, and, prior to that, she was an analyst in the energy group at Merrill Lynch & Company for two years. Ms. Thacker holds a B.A. in economics from Rice University and an M.B.A. from Harvard Business School. |
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RS MidCap Opportunities VIP Series | | 3 |
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| | RS MidCap Opportunities VIP Series (continued) |
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| | D. Scott Tracy, CFA D. Scott Tracy (RS Investments) has been a co-portfolio manager of RS MidCap Opportunities VIP Series since August 2008. Prior to joining RS Investments in 2001, he spent three years at Shoreline Investment Management, the in-house asset management arm of Hewlett-Packard. He has also served as an equity analyst at Montgomery Securities. Mr. Tracy holds a B.A. in history from Trinity College and an M.B.A. from the University of California at Berkeley. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | In a difficult equity market, the RS MidCap Opportunities VIP Series delivered negative performance, both in absolute terms and relative to its benchmark, the Russell Midcap® Growth Index3. |
Ø | | The Fund’s relative performance was hurt by an underweighting in the energy sector—one of the market’s few areas of strength—and from stock selection in the energy, technology, and consumer discretionary sectors in particular. |
Ø | | Relative performance benefited from double-digit gains in a number of the Fund’s energy holdings as well as from stock selection in the autos and transportation and utilities sectors. |
Market Overview
The past six months have been difficult for equity markets, as a combination of surging energy prices, slowing economic growth, and concerns about the health of the global financial system weighed on investor confidence. Faced with these headwinds, the stock market sold off sharply during the first quarter, as investors sought safety in Treasury bonds and other defensive investments. Against this backdrop, the Federal Reserve Board moved aggressively to help restore liquidity, reducing the target federal funds rate by 225 basis points to 2.00% by April. Fed rate cuts combined with some positive earnings news from nonfinancial corporations sparked a short-lived market resurgence in early spring before economic concerns again overwhelmed investor confidence, sending most market indexes lower in June. For the six-month period ended June 30, 2008, the S&P 500® Index4 declined 11.91%, the Dow Jones Industrial Average5 declined 13.38%, and the Nasdaq Composite6 declined 13.55%.
Performance
The RS MidCap Opportunities VIP Series declined 17.14% in the six-month period ended June 30, 2008, underperforming the benchmark Russell Midcap Growth Index, which declined 6.81%. The Fund’s performance suffered as worried investors sold out of higher-growth, higher-valuation stocks and sought safety in more-stable, defensive assets as well as in select commodity-related shares in the energy sector.
Portfolio Review
While the Fund benefited from solid performance in a number of individual holdings in the energy sector, including CONSOL Energy and Chesapeake Energy, its returns were nonetheless hindered by underweight exposure to the energy sector relative to the benchmark
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4 | | RS MidCap Opportunities VIP Series |
allocation. Below-market weightings in better-performing coal producers and oil well equipment and services providers were particular detractors from the Fund’s relative performance.
The Fund’s stock selection and overweighting in the tech sector also detracted from relative performance, as many of our computer services and software names suffered declines. These included VeriFone Holdings, which we invested in because we thought the company would benefit from a global shift to electronic point-of-sale transactions as well as from its own market leadership and superior technology. Despite these advantages, the company sold off during the first quarter over concerns about a potential global slowdown in both technology and consumer spending.
Fundamental trends in the consumer sector remained challenging, as deteriorating housing market conditions and record-high energy prices weighed on consumer confidence and spending plans. The Fund’s largest individual detractor was Crocs, maker of the lightweight clog-style footwear that has taken the country by storm. We became interested in the position early this year after the stock price fell sharply over concerns about how demand for the company’s products would fare in a weaker consumer environment. We purchased a stake in the company because we felt its growth prospects remained solid both domestically and internationally. Unfortunately, the Fund’s performance suffered as economic fears overrode the company’s positive longer-term trends. As the stock remained under pressure, we exited the position. Fund performance was also hurt by weakness in some industrial- and finance-related holdings, including AerCap Holdings, an aircraft leasing company that has faced a difficult environment for aircraft-related stocks.
Providing some offset to these negative contributions was the Fund’s stock selection in the autos and transportation sector, where Kirby, a marine shipping company, benefited from rising tanker traffic serving the petroleum and chemical industries. Stock selection in the utilities sector was also favorable, as we avoided electric utilities squeezed by rising fuel costs and credit market turmoil.
Outlook
We caution that the near-term market environment may remain challenging until we gain more clarity on the economic outlook. At the same time, we remind investors that the stock market has historically bottomed out a little over halfway through an economic decline and that efforts to time a market recovery may prevent investors from fully capitalizing on the rebound when it comes. In this environment we remain more committed than ever to our investment discipline, using bottom-up fundamental analysis to identify companies that we believe can grow revenues, earnings, and cash flow even in a slowing economic environment.
We thank you for your continued investment and support.
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Steve Bishop Co-Portfolio Manager | | Melissa Chadwick-Dunn Co-Portfolio Manager |
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John Seabern Co-Portfolio Manager | | Allison Thacker Co-Portfolio Manager |
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Scott Tracy Co-Portfolio Manager | | |
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RS MidCap Opportunities VIP Series | | 5 |
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| | RS MidCap Opportunities VIP Series (continued) |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. Investing in mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Overweighting investments in certain sectors or industries increases the risk of loss due to general declines in the prices of stocks in those sectors or industries. Investments in technology companies may be highly volatile.
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, 2008.
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6 | | RS MidCap Opportunities VIP Series |
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Total Net Assets: $1,064,783 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 As of 12/31/07 |
| | |
| | Top Ten Holdings2 |
| | |
| |
Company | | Percentage of Total Net Assets |
TeleTech Holdings, Inc. | | 2.81% |
Brocade Communications Systems, Inc. | | 2.71% |
AerCap Holdings N.V. | | 2.37% |
Genco Shipping & Trading Ltd. | | 2.02% |
McDermott International, Inc. | | 1.92% |
Alliance Data Systems Corp. | | 1.86% |
Texas Industries, Inc. | | 1.84% |
Newfield Exploration Co. | | 1.84% |
Kaydon Corp. | | 1.69% |
National-Oilwell Varco, Inc. | | 1.67% |
Total | | 20.73% |
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 Midcap® Growth Index is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russell Midcap® Index with higher price-to-book ratios and higher forecasted growth values. (The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which consists of the 1,000 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 or expenses. |
4 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
5 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
6 | The Nasdaq Composite Index in an unmanaged index that measures all Nasdaq domestic and non-U.S.-based common stocks listed on the Nasdaq stock market. |
| | |
RS MidCap Opportunities VIP Series | | 7 |
| | |
| | RS MidCap Opportunities VIP Series (continued) |
| | |
| | Performance Update† As of 06/30/08 |
| | | | | | |
| | | |
| | Inception Date | | Year-to-Date | | Since Inception |
RS MidCap Opportunities VIP Series | | 07/31/07 | | -17.14% | | -18.30% |
Russell Midcap® Growth Index3 | | | | -6.81% | | -4.28% |
† | Since inception returns are not annualized and represent cumulative total returns. |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 07/31/07 in RS MidCap Opportunities VIP Series and the Russell Midcap® 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. 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 3.59%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
8 | | RS MidCap Opportunities 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $828.60 | | $23.01 | | 5.06% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $999.70 | | $25.16 | | 5.06% |
* | Expenses are equal to the Fund’s annualized expense ratio excluding offering costs, as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
RS MidCap Opportunities VIP Series | | 9 |
| | |
| | Schedule of Investments – RS MidCap Opportunities VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 87.2% |
Banks – Outside New York City — 1.2% |
Northern Trust Corp. | | 180 | | $ | 12,343 |
| | | | | |
| | | 12,343 |
Biotechnology Research & Production — 1.5% |
Celgene Corp.(1) | | 250 | | | 15,967 |
| | | | | |
| | | 15,967 |
Building Materials — 1.8% |
Texas Industries, Inc. | | 350 | | | 19,645 |
| | | | | |
| | | 19,645 |
Casinos & Gambling — 1.3% |
Bally Technologies, Inc.(1) | | 420 | | | 14,196 |
| | | | | |
| | | 14,196 |
Chemicals — 1.1% |
CF Industries Holdings, Inc. | | 80 | | | 12,224 |
| | | | | |
| | | 12,224 |
Coal — 1.5% |
CONSOL Energy, Inc. | | 140 | | | 15,732 |
| | | | | |
| | | 15,732 |
Communications Technology — 5.4% | | | | | |
Brocade Communications Systems, Inc.(1) | | 3,500 | | | 28,840 |
Harris Corp. | | 250 | | | 12,623 |
NICE Systems Ltd., ADR(1)(2) | | 550 | | | 16,263 |
| | | | | |
| | | 57,726 |
Computer Services, Software & Systems — 8.9% |
Adobe Systems, Inc.(1) | | 350 | | | 13,786 |
Akamai Technologies, Inc.(1) | | 500 | | | 17,395 |
Ansys, Inc.(1) | | 250 | | | 11,780 |
Autodesk, Inc.(1) | | 350 | | | 11,834 |
Informatica Corp.(1) | | 800 | | | 12,032 |
MercadoLibre, Inc.(1) | | 370 | | | 12,761 |
MICROS Systems, Inc.(1) | | 500 | | | 15,245 |
| | | | | |
| | | 94,833 |
Consumer Electronics — 2.8% | | | | | |
Activision Blizzard, Inc.(1) | | 450 | | | 15,331 |
Dolby Laboratories, Inc., Class A(1) | | 370 | | | 14,911 |
| | | | | |
| | | 30,242 |
Drugs & Pharmaceuticals — 2.5% |
Allergan, Inc. | | 240 | | | 12,492 |
Amylin Pharmaceuticals, Inc.(1) | | 550 | | | 13,964 |
| | | | | |
| | | 26,456 |
Electrical Equipment & Components — 1.1% |
General Cable Corp.(1) | | 200 | | | 12,170 |
| | | | | |
| | | 12,170 |
Electronics — 2.8% |
Amphenol Corp., Class A | | 300 | | | 13,464 |
FLIR Systems, Inc.(1) | | 400 | | | 16,228 |
| | | | | |
| | | 29,692 |
Electronics – Medical Systems — 4.1% |
Hologic, Inc.(1) | | 800 | | | 17,440 |
Illumina, Inc.(1) | | 150 | | | 13,066 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Electronics – Medical Systems (continued) |
Intuitive Surgical, Inc.(1) | | 50 | | $ | 13,470 |
| | | | | |
| | | 43,976 |
Electronics – Technology — 1.2% |
Trimble Navigation Ltd.(1) | | 350 | | | 12,495 |
| | | | | |
| | | 12,495 |
Engineering & Contracting Services — 1.9% |
McDermott International, Inc.(1) | | 330 | | | 20,424 |
| | | | | |
| | | 20,424 |
Financial Data Processing Services & Systems — 3.4% |
Alliance Data Systems Corp.(1) | | 350 | | | 19,793 |
MasterCard, Inc., Class A | | 60 | | | 15,931 |
| | | | | |
| | | 35,724 |
Identification Control & Filter Devices — 1.4% |
Flowserve Corp. | | 110 | | | 15,037 |
| | | | | |
| | | 15,037 |
Investment Management Companies — 1.3% |
Waddell & Reed Financial, Inc., Class A | | 400 | | | 14,004 |
| | | | | |
| | | 14,004 |
Jewelry Watches & Gemstones — 1.5% |
Fossil, Inc.(1) | | 550 | | | 15,988 |
| | | | | |
| | | 15,988 |
Machinery – Construction & Handling — 0.9% |
The Manitowoc Co., Inc. | | 280 | | | 9,108 |
| | | | | |
| | | 9,108 |
Machinery – Oil Well Equipment & Services — 5.7% |
Cameron International Corp.(1) | | 250 | | | 13,837 |
Hornbeck Offshore Services, Inc.(1) | | 300 | | | 16,953 |
National-Oilwell Varco, Inc.(1) | | 200 | | | 17,744 |
Noble Corp. | | 180 | | | 11,693 |
| | | | | |
| | | 60,227 |
Metal Fabricating — 3.0% |
Kaydon Corp. | | 350 | | | 17,993 |
Precision Castparts Corp. | | 150 | | | 14,456 |
| | | | | |
| | | 32,449 |
Metals & Minerals Miscellaneous — 1.4% |
GrafTech International Ltd.(1) | | 550 | | | 14,757 |
| | | | | |
| | | 14,757 |
Multi-Sector Companies — 1.1% |
Textron, Inc. | | 250 | | | 11,983 |
| | | | | |
| | | 11,983 |
Oil – Crude Producers — 4.6% |
Chesapeake Energy Corp. | | 250 | | | 16,490 |
Newfield Exploration Co.(1) | | 300 | | | 19,575 |
Ultra Petroleum Corp.(1) | | 130 | | | 12,766 |
| | | | | |
| | | 48,831 |
Pollution Control And Environmental Services — 1.1% |
EnergySolutions, Inc. | | 500 | | | 11,175 |
| | | | | |
| | | 11,175 |
Rental & Leasing Services – Commercial — 2.4% |
AerCap Holdings NV(1) | | 2,000 | | | 25,260 |
| | | | | |
| | | 25,260 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS MidCap Opportunities VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Restaurants — 1.2% |
Yum! Brands, Inc. | | 350 | | $ | 12,282 |
| | | | | |
| | | 12,282 |
Retail — 3.6% |
Priceline.com, Inc.(1) | | 120 | | | 13,855 |
The TJX Cos., Inc. | | 380 | | | 11,959 |
Urban Outfitters, Inc.(1) | | 400 | | | 12,476 |
| | | | | |
| | | 38,290 |
Services – Commercial — 4.1% |
FTI Consulting, Inc.(1) | | 200 | | | 13,692 |
TeleTech Holdings, Inc.(1) | | 1,500 | | | 29,940 |
| | | | | |
| | | 43,632 |
Shipping — 2.0% | | | | | |
Genco Shipping & Trading Ltd. | | 330 | | | 21,516 |
| | | | | |
| | | 21,516 |
Shoes — 1.4% | | | | | |
Deckers Outdoor Corp.(1) | | 110 | | | 15,312 |
| | | | | |
| | | 15,312 |
Telecommunications Equipment — 1.1% |
American Tower Corp., Class A(1) | | 270 | | | 11,408 |
| | | | | |
| | | 11,408 |
Textiles Apparel Manufacturers — 1.4% |
Coach, Inc.(1) | | 500 | | | 14,440 |
| | | | | |
| | | 14,440 |
Toys — 1.3% | | | | | |
Marvel Entertainment, Inc.(1) | | 440 | | | 14,142 |
| | | | | |
| | | 14,142 |
Truckers — 1.3% | | | | | |
Landstar System, Inc. | | 260 | | | 14,357 |
| | | | | |
| | | 14,357 |
Utilities – Gas Pipelines — 1.3% | | | | | |
The Williams Cos., Inc. | | 350 | | | 14,109 |
| | | | | |
| | | 14,109 |
Wholesale & International Trade — 1.6% |
Central European Distribution Corp.(1) | | 230 | | | 17,054 |
| | | | | |
| | | | | |
| | | 17,054 |
| | | | | |
Total Common Stocks (Cost $901,519) | | | 929,206 |
| | |
| | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3)(4) | | — | | | 5 |
RS Emerging Growth Fund, Class Y(3)(4) | | — | | | 7 |
RS Emerging Markets Fund, Class A(3)(4) | | — | | | 4 |
RS Equity Dividend Fund, Class Y(3)(4) | | — | | | 1 |
RS Global Natural Resources Fund, Class Y(3)(4) | | — | | | 5 |
RS Growth Fund, Class Y(3)(4) | | — | | | 2 |
RS Investment Quality Bond Fund, Class A(3)(4) | | — | | | 1 |
RS Investors Fund, Class Y(3)(4) | | — | | | 1 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Other Investments – For Trustee Deferred Compensation Plan (continued) |
RS MidCap Opportunities Fund, Class Y(3)(4) | | — | | $ | 1 |
RS Partners Fund, Class Y(3)(4) | | — | | | 4 |
RS S&P 500 Index Fund, Class A(3)(4) | | — | | | 1 |
RS Smaller Company Growth Fund, Class Y(3)(4) | | — | | | 2 |
RS Technology Fund, Class Y(3)(4) | | — | | | 1 |
RS Value Fund, Class Y(4) | | 1 | | | 6 |
| | | | | |
Total Other Investments (Cost $41) | | | 41 |
| | |
| | Shares | | Value |
Short-Term Investments — 9.8% |
State Street Institutional Liquid Reserves(5) | | 103,963 | | | 103,963 |
| | | | | |
Total Short-Term Investments (Cost $103,963) | | | 103,963 |
| | | | | |
Total Investments — 97.0% (Cost $1,005,523) | | | 1,033,210 |
| | | | | |
Other Assets, Net — 3.0% | | | 31,573 |
| | | | | |
Total Net Assets — 100.0% | | $ | 1,064,783 |
(1) | Non-income producing security. |
(2) | ADR — American Depositary Receipt. |
(3) | Rounds to less than one share. |
(4) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
(5) | Money Market Fund registered under the Investment Company Act of 1940. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 – Quoted Prices | | $ | 1,033,210 |
Level 2 – Significant Other Observable Inputs | | | — |
Level 3 – Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 1,033,210 |
The accompanying notes are an integral part of these financial statements.
| | |
RS MidCap Opportunities VIP Series | | 11 |
| | |
| | Financial Information — RS MidCap Opportunities VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
|
Assets | |
Investments, at value | | $ | 1,033,210 | |
Cash and cash equivalents | | | 12,942 | |
Receivable for investments sold | | | 37,451 | |
Prepaid expenses | | | 13,895 | |
Dividends/interest receivable | | | 304 | |
| | | | |
Total Assets | | | 1,097,802 | |
| | | | |
Liabilities | | | | |
Accrued shareholder reports expense | | | 10,000 | |
Payable for investments purchased | | | 9,484 | |
Accrued audit fees | | | 9,471 | |
Accrued custodian fees | | | 2,880 | |
Payable to adviser | | | 763 | |
Payable to distributor | | | 225 | |
Trustees’ deferred compensation | | | 41 | |
Accrued expenses/other liabilities | | | 155 | |
| | | | |
Total Liabilities | | | 33,019 | |
| | | | |
Total Net Assets | | $ | 1,064,783 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 1,260,408 | |
Accumulated undistributed net investment loss | | | (39,265 | ) |
Accumulated net realized loss from investments | | | (184,047 | ) |
Net unrealized appreciation on investments | | | 27,687 | |
| | | | |
Total Net Assets | | $ | 1,064,783 | |
| | | | |
Investments, at Cost | | $ | 1,005,523 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 130,336 | |
| |
Net Asset Value Per Share | | | $8.17 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
|
Investment Income | |
Interest | | $ | 819 | |
Dividends | | | 1,379 | |
Withholding taxes on foreign dividends | | | (1 | ) |
| | | | |
Total Investment Income | | | 2,197 | |
| | | | |
Expenses | | | | |
Custodian fees | | | 9,396 | |
Investment advisory fees | | | 4,361 | |
Professional fees | | | 3,303 | |
Shareholder reports | | | 1,609 | |
Distribution fees | | | 1,283 | |
Administrative service fees | | | 137 | |
Trustees’ fees and expenses | | | 35 | |
Offering costs | | | 9,948 | |
Other expense | | | 62 | |
| | | | |
Total Expenses | | | 30,134 | |
| | | | |
Net Investment Loss | | | (27,937 | ) |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized loss from investments | | | (126,192 | ) |
Net change in unrealized depreciation on investments | | | (47,836 | ) |
| | | | |
Net Loss on Investments | | | (174,028 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (201,965 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS MidCap Opportunities VIP Series |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Period Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment loss | | $ | (27,937 | ) | | $ | (34,737 | ) |
Net realized loss from investments | | | (126,192 | ) | | | (57,855 | ) |
Net change in unrealized appreciation/(depreciation) on investments | | | (47,836 | ) | | | 75,523 | |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Operations | | | (201,965 | ) | | | (17,069 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 202,395 | | | | 1,352,834 | |
Cost of shares redeemed | | | (83,859 | ) | | | (187,553 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 118,536 | | | | 1,165,281 | |
| | | | | | | | |
Net Increase/(Decrease) in Net Assets | | | (83,429 | ) | | | 1,148,212 | |
| | |
Net Assets | | | | | | | | |
Beginning of period | | | 1,148,212 | | | | — | |
| | | | | | | | |
End of period | | $ | 1,064,783 | | | $ | 1,148,212 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Loss Included in Net Assets | | $ | (39,265 | ) | | $ | (11,328 | ) |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 23,498 | | | | 134,431 | |
Redeemed | | | (9,615 | ) | | | (17,978 | ) |
| | | | | | | | |
Net Increase | | | 13,883 | | | | 116,453 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS MidCap Opportunities VIP Series | | 13 |
| | |
| | Financial Information — RS MidCap Opportunities 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). 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 distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Asset Value, Beginning of Period | | Net Investment Loss | | | Net Realized and Unrealized Gain/(Loss) | | | Total Operations | | | Distributions From Net Investment Income | | Distributions From Net Realized Capital Gains | | Total Distributions |
| | | | | | | |
Six Months Ended 06/30/081 Period From 07/31/074 to 12/31/071 | | $
| 9.86
10.00 | | $
| (0.20
(0.30 | )
) | | $
| (1.49
0.16 | )
| | $
| (1.69
(0.14 | )
) | | $
| —
— | | $
| —
— | | $
| —
— |
The accompanying notes are an integral part of these financial statements.
| | |
14 | | RS MidCap Opportunities VIP Series |
| | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | Net Ratio of Net Investment Loss to Average Net Assets3 | | | Gross Ratio of Net Investment Loss to Average Net Assets | | Portfolio Turnover Rate |
| | | | | | | |
$8.17
9.86 | | (17.14)%
(1.40)% | | $
| 1,065
1,148 | | 5.06%
6.00% |
| | 5.06%
6.00% | | (4.63)%
(5.42)% |
| | (4.63)%
(5.42)% | | 161%
116% |
| 1 | Ratios for periods less than one year have been annualized excluding organization costs and offering costs, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Loss to Average Net Assets include the effect of fee waivers, expense limitations, and custody credits, if applicable. |
| 4 | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
| | |
RS MidCap Opportunities VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS MidCap Opportunities VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS MidCap Opportunities VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class II shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
In its normal course of business, the Fund may invest a significant portion of its assets in companies concentrated within a number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or
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16 | | RS MidCap Opportunities VIP Series |
most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 – quoted prices in active markets for identical investments |
Ø | | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
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RS MidCap Opportunities VIP Series | | 17 |
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| | Notes to Financial Statements — RS MidCap Opportunities VIP Series (unaudited) (continued) |
e. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
| | | | | | | |
Amount Outstanding at 06/30/08 | | Average Borrowing* | | Average Interest Rate* | |
$ | — | | $ | 5,979 | | 2.94 | % |
* | For the six months ended June 30, 2008. |
k. Offering Costs
Offering costs are accounted for on an accrual basis. Offering costs are expensed over a 12-month period. These costs include printing, administration and other expenses associated with the initial registration of the Fund.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.85%.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust who are not interested per-
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18 | | RS MidCap Opportunities VIP Series |
sons 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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.
c. Distribution Fees
The Fund has entered into an agreement with GIS for distribution services with respect to its shares and has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, whose continuance is reviewed annually by the Trust’s Board of Trustees. Under the plan, GIS is compensated for the services it provides and for the expenses it bears in connection with the distribution of the Fund’s Class II shares at an annual rate of up to 0.25% of the average daily net assets of Class II shares of the Fund.
RS Investments may pay GIAC or other insurance companies or financial institutions compensation, at an annual rate of up to 0.15% of the Fund’s average daily net assets, for providing administrative and shareholder services. Payment of this compensation does not represent a separate or additional expense to the Fund.
Note 3. | | Federal Income Taxes |
a. Distributions to Shareholders
No distributions were paid during the period ended December 31, 2007.
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 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. 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.
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.
Capital loss carryovers available to the Fund at December 31, 2007, were $28,780, expiring in 2015.
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 period ended December 31, 2007, which is the most recently completed tax year, the Fund had $20,084 in deferred losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $1,027,931. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $67,680 and $(62,401), respectively, resulting in net unrealized appreciation of $5,279.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $1,617,454 and $1,649,190, respectively, for the six months ended June 30, 2008.
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RS MidCap Opportunities VIP Series | | 19 |
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| | Notes to Financial Statements — RS MidCap Opportunities VIP Series (unaudited) (continued) |
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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.
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20 | | RS MidCap Opportunities VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS MidCap Opportunities VIP Series | | 21 |
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| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain Series of RS Variable Products Trust*
The Trustees of RS Variable Products Trust (the “Trust”), including all the Trustees who are not interested persons of the Trust or RS Investment Management Co. LLC (“RS Investments”) (the “disinterested Trustees”), met in person on May 15-16, 2007, to consider the approval of the investment advisory agreement (the “Advisory Agreement”) for RS MidCap Opportunities VIP Series (the “Fund”), a new series of the Trust.
At their meeting, the Trustees considered a number of factors in determining to approve the Advisory Agreement. In all of their deliberations regarding the Advisory Agreement, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees.
In their consideration of the Advisory Agreement, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration on a number of occasions with management and observed its effects over the course of the period following the acquisition.
The Trustees considered the fee to be charged by RS Investments to the Fund under the Advisory Agreement. In this connection, representatives of RS Investments noted to the Trustees that the Fund has a comparable investment objective and principal investment strategies to RS MidCap Opportunities Fund, a series of RS Investment Trust, and that the Fund’s portfolio management team, and the advisory fee to be paid by the new Fund, were the same as those of RS MidCap Opportunities Fund. The Trustees further noted that they had previously approved the investment advisory agreement of RS MidCap Opportunities Fund, including the fees to be paid by RS MidCap Opportunities Fund.
Representatives of RS Investments noted to the Trustees that the fees to be charged by RS Investments to the Fund reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Fund. RS Investments generally charges lower fees to those clients. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients, including the Fund.
Because the Fund had not yet commenced operations, RS Investments did not furnish financial information regarding the revenues and expenses related to the management of the Fund.
The Trustees considered whether economies of scale would likely be realized as the Fund grew and whether a
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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22 | | RS MidCap Opportunities VIP Series |
reduction in the advisory fees paid by the Fund by means of breakpoints would be appropriate.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments. In this regard, the Trustees took into account the experience of the Fund’s portfolio management team and of RS Investments’ senior management, and the time and attention to be devoted by each to the Fund. Because the Fund had not commenced operations, it did not have a performance record for the Trustees to consider. The Trustees took into account the performance of RS MidCap Opportunities Fund.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it intends to place the Fund’s (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Fund) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Fund also may benefit from them.
The Trustees considered generally the nature and quality of the administrative services to be provided to the Fund by RS Investments including, among other things, changes in and enhancements to the firm’s personnel and capabilities, their recent performances, and the responsiveness of senior management to the Trustees’ requests.
After considering all of the information described above, the Trustees, including all of the disinterested Trustees, unanimously voted to approve the Advisory Agreement. At a meeting held in person on March 18-19, 2008, the Trustees, including all of the disinterested Trustees, unanimously voted to approve the continuation of the Advisory Agreement through August 31, 2008.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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RS MidCap Opportunities VIP Series | | 23 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel — Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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24 | | RS MidCap Opportunities VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS MidCap Opportunities VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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26 | | RS MidCap Opportunities VIP Series |
RS Variable Products Trust
RS Global Natural Resources VIP Series
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06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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 Global Natural Resources VIP Series |
| | |
| | MacKenzie B. Davis, CFA MacKenzie B. Davis (RS Investments) has been a co-portfolio manager of RS Global Natural Resources VIP Series since 2007. 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. |
| |
| | Andrew P. Pilara, Jr. Andrew P. Pilara, Jr. (RS Investments) has been a co-portfolio manager of RS Global Natural Resources VIP Series since 2007. 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 more than 30 years, with experience in portfolio management, research, trading, and sales. Mr. Pilara holds a B.A. in economics from Saint Mary’s College. |
| |
| | Kenneth L. Settles Jr., CFA Kenneth L. Settles Jr. (RS Investments) has been a co-portfolio manager of RS Global Natural Resources VIP Series since 2007. Prior to joining the firm in September 2006, Mr. Settles was a senior energy analyst at Neuberger Berman, LLC for seven years where he also co-managed the Neuberger Berman Premier Energy Portfolio. Previously, Mr. Settles spent three years at Salomon Smith Barney, Inc., where he was a financial analyst. Mr. Settles holds a B.A. in economics from Williams College. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | During a period when commodity-related shares outperformed the broader market, the RS Global Natural Resources VIP Series delivered double-digit performance that outpaced the benchmark. |
Ø | | Results benefited from robust performance by many of the Fund’s precious metal and energy-related shares. |
Ø | | Underperformance in the Fund’s regulated utility holdings and the Fund’s cash position had a negative impact on relative performance. |
Market Overview
Financial markets were extremely volatile during the first half of 2008, as investors reacted to the economic uncertainty associated with an accelerating credit crisis. The Federal Reserve Board acted aggressively to calm financial markets and restore liquidity, cutting the target federal funds rate by 225 basis points through the end of April. These moves helped spark a modest equity market resurgence in April and May, but this rebound faltered in June as inflation and economic concerns again took center stage. For the six-month period ended
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RS Global Natural Resources VIP Series | | 3 |
| | |
| | RS Global Natural Resources VIP Series (continued) |
June 30, 2008, the S&P 500® Index4 dropped by 11.91%, while the Dow Jones Industrial Average5 fell by 13.38%. Value shares generally underperformed growth stocks during the period, with mid-cap shares outpacing both large-cap and small-cap stocks.
Performance
The RS Global Natural Resources VIP Series returned 15.44% during the period, outperforming its benchmark, the S&P North American Natural Resources Sector IndexTM3, which returned 14.74%.
Portfolio Review
During a period that was generally favorable for commodity-based stocks, the Fund benefited from overall stock selection in energy-related shares. These included oil and natural gas companies such as Canadian Natural Resources, Talisman Energy, and XTO Energy.
XTO Energy is a good example of the qualities we look for in our natural resources holdings. Our investments are premised on our belief that owners of advantaged, or low-cost, commodity-producing assets can earn excess rates of return across a commodity price cycle. By earning excess returns and by deploying the considerable free cash flow that is being generated in the current commodity price environment back into high-return projects, these companies are able to consistently grow their net asset value (NAV) on a per-share basis. We then overlay our valuation parameters in an effort to protect shareholder capital (i.e., to not overpay for these advantaged assets). In the case of XTO Energy, we believe that management has accumulated a natural gas asset base that can compound the company’s NAV growth.
Outside of energy, the Fund capitalized on its stock selection in materials and especially from its investments in gold producers Goldcorp and Kinross Gold. The Fund’s investment in Century Aluminum was also quite favorable. Century Aluminum combines significant U.S. aluminum smelting capacity with a growing production presence in Iceland, where it benefits from access to very low-cost geothermal and hydropowered electricity.
On a negative note, relative performance suffered from the Fund’s exposure to regulated utilities shares, including electric utility Duke Energy. Other detractors from Fund performance included specialty steel producer Allegheny Technologies, independent oil refiner and marketer Alon USA Energy, and oil producer Petrobank Energy and Resources.
Outlook
We believe that we are experiencing a secular bull market for commodities and related natural resources equities, driven by increasing supply constraints and rapidly rising demand from both developed and developing nations. We continue to believe that we are in the early stages of a material uptrend in long-term commodity prices. Our constructive long-term commodity price outlook is premised on the fact that supply costs continue to rise, driven primarily by deteriorating geology. It is important to note, however, that commodity prices move in cycles, and we do not subscribe to the notion that we have entered a “new paradigm.” We believe that the forces that drove the virtually homogenous rise in commodity prices during the first half of this decade are now in transition, and that we have entered what we have labeled “Phase II” of the current commodity price cycle.
We anticipate that Phase II will be marked by a convergence between spot prices and the marginal cost of supply. For many commodities we believe that this will lead to further upward pressure on long-term prices; for others we believe that the outlook may be less constructive, as demand destruction and incremental supply cause downward price pressure. In Phase II we believe that it will be necessary for investors to be more nuanced in terms of both the companies that they own and the commodities to which they are exposed. We believe that our focus on structural change in commodity cost curves, company-specific improvements in return on invested capital profiles, the identification of advantaged assets, and a very pragmatic approach to valuations and capital preservation is well suited to the current environment. We continue to seek very compelling investment opportunities and believe that the forces at play will disproportionately benefit owners of the
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4 | | RS Global Natural Resources VIP Series |
lowest-cost, most capital-efficient commodity-producing assets over the cycle.
We thank you for your investment and continued support.
| | |
Andrew Pilara | | MacKenzie Davis |
Co-Portfolio Manager | | Co-Portfolio Manager |
| | |
Kenneth Settles, Jr. | | |
Co-Portfolio Manager | | |
| | |
RS Global Natural Resources VIP Series | | 5 |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. Investing in small- and mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Funds that concentrate investments in a certain sector may be subject to greater risk than funds that invest more broadly, as companies in that sector may share common characteristics and may react similarly to market developments or other factors affecting their values. Investments in companies in natural resources industries may involve risks including changes in commodities prices, changes in demand for various natural resources, changes in energy prices, and international political and economic developments. Foreign securities are subject to political, regulatory, economic, and exchange-rate risks not present in domestic investments. The value of a debt security is affected by changes in interest rates and is subject to any credit risk of the issuer or guarantor of the security.
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, 2008.
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| | RS Global Natural Resources VIP Series (continued) |
| | |
Total Net Assets: $15,798,998 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| |
Company | | Percentage of Total Net Assets |
Allegheny Technologies, Inc. | | 4.84% |
Key Energy Services, Inc. | | 3.94% |
Talisman Energy, Inc. | | 3.81% |
XTO Energy, Inc. | | 3.81% |
Denbury Resources, Inc. | | 3.71% |
Peabody Energy Corp. | | 3.65% |
Century Aluminum Co. | | 3.56% |
Canadian Natural Resources Ltd. | | 3.28% |
Eastman Chemical Co. | | 3.18% |
Calpine Corp. | | 3.11% |
Total | | 36.89% |
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 S&P North American Natural Resources Sector IndexTM is a modified cap-weighted index designed as a benchmark for U.S.-traded securities in the natural resources sector. The index includes companies involved in the following categories: extractive industries, energy companies, owners and operators of timber tracts, forestry services, producers of pulp and paper, and owners of plantations. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
4 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
5 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
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6 | | RS Global Natural Resources VIP Series |
| | |
| | Performance Update† As of 06/30/08 |
| | | | | | |
| | | |
| | Inception Date | | Year-to-Date | | Since Inception |
RS Global Natural Resources VIP Series | | 07/31/07 | | 15.44% | | 24.10% |
S&P North American Natural Resources Sector IndexTM3 | | | | 14.74% | | 29.04% |
S&P 500® Index4 | | | | -11.91% | | -10.34% |
† | Since inception returns are not annualized and represent cumulative total returns. |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 07/31/07 in RS Global Natural Resources VIP Series, the S&P GSSI™ Natural Resources Index, 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. 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 2.13%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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RS Global Natural Resources 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $1,154.40 | | $11.52 | | 2.15% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,014.17 | | $10.77 | | 2.15% |
* | Expenses are equal to the Fund’s annualized expense ratio excluding offering costs, as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
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8 | | RS Global Natural Resources VIP Series |
| | |
| | Schedule of Investments – RS Global Natural Resources VIP Series |
| | | | | | | |
June 30, 2008 (unaudited) | | Foreign Currency | | Shares | | Value |
| | | | | | | |
Common Stocks — 84.3% | | | |
Aluminum — 3.6% | | | |
Century Aluminum Co.(1) | | | | 8,450 | | $ | 561,840 |
| | | | | | | |
| | | | | | | 561,840 |
Building Materials — 1.9% | | | |
Martin Marietta Materials, Inc. | | | | 2,904 | | | 300,825 |
| | | | | | | |
| | | | | | | 300,825 |
Chemicals — 3.2% | | | |
Eastman Chemical Co. | | | | 7,289 | | | 501,921 |
| | | | | | | |
| | | | | | | 501,921 |
Coal — 6.1% | | | |
Arch Coal, Inc. | | | | 2,500 | | | 187,575 |
Foundation Coal Holdings, Inc. | | | | 2,300 | | | 203,734 |
Peabody Energy Corp. | | | | 6,550 | | | 576,727 |
| | | | | | | |
| | | | | | | 968,036 |
Energy Miscellaneous — 0.6% | | | |
Alon USA Energy, Inc. | | | | 7,380 | | | 88,265 |
| | | | | | | |
| | | | | | | 88,265 |
Gold — 5.3% | | | |
Goldcorp, Inc. | | CAD | | 9,450 | | | 435,662 |
Kinross Gold Corp. | | CAD | | 16,850 | | | 398,240 |
| | | | | | | |
| | | | | | | 833,902 |
Insurance – Multi-Line — 0.6% | | | |
PICO Holdings, Inc.(1) | | | | 2,200 | | | 95,590 |
| | | | | | | |
| | | | | | | 95,590 |
Machinery – Oil Well Equipment & Services — 7.0% |
Key Energy Services, Inc.(1) | | | | 32,050 | | | 622,411 |
Schlumberger Ltd. | | | | 3,000 | | | 322,290 |
Smith International, Inc. | | | | 2,000 | | | 166,280 |
| | | | | | | |
| | | | | | | 1,110,981 |
Metals & Minerals – Miscellaneous — 6.8% | | | |
A.M. Castle & Co. | | | | 5,200 | | | 148,772 |
BHP Billiton Ltd., ADR(2) | | | | 5,400 | | | 460,026 |
Companhia Vale do Rio Doce, ADR(2) | | | | 12,950 | | | 463,869 |
| | | | | | | |
| | | | | | | 1,072,667 |
Oil – Crude Producers — 23.2% | | | |
Berry Petroleum Co., Class A | | | | 2,100 | | | 123,648 |
Canadian Natural Resources Ltd. | | | | 5,170 | | | 518,293 |
Denbury Resources, Inc.(1) | | | | 16,050 | | | 585,825 |
EOG Resources, Inc. | | | | 1,900 | | | 249,280 |
Newfield Exploration Co.(1) | | | | 7,150 | | | 466,538 |
Petrobank Energy & Resources Ltd.(1) | | CAD | | 4,800 | | | 250,427 |
Southwestern Energy Co.(1) | | | | 5,500 | | | 261,855 |
Talisman Energy, Inc. | | CAD | | 27,200 | | | 602,310 |
XTO Energy, Inc. | | | | 8,777 | | | 601,312 |
| | | | | | | |
| | | | | | | 3,659,488 |
Oil – Integrated Domestic — 2.2% | | | |
Occidental Petroleum Corp. | | | | 3,950 | | | 354,947 |
| | | | | | | |
| | | | | | | 354,947 |
| | | | | | | |
June 30, 2008 (unaudited) | | | | Shares | | Value |
| | | | | | | |
Rental & Leasing Services – Consumer — 0.9% |
WESCO International, Inc.(1) | | | | 3,348 | | $ | 134,054 |
| | | | | | | |
| | | | | | | 134,054 |
Steel — 4.8% | | | |
Allegheny Technologies, Inc. | | | | 12,900 | | | 764,712 |
| | | | | | | |
| | | | | | | 764,712 |
Utilities – Electrical — 8.7% | | | |
Duke Energy Corp. | | | | 18,730 | | | 325,527 |
FirstEnergy Corp. | | | | 5,600 | | | 461,048 |
NorthWestern Corp. | | | | 6,506 | | | 165,383 |
PPL Corp. | | | | 8,000 | | | 418,160 |
| | | | | | | |
| | | | | | | 1,370,118 |
Utilities – Gas Distributors — 5.2% | | | |
Questar Corp. | | | | 5,450 | | | 387,168 |
Spectra Energy Corp. | | | | 15,350 | | | 441,159 |
| | | | | | | |
| | | | | | | 828,327 |
Utilities – Gas Pipelines — 1.1% | | | |
Equitable Resources, Inc. | | | | 2,524 | | | 174,307 |
| | | | | | | |
| | | | | | | 174,307 |
Utilities – Miscellaneous — 3.1% | | | |
Calpine Corp.(1) | | | | 21,790 | | | 491,582 |
| | | | | | | |
| | | | | | | 491,582 |
| | | | | | | |
Total Common Stocks (Cost $11,984,870) | | | | | | | 13,311,562 |
| | | |
| | | | Shares | | Value |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3) | | | | 1 | | | 24 |
RS Emerging Growth Fund, Class Y(3) | | | | 1 | | | 33 |
RS Emerging Markets Fund, Class A(3) | | | | 1 | | | 18 |
RS Equity Dividend Fund, Class Y(3) | | | | 1 | | | 6 |
RS Global Natural Resources Fund, Class Y(3) | | | | 1 | | | 22 |
RS Growth Fund, Class Y(3) | | | | 1 | | | 7 |
RS Investment Quality Bond Fund, Class A(3) | | | | 1 | | | 5 |
RS Investors Fund, Class Y(3)(4) | | | | — | | | 1 |
RS MidCap Opportunities Fund, Class Y(3)(4) | | | | — | | | 1 |
RS Partners Fund, Class Y(3) | | | | 1 | | | 20 |
RS S&P 500 Index Fund, Class A(3) | | | | 1 | | | 5 |
RS Smaller Company Growth Fund, Class Y(3) | | | | 1 | | | 10 |
RS Technology Fund, Class Y(3)(4) | | | | — | | | 6 |
RS Value Fund, Class Y(3) | | | | 1 | | | 28 |
| | | | | | | |
Total Other Investments (Cost $183) | | | | | | | 186 |
The accompanying notes are an integral part of these financial statements.
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RS Global Natural Resources VIP Series | | 9 |
| | |
| | Schedule of Investments – RS Global Natural Resources VIP Series (continued) |
| | | | | | | | |
June 30, 2008 (unaudited) | | | | Shares | | Value |
Short-Term Investments — 8.8% | | | |
State Street Institutional Liquid Reserves(5) | | | | | 1,397,294 | | $ | 1,397,294 |
| | | | | | | | |
Total Short-Term Investments (Cost $1,397,294) | | | | | | | | 1,397,294 |
| | | |
| | | | Principal Amount | | Value |
Repurchase Agreements — 5.0% | | | |
State Street Bank and Trust Co. Repurchase Agreement, 2.10% dated 6/30/2008, maturity value of $790,046, due 7/1/2008, collateralized by FHLB, 5.00%, due 6/11/2018, with a value of $809,750 | | | | $ | 790,000 | | | 790,000 |
| | | | | | | | |
Total Repurchase Agreements (Cost $790,000) | | | | | | | | 790,000 |
| | | | | | | | |
Total Investments — 98.1% (Cost $14,172,347) | | | | | | | | 15,499,042 |
| | | | | | | | |
Other Assets, Net — 1.9% | | | | | | | | 299,956 |
| | | | | | | | |
Total Net Assets — 100.0% | | | | | | | $ | 15,798,998 |
(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 2b in Notes to Financial Statements. |
(4) | Rounds to less than one share. |
(5) | Money Market Fund registered under the Investment Company Act of 1940. |
Foreign-Denominated Security
Canadian Dollar — CAD
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 — Quoted Prices | | $ | 15,499,042 |
Level 2 — Significant Other Observable Inputs | | | — |
Level 3 — Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 15,499,042 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Global Natural Resources VIP Series |
| | |
| | Financial Information — RS Global Natural Resources VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 15,499,042 | |
Cash and cash equivalents | | | 43,567 | |
Receivable for fund shares subscribed | | | 579,150 | |
Receivable for investments sold | | | 24,595 | |
Dividends/interest receivable | | | 10,489 | |
Prepaid expenses | | | 6,985 | |
| | | | |
Total Assets | | | 16,163,828 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 264,505 | |
Due to custodian | | | 56,248 | |
Payable for fund shares redeemed | | | 3,770 | |
Payable to adviser | | | 11,042 | |
Payable to distributor | | | 2,761 | |
Trustees’ deferred compensation | | | 186 | |
Accrued expenses/other liabilities | | | 26,318 | |
| | | | |
Total Liabilities | | | 364,830 | |
| | | | |
Total Net Assets | | $ | 15,798,998 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 14,515,944 | |
Accumulated undistributed net investment loss | | | (37,584 | ) |
Accumulated net realized loss from investments and foreign currency transactions | | | (6,115 | ) |
Net unrealized appreciation on investments and translation of assets and liabilities in foreign currencies | | | 1,326,753 | |
| | | | |
Total Net Assets | | $ | 15,798,998 | |
| | | | |
Investments, at Cost | | $ | 14,172,347 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 1,272,635 | |
| |
Net Asset Value Per Share | | | $12.41 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 18,490 | |
Dividends | | | 35,662 | |
Withholding taxes on foreign dividends | | | (627 | ) |
| | | | |
Total Investment Income | | | 53,525 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 36,462 | |
Professional fees | | | 3,334 | |
Custodian fees | | | 17,262 | |
Distribution fees | | | 9,115 | |
Shareholder reports | | | 1,741 | |
Administrative service fees | | | 232 | |
Trustees’ fees and expenses | | | 110 | |
Offering costs | | | 10,214 | |
Other expense | | | 14 | |
| | | | |
Total Expenses | | | 78,484 | |
| | | | |
Net Investment Loss | | | (24,959 | ) |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) Investments and Foreign Currency Transactions | | | | |
Net realized loss from investments | | | (6,531 | ) |
Net realized gain from foreign currency transactions | | | 416 | |
Net change in unrealized appreciation on investments | | | 1,168,409 | |
Net change in unrealized appreciation on translation of assets and liabilities in foreign currency | | | 53 | |
| | | | |
Net Gain on Investments and Foreign Currency Transactions | | | 1,162,347 | |
| | | | |
Net Increase in Net Assets Resulting from Operations | | $ | 1,137,388 | |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS Global Natural Resources VIP Series | | 11 |
| | |
| | Financial Information — RS Global Natural Resources VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Period Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment loss | | $ | (24,959 | ) | | $ | (22,040 | ) |
Net realized gain/(loss) from investments and foreign currency transactions | | | (6,115 | ) | | | 1,287 | |
Net change in unrealized appreciation on investments and translation of assets and liabilities in foreign currency | | | 1,168,462 | | | | 158,291 | |
| | | | | | | | |
Net Increase in Net Assets Resulting from Operations | | | 1,137,388 | | | | 137,538 | |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 13,615,358 | | | | 3,241,571 | |
Cost of shares redeemed | | | (2,091,283 | ) | | | (241,574 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 11,524,075 | | | | 2,999,997 | |
| | | | | | | | |
Net Increase in Net Assets | | | 12,661,463 | | | | 3,137,535 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 3,137,535 | | | | — | |
| | | | | | | | |
End of period | | $ | 15,798,998 | | | $ | 3,137,535 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Loss Included in Net Assets | | $ | (37,584 | ) | | $ | (12,625 | ) |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 1,167,161 | | | | 315,333 | |
Redeemed | | | (186,466 | ) | | | (23,393 | ) |
| | | | | | | | |
Net Increase | | | 980,695 | | | | 291,940 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
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12 | | RS Global Natural Resources VIP Series |
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RS Global Natural Resources VIP Series | | 13 |
| | |
| | Financial Information — RS Global Natural Resources 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). 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 distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | |
| | Net Asset Value, Beginning of Period | | Net Investment Gain/(Loss) | | | Net Realized and Unrealized Gain | | Total Operations | | Distributions From Net Investment Income | | Distributions From Net Realized Capital Gains | | Total Distributions |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 10.75 | | $ | 0.01 | | | $ | 1.65 | | $ | 1.66 | | $ | — | | $ | — | | $ | — |
| | | | | | | |
Period From 07/31/074 to 12/31/071 | | | 10.00 | | | (0.08 | ) | | | 0.83 | | | 0.75 | | | — | | | — | | | — |
The accompanying notes are an integral part of these financial statements.
| | |
14 | | RS Global Natural Resources VIP Series |
| | | | | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | | Gross Ratio of Expenses to Average Net Assets | | | Net Ratio of Net Investment Loss to Average Net Assets3 | | | Gross Ratio of Net Investment Loss to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$12.41 | | 15.44 | % | | $ | 15,799 | | 2.15 | % | | 2.15 | % | | (0.68 | )% | | (0.68 | )% | | 16 | % |
| | | | | | | |
10.75 | | 7.50 | % | | | 3,138 | | 3.78 | % | | 3.78 | % | | (1.51 | )% | | (1.51 | )% | | 7 | % |
| 1 | Ratios for periods less than one year have been annualized excluding organization costs and offering costs, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Loss to Average Net Assets include the effect of fee waivers, expense limitations, and custody credits, if applicable. |
| 4 | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
| | |
RS Global Natural Resources VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS Global Natural Resources VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Global Natural Resources VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class II shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting
| | |
16 | | RS Global Natural Resources VIP Series |
entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
| | |
RS Global Natural Resources VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Global Natural Resources VIP Series (unaudited) (continued) |
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
k. Offering Costs
Offering costs are accounted for on an accrual basis. Offering costs are expensed over a 12-month period. These costs include printing, administration and other expenses associated with the initial registration of the Fund.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 1.00%.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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.
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18 | | RS Global Natural Resources VIP Series |
c. Distribution Fees
The Fund has entered into an agreement with GIS for distribution services with respect to its shares and has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, whose continuance is reviewed annually by the Trust’s Board of Trustees. Under the plan, GIS is compensated for the services it provides and for the expenses it bears in connection with the distribution of the Fund’s Class II shares at an annual rate of up to 0.25% of the average daily net assets of Class II shares of the Fund.
RS Investments may pay GIAC or other insurance companies or financial institutions compensation, at an annual rate of up to 0.15% of the Fund’s average daily net assets for providing administrative and shareholder services. Payment of this compensation does not represent a separate or additional expense to the Fund.
Note 3. | | Federal Income Taxes |
a. Distributions to Shareholders
No distributions were paid during the period ended December 31, 2007.
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 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. 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.
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.
During the period ended December 31, 2007, the Fund did not utilize capital loss carryovers and no capital loss carryovers are available for use in future offsets.
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 period ended December 31, 2007, which is the most recently completed tax year, the Fund had $1,077 in deferred losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $14,202,026. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $1,529,809 and $(232,793), respectively, resulting in net unrealized appreciation of $1,297,016.
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $10,506,601 and $1,032,933, respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next busi-
| | |
RS Global Natural Resources VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS Global Natural Resources VIP Series (unaudited) (continued) |
ness day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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
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20 | | RS Global Natural Resources VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS Global Natural Resources VIP Series | | 21 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain Series of RS Variable Products Trust*
The Trustees of RS Variable Products Trust (the “Trust”), including all the Trustees who are not interested persons of the Trust or RS Investment Management Co. LLC (“RS Investments”) (the “disinterested Trustees”), met in person on May 15-16, 2007, to consider the approval of the investment advisory agreement (the “Advisory Agreement”) for RS Global Natural Resources VIP Series (the “Fund”), a new series of the Trust.
At their meeting, the Trustees considered a number of factors in determining to approve the Advisory Agreement. In all of their deliberations regarding the Advisory Agreement, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees.
In their consideration of the Advisory Agreement, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration on a number of occasions with management and observed its effects over the course of the period following the acquisition.
The Trustees considered the fee to be charged by RS Investments to the Fund under the Advisory Agreement. In this connection, representatives of RS Investments noted to the Trustees that the Fund has a comparable investment objective and principal investment strategies to RS Global Natural Resources Fund, a series of RS Investment Trust, and that the Fund’s portfolio management team, and the advisory fee to be paid by the new Fund, were the same as those of RS Global Natural Resources Fund. The Trustees further noted that they had previously approved the investment advisory agreement of RS Global Natural Resources Fund, including the fees to be paid by RS Global Natural Resources Fund.
Representatives of RS Investments noted to the Trustees that the fees to be charged by RS Investments to the Fund reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Fund. RS Investments generally charges lower fees to those clients. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients, including the Fund.
Because the Fund had not yet commenced operations, RS Investments did not furnish financial information regarding the revenues and expenses related to the management of the Fund.
The Trustees considered whether economies of scale would likely be realized as the Fund grew and whether a reduction in the advisory fees paid by the Fund by means of breakpoints would be appropriate.
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22 | | RS Global Natural Resources VIP Series |
* The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments. In this regard, the Trustees took into account the experience of the Fund’s portfolio management team and of RS Investments’ senior management, and the time and attention to be devoted by each to the Fund. Because the Fund had not commenced operations, it did not have a performance record for the Trustees to consider. The Trustees took into account the performance of RS Global Natural Resources Fund.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it intends to place the Fund’s (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Fund) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Fund also may benefit from them.
The Trustees considered generally the nature and quality of the administrative services to be provided to the Fund by RS Investments including, among other things, changes in and enhancements to the firm’s personnel and capabilities, their recent performances, and the responsiveness of senior management to the Trustees’ requests.
After considering all of the information described above, the Trustees, including all of the disinterested Trustees, unanimously voted to approve the Advisory Agreement. At a meeting held in person on March 18-19, 2008, the Trustees, including the disinterested Trustees, unanimously voted to approve the continuation of the Advisory Agreement through August 31, 2008.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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RS Global Natural Resources VIP Series | | 23 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
| | |
24 | | RS Global Natural Resources VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
| | |
RS Global Natural Resources VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
| | |
26 | | RS Global Natural Resources VIP Series |
RS Variable Products Trust
RS Value VIP Series
| | |
06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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 Value VIP Series |
| | |
| | MacKenzie B. Davis, CFA MacKenzie B. Davis (RS Investments) has been a co-portfolio manager of RS Value VIP Series since 2007. 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. |
| |
| | David Kelley David J. Kelley (RS Investments) has been a co-portfolio manager of RS Value VIP Series since 2007. Prior to joining RS Investments as an analyst in the RS Value Group in 2002, 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. |
| |
| | Andrew Pilara Andrew P. Pilara, Jr. (RS Investments) has been a co-portfolio manager of RS Value VIP Series since 2007, and has been a member of that Fund’s management team since 1999. 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 more than 30 years, with experience in portfolio management, research, trading, and sales. Mr. Pilara holds a B.A. in economics from Saint Mary’s College. |
| |
| | Joseph A. Wolf Joseph A. Wolf (RS Investments) has been a co-portfolio manager of RS Value VIP Series since 2007. 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 Value VIP Series (continued) |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | The first half of 2008 was challenging for the equity markets, as the repricing of risk triggered a sell-off that spread from the financial services sector to affect stock prices in a wide array of businesses, often with little regard for underlying fundamentals. |
Ø | | Although the RS Value VIP Series was down during the six-month period, it outperformed its benchmark by 479 basis points. |
Ø | | Performance benefited primarily from double-digit returns by many of the Fund’s utility and energy shares as well as from strong stock selection in the technology sector. The Fund’s outperformance for the period was mitigated somewhat by the poor contribution from its materials and health care holdings and a lack of exposure to integrated oils. |
Market Overview
The financial markets were extremely volatile during the first half of 2008, as investors reacted to the economic uncertainty associated with an accelerating credit crisis. The Federal Reserve Board acted aggressively to calm financial markets and restore liquidity, cutting the target federal funds rate by 225 basis points through the end of April. These moves helped spark a modest equity market resurgence in April and May, but this rebound faltered in June as inflation and economic concerns again took center stage. For the six-month period ended June 30, 2008, the S&P 500® Index4 dropped by 11.91%, while the Dow Jones Industrial Average5 fell by 13.38%. Value shares generally underperformed growth stocks during the period, with mid-cap shares outpacing both large-cap and small-cap stocks.
Performance
The RS Value VIP Series declined 3.79% in the six-month period ended June 30, 2008, outperforming the benchmark Russell Midcap® Value Index3, which declined 8.58%.
Portfolio Review
During a challenging period for financial markets, the Fund’s performance benefited from stock selection in the utilities sector, due in part to healthy gains by utilities such as FirstEnergy and Calpine as well as by gas exploration and distribution company Questar and natural gas company Spectra Energy.
Fund returns were also supported by exposure to a number of energy holdings not represented in the benchmark index. These included Canadian Natural Resources and Talisman Energy, Canada’s largest oil and gas exploration company. Overall the Fund’s overweight exposure to the energy sector was generally favorable.
The Fund’s technology holdings also performed well. One standout was LSI, a producer of standard and application-specific integrated circuits used in communications, data storage, and networking.
In contrast, the Fund’s relative performance was mitigated somewhat by a few holdings in the materials and processing sector, including specialty steel manufacturer Allegheny Technologies. A lack of exposure to better-performing fertilizer and metal-fabricating holdings was also detrimental to the Fund’s relative performance. The health care sector also weighed on returns during the period. Detractors included senior care facilities manager Sunrise Senior Living, managed health care provider Magellan Health Services, and pharmaceutical company Biovail.
Career Education, a for-profit, post–secondary education company that faced concerns over tighter underwriting standards for student loans was a notable detractor in the consumer discretionary sector. The Fund’s relative performance was also hindered by a lack of exposure to better-performing names in the integrated oils sector.
Outlook
Although our absolute performance during the first half of 2008 was down for the period, we take some solace in the Fund’s relative performance during a very challenging period. We recognize that the market has been undergoing a necessary but painful adjustment to correct excesses resulting from several years of an expanding credit bubble. We believe that this process will create perhaps some of the largest discrepancies between stock prices and business values that have been seen in many years, which could present some promising long-term investment opportunities for the Fund. While we are neither equipped nor inclined to make predictions about the short-term outlook for the U.S. equity market, history has taught us that fundamentals do, in fact, matter over time and that stock prices will ultimately follow returns on invested capital. For this reason we have used the recent volatility to replace more-vulnerable business models from the portfolio with what we believe to be higher-quality franchises. Above all, we remain patient in our efforts to deploy our shareholders’ capital, as we seek out durable, predictable, and structurally advantaged businesses that fit within our process and philosophy.
We thank you for your continued investment and support.
| | |
Andrew Pilara | | MacKenzie Davis |
Co-Portfolio Manager | | Co-Portfolio Manager |
| |
David Kelley | | Joe Wolf |
Co-Portfolio Manager | | Co-Portfolio Manager |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. Investing in small- and mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Overweighting investments in certain sectors or industries increases the risk of loss due to general declines in the prices of stocks in those sectors or industries. Foreign securities are subject to political, regulatory, economic, and exchange-rate risks not present in domestic investments. The value of a debt security is affected by changes in interest rates and is subject to any credit risk of the issuer or guarantor of the security.
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, 2008.
| | |
| | RS Value VIP Series (continued) |
| | |
Total Net Assets: $1,402,313 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| |
Company | | Percentage of Total Net Assets |
Peabody Energy Corp. | | 5.65% |
Scientific Games Corp. | | 4.60% |
Allegheny Technologies, Inc. | | 4.14% |
Spectra Energy Corp. | | 4.10% |
Denbury Resources, Inc. | | 3.90% |
Eastman Chemical Co. | | 3.85% |
Convergys Corp. | | 3.81% |
FirstEnergy Corp. | | 3.52% |
Career Education Corp. | | 3.48% |
Comverse Technology, Inc. | | 3.38% |
Total | | 40.43% |
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 Midcap® Value Index is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russell Midcap® Index with lower price-to-book ratios and lower forecasted growth values. (The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which consists of the 1,000 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 or expenses. |
4 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
5 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
| | |
| | Performance Update† As of 06/30/08 |
| | | | | | |
| | | |
| | Inception Date | | Year-to-Date | | Since Inception |
RS Value VIP Series | | 07/31/07 | | -3.79% | | -8.69% |
Russell Midcap® Value Index3 | | | | -8.58% | | -12.19% |
†Since inception returns are not annualized and represent cumulative total returns.
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 07/31/07 in RS Value VIP Series and the Russell Midcap® Value 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. 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 3.52%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
| | 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $962.10 | | $22.49 | | 4.61% |
Based on Hypothetical Return (5% return before expenses) | | $1,000.00 | | $1,001.94 | | $22.95 | | 4.61% |
* | Expenses are equal to the Fund’s annualized expense ratio excluding offering costs, as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
| | Schedule of Investments – RS Value VIP Series |
| | | | | | | |
| | | |
June 30, 2008 (unaudited) | | | | Shares | | Value |
| | | | | | | |
Common Stocks — 94.2% |
Building Materials — 2.5% |
Martin Marietta Materials, Inc. | | | | 334 | | $ | 34,599 |
| | | | | | | |
| | | | | | | 34,599 |
Cable Television Services — 3.2% |
Liberty Global, Inc., Series C(1) | | | | 1,500 | | | 45,540 |
| | | | | | | |
| | | | | | | 45,540 |
Casinos & Gambling — 4.6% |
Scientific Games Corp., Class A(1) | | | | 2,178 | | | 64,512 |
| | | | | | | |
| | | | | | | 64,512 |
Chemicals — 3.8% |
Eastman Chemical Co. | | | | 784 | | | 53,986 |
| | | | | | | |
| | | | | | | 53,986 |
Coal — 5.7% |
Peabody Energy Corp. | | | | 900 | | | 79,245 |
| | | | | | | |
| | | | | | | 79,245 |
Communications Technology — 3.4% |
Comverse Technology, Inc.(1) | | | | 2,800 | | | 47,460 |
| | | | | | | |
| | | | | | | 47,460 |
Diversified Financial Services — 1.5% |
Ameriprise Financial, Inc. | | | | 500 | | | 20,335 |
| | | | | | | |
| | | | | | | 20,335 |
Drugs & Pharmaceuticals — 1.8% |
Biovail Corp. | | | | 2,594 | | | 25,032 |
| | | | | | | |
| | | | | | | 25,032 |
Education Services — 3.5% |
Career Education Corp.(1) | | | | 3,340 | | | 48,798 |
| | | | | | | |
| | | | | | | 48,798 |
Electronics – Semi-Conductors/Components — 3.8% |
Atmel Corp.(1) | | | | 7,683 | | | 26,737 |
LSI Corp.(1) | | | | 4,311 | | | 26,469 |
| | | | | | | |
| | | | | | | 53,206 |
Financial Miscellaneous — 1.3% |
Fidelity National Financial, Inc., Class A | | | | 1,465 | | | 18,459 |
| | | | | | | |
| | | | | | | 18,459 |
Health Care Facilities — 3.2% |
Sunrise Senior Living, Inc.(1) | | | | 1,980 | | | 44,510 |
| | | | | | | |
| | | | | | | 44,510 |
Hotel/Motel — 0.2% |
Marriott International, Inc., Class A | | | | 113 | | | 2,965 |
| | | | | | | |
| | | | | | | 2,965 |
Insurance – Multi-Line — 4.1% |
Aon Corp. | | | | 500 | | | 22,970 |
Assurant, Inc. | | | | 300 | | | 19,788 |
Genworth Financial, Inc., Class A | | | | 800 | | | 14,248 |
| | | | | | | |
| | | | | | | 57,006 |
Investment Management Companies — 3.0% |
Federated Investors, Inc., Class B | | | | 520 | | | 17,898 |
Invesco Ltd. | | | | 1,000 | | | 23,980 |
| | | | | | | |
| | | | | | | 41,878 |
| | | | | | | |
June 30, 2008 (unaudited) | | Foreign Currency | | Shares | | Value |
| | | | | | | |
Medical Services — 2.1% |
Magellan Health Services, Inc.(1) | | | | 800 | | $ | 29,624 |
| | | | | | | |
| | | | | | | 29,624 |
Oil – Crude Producers — 10.7% |
Canadian Natural Resources Ltd. | | | | 200 | | | 20,050 |
Denbury Resources, Inc.(1) | | | | 1,500 | | | 54,750 |
Talisman Energy, Inc. | | CAD | | 1,800 | | | 39,859 |
XTO Energy, Inc. | | | | 513 | | | 35,146 |
| | | | | | | |
| | | | | | | 149,805 |
Radio & Tv Broadcasters — 2.5% |
Grupo Televisa S.A., ADR(2) | | | | 1,500 | | | 35,430 |
| | | | | | | |
| | | | | | | 35,430 |
Real Estate — 1.3% |
MI Developments, Inc., Class A | | | | 800 | | | 17,992 |
| | | | | | | |
| | | | | | | 17,992 |
Real Estate Investment Trusts — 2.1% |
Alexandria Real Estate Equities, Inc. | | | | 300 | | | 29,202 |
| | | | | | | |
| | | | | | | 29,202 |
Rental & Leasing Services - Consumer — 2.5% |
WESCO International, Inc.(1) | | | | 863 | | | 34,555 |
| | | | | | | |
| | | | | | | 34,555 |
Retail — 1.4% |
Advance Auto Parts, Inc. | | | | 514 | | | 19,959 |
| | | | | | | |
| | | | | | | 19,959 |
Savings & Loan — 1.9% |
People’s United Financial, Inc. | | | | 1,700 | | | 26,520 |
| | | | | | | |
| | | | | | | 26,520 |
Services – Commercial — 3.8% |
Convergys Corp.(1) | | | | 3,591 | | | 53,362 |
| | | | | | | |
| | | | | | | 53,362 |
Steel — 4.1% |
Allegheny Technologies, Inc. | | | | 980 | | | 58,095 |
| | | | | | | |
| | | | | | | 58,095 |
Utilities – Electrical — 6.9% |
FirstEnergy Corp. | | | | 600 | | | 49,398 |
PPL Corp. | | | | 900 | | | 47,043 |
| | | | | | | |
| | | | | | | 96,441 |
Utilities – Gas Distributors — 6.6% |
Questar Corp. | | | | 500 | | | 35,520 |
Spectra Energy Corp. | | | | 2,000 | | | 57,480 |
| | | | | | | |
| | | | | | | 93,000 |
Utilities – Miscellaneous — 2.7% |
Calpine Corp.(1) | | | | 1,700 | | | 38,352 |
| | | | | | | |
| | | | | | | 38,352 |
| | | | | | | |
Total Common Stocks (Cost $1,338,017) | | | | | | | 1,319,868 |
The accompanying notes are an integral part of these financial statements.
| | |
| | Schedule of Investments – RS Value VIP Series (continued) |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value | |
| | | | | | |
Other Investments – For Trustee Deferred Compensation Plan — 0.0% | |
RS Core Equity Fund, Class Y(3)(4) | | — | | | $ 5 | |
RS Emerging Growth Fund, Class Y(4) | | 1 | | | 7 | |
RS Emerging Markets Fund, Class A(3)(4) | | — | | | 4 | |
RS Equity Dividend Fund, Class Y(3)(4) | | — | | | 1 | |
RS Global Natural Resources Fund, Class Y(3)(4) | | — | | | 6 | |
RS Growth Fund, Class Y(3)(4) | | — | | | 2 | |
RS Investment Quality Bond Fund, Class A(3)(4) | | — | | | 1 | |
RS Investors Fund, Class Y(3)(4) | | — | | | 1 | |
RS MidCap Opportunities Fund, Class Y(3)(4) | | — | | | 1 | |
RS Partners Fund, Class Y(3)(4) | | — | | | 5 | |
RS S&P 500 Index Fund, Class A(3)(4) | | — | | | 1 | |
RS Smaller Company Growth Fund, Class Y(3)(4) | | — | | | 2 | |
RS Technology Fund, Class Y(3)(4) | | — | | | 2 | |
RS Value Fund, Class Y(4) | | 1 | | | 7 | |
| | | | | | |
Total Other Investments (Cost $45) | | | | | 45 | |
| | |
| | Shares | | Value | |
Short-Term Investments — 7.4% | | | | | | |
State Street Institutional Liquid Reserves(5) | | 104,255 | | | 104,255 | |
| | | | | | |
Total Short-Term Investments (Cost $104,255) | | | | | 104,255 | |
| | | | | | |
Total Investments — 101.6% (Cost $1,442,317) | | | | | 1,424,168 | |
| | | | | | |
Other Liabilities, Net — (1.6)% | | | | | (21,855 | ) |
| | | | | | |
Total Net Assets — 100.0% | | | | $ | 1,402,313 | |
(1) | Non-income producing security. |
(2) | ADR — American Depositary Receipt. |
(3) | Rounds to less than one full share. |
(4) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
(5) | Money Market Fund registered under the Investment Company Act of 1940. |
Foreign-Denominated Security
Canadian Dollar — CAD
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 — Quoted Prices | | $ | 1,424,168 |
Level 2 — Significant Other Observable Inputs | | | — |
Level 3 — Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 1,424,168 |
The accompanying notes are an integral part of these financial statements.
| | |
| | Financial Information — RS Value VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 1,424,168 | |
Foreign currency, at value | | | 393 | |
Dividends/interest receivable | | | 1,136 | |
Prepaid expenses | | | 12,664 | |
Receivable for investments sold | | | 11,860 | |
| | | | |
Total Assets | | | 1,450,221 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 20,667 | |
Payable to adviser | | | 1,036 | |
Payable to distributor | | | 305 | |
Accrued shareholder reports expense | | | 10,704 | |
Accrued audit fees | | | 8,975 | |
Accrued custodian fees | | | 5,154 | |
Trustees’ deferred compensation | | | 45 | |
Accrued expenses/other liabilities | | | 1,022 | |
| | | | |
Total Liabilities | | | 47,908 | |
| | | | |
Total Net Assets | | $ | 1,402,313 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 1,502,068 | |
Accumulated undistributed net investment loss | | | (34,667 | ) |
Accumulated net realized loss from investments and foreign currency transactions | | | (46,937 | ) |
Net unrealized depreciation on investments and translation of assets and liabilities in foreign currency | | | (18,151 | ) |
| | | | |
Total Net Assets | | $ | 1,402,313 | |
| | | | |
Investments, at Cost | | $ | 1,442,317 | |
| | | | |
Foreign Currency, at Cost | | $ | 395 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 153,552 | |
| |
Net Asset Value Per Share | | | $9.13 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 1,926 | |
Dividends | | | 7,628 | |
Withholding taxes on foreign dividends | | | (307 | ) |
| | | | |
Total Investment Income | | | 9,247 | |
| | | | |
Expenses | | | | |
Offering costs | | | 10,285 | |
Custodian fees | | | 10,232 | |
Professional fees | | | 3,312 | |
Investment advisory fees | | | 5,163 | |
Distribution fees | | | 1,518 | |
Shareholder reports | | | 1,610 | |
Administrative service fees | | | 146 | |
Trustees’ fees and expenses | | | 41 | |
Other expense | | | 7 | |
| | | | |
Total Expenses | | | 32,314 | |
| | | | |
Net Investment Loss | | | (23,067 | ) |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | | | | |
Net realized loss from investments | | | (46,230 | ) |
Net realized loss from foreign currency transactions | | | (14 | ) |
Net change in unrealized appreciation on investments | | | 13,443 | |
Net change in unrealized depreciation on translation of assets and liabilities in foreign currency | | | (1 | ) |
| | | | |
Net Loss on Investments and Foreign Currency Transactions | | | (32,802 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (55,869 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
| | Financial Information — RS Value VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Period Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment loss | | $ | (23,067 | ) | | $ | (26,861 | ) |
Net realized loss from investments and foreign currency transactions | | | (46,244 | ) | | | (620 | ) |
Net change in unrealized appreciation/(depreciation) on investments and translation of assets and liabilities in foreign currency | | | 13,442 | | | | (31,593 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Operations | | | (55,869 | ) | | | (59,074 | ) |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net realized gain on investments | | | — | | | | (109 | ) |
| | | | | | | | |
Total Distributions | | | — | | | | (109 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 429,486 | | | | 1,411,615 | |
Reinvestment of distributions | | | — | | | | 108 | |
Cost of shares redeemed | | | (261,995 | ) | | | (61,849 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 167,491 | | | | 1,349,874 | |
| | | | | | | | |
Net Increase in Net Assets | | | 111,622 | | | | 1,290,691 | |
| | |
Net Assets | | | | | | | | |
Beginning of period | | | 1,290,691 | | | | — | |
| | | | | | | | |
End of period | | $ | 1,402,313 | | | $ | 1,290,691 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Loss Included in Net Assets | | $ | (34,667 | ) | | $ | (11,600 | ) |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 46,302 | | | | 142,153 | |
Reinvested | | | — | | | | 11 | |
Redeemed | | | (28,722 | ) | | | (6,192 | ) |
| | | | | | | | |
Net Increase | | | 17,580 | | | | 135,972 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
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| | |
| | Financial Information — RS 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). 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 distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Asset Value, Beginning of Period | | Net Investment Loss | | | Net Realized and Unrealized Gain/(Loss) | | | Total Operations | | | Distributions From Net Investment Income | | Distributions From Net Realized Capital Gains | | Total Distributions |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 9.49 | | $ | (0.14 | ) | | $ | (0.22 | ) | | $ | (0.36 | ) | | $ | — | | $ | — | | $ | — |
| | | | | | | |
Period From 07/31/074 to 12/31/071 | | | 10.00 | | | (0.20 | ) | | | (0.31 | ) | | | (0.51 | ) | | | — | | | — | | | — |
The accompanying notes are an integral part of these financial statements.
| | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | Net Assets, End of Period (000s) | | Net Ratio of Expenses to Average Net Assets3 | | Gross Ratio of Expenses to Average Net Assets | | Net Ratio of Net Investment Loss to Average Net Assets3 | | Gross Ratio of Net Investment Loss to Average Net Assets | | Portfolio Turnover Rate |
| | | | | | | |
$9.13 | | (3.79)% | | $ | 1,402 | | 4.61% | | 4.61% | | (3.09)% | | (3.09)% | | 37% |
| | | | | | | |
9.49
| | (5.09)% | | | 1,291 | | 5.55% | | 5.55% | | (3.51)% | | (3.51)% | | 33% |
| 1 | Ratios for periods less than one year have been annualized excluding organization costs and offering costs, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Net Ratio of Expenses to Average Net Assets and Net Ratio of Net Investment Loss to Average Net Assets include the effect of fee waivers, expense limitations, and custody credits, if applicable. |
| 4 | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
| | |
| | Notes to Financial Statements — RS Value VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Value VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class II shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
In its normal course of business, the Fund may invest a significant portion of its assets in companies concentrated within a number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of
observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities which are recorded as soon as the Fund
| | |
| | Notes to Financial Statements — RS Value VIP Series (unaudited) (continued) |
is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
| | | | | | | |
Amount Outstanding at 06/30/08 | | Average Borrowing* | | Average Interest Rate* | |
$ | — | | $ | 17,425 | | 4.34 | % |
* | For the six months ended June 30, 2008. |
k. Offering Costs
Offering costs are accounted for on an accrual basis. Offering costs are expensed over a 12-month period. These costs include printing, administration and other expenses associated with the initial registration of the Fund.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.85%.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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.
c. Distribution Fees
The Fund has entered into an agreement with GIS for distribution services with respect to its shares and has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, whose continuance is reviewed annually by the Trust’s Board of Trustees. Under the plan, GIS is compensated for the services it provides and for the expenses it bears in connection with the distribution of the Fund’s Class II shares at an annual rate of up to 0.25% of the average daily net assets of Class II shares of the Fund.
RS Investments may pay GIAC or other insurance companies or financial institutions compensation, at an annual rate of up to 0.15% of the Fund’s average daily net assets, for providing administrative and shareholder services. Payment of this compensation does not represent a separate or additional expense to the Fund.
Note 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the period ended December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | | | | | |
| | Ordinary Income Total | | Long-Term Capital Gain Total | | |
| | $ | — | | $ | 109 | | |
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 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. 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.
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.
During the period ended December 31, 2007, the Fund did not utilize capital loss carryovers and no capital loss carryovers are available for use in future offsets.
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 period ended December 31, 2007, which is the most recently completed tax year, the Fund had $61 in deferred net capital and currency losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $1,458,196. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $119,993 and $(154,021) respectively, resulting in net unrealized depreciation of $(34,028).
| | |
| | Notes to Financial Statements — RS Value VIP Series (unaudited) (continued) |
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $592,188 and $410,981, respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
| | |
| | Notes to Financial Statements — RS Value VIP Series (unaudited) (continued) |
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 Fund 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 the Fund.
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain Series of RS Variable Products Trust*
The Trustees of RS Variable Products Trust (the “Trust”), including all the Trustees who are not interested persons of the Trust or RS Investment Management Co. LLC (“RS Investments”) (the “disinterested Trustees”), met in person on May 15-16, 2007, to consider the approval of the investment advisory agreement (the “Advisory Agreement”) for RS Value VIP Series (the “Fund”), a new series of the Trust.
At their meeting, the Trustees considered a number of factors in determining to approve the Advisory Agreement. In all of their deliberations regarding the Advisory Agreement, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees.
In their consideration of the Advisory Agreement, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration on a number of occasions with management and observed its effects over the course of the period following the acquisition.
The Trustees considered the fee to be charged by RS Investments to the Fund under the Advisory Agreement. In this connection, representatives of RS Investments noted to the Trustees that the Fund has a comparable investment objective and principal investment strategies to RS Value Fund, a series of RS Investment Trust, and that the Fund’s portfolio management team, and the advisory fee to be paid by the new Fund, were the same as those of RS Value Fund. The Trustees further noted that they had previously approved the investment advisory agreement of RS Value Fund, including the fees to be paid by RS Value Fund.
Representatives of RS Investments noted to the Trustees that the fees to be charged by RS Investments to the Fund reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Fund. RS Investments generally charges lower fees to those clients. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients, including the Fund.
Because the Fund had not yet commenced operations, RS Investments did not furnish financial information regarding the revenues and expenses related to the management of the Fund.
The Trustees considered whether economies of scale would likely be realized as the Fund grew and whether a reduction in the advisory fees paid by the Fund by means of breakpoints would be appropriate.
* The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting.
| | |
| | Supplemental Information — unaudited (continued) |
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments. In this regard, the Trustees took into account the experience of the Fund’s portfolio management team and of RS Investments’ senior management, and the time and attention to be devoted by each to the Fund. Because the Fund had not commenced operations, it did not have a performance record for the Trustees to consider. The Trustees took into account the performance of RS Value Fund.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it intends to place the Fund’s (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Fund) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Fund also may benefit from them.
The Trustees considered generally the nature and quality of the administrative services to be provided to the Fund by RS Investments including, among other things, changes in and enhancements to the firm’s personnel and capabilities, their recent performances, and the responsiveness of senior management to the Trustees’ requests.
After considering all of the information described above, the Trustees, including all of the disinterested Trustees, unanimously voted to approve the Advisory Agreement. At a meeting held in person on March 18-19, 2008, the Trustees, including the disinterested Trustees, unanimously voted to approve the continuation of the Advisory Agreement through August 31, 2008.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
RS Variable Products Trust
RS Equity Dividend VIP Series
| | |
06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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 Equity Dividend VIP Series |
| | |
| | Raymond Anello, CFA Raymond Anello (RS Investments) has managed RS Equity Dividend VIP Series since 2007. Mr. Anello joined RS Investments in October 2006 in connection with GIS’s acquisition of an interest in RS Investments. Prior to that, Mr. Anello served as an analyst/portfolio manager at GIS since October 1999. From 1995 to 1998, Mr. Anello was an equity portfolio manager/analyst and high-yield analyst for Orion Capital in New York. From 1988 to 1995, he served as an assistant portfolio manager at Garrison Bradford, a portfolio management firm in New York City. Mr. Anello holds a B.A. from Iona College and an M.B.A. from Baruch College. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | Although the Fund had a negative return, it still compared favorably with that of the Russell 3000® Index3, its primary benchmark. |
Ø | | The Fund’s relative performance benefited from stock selection in the financials sector, as well as from underweight allocations to the poorly performing information technology (IT) and health care sectors. |
Ø | | The Fund’s stock selection in the industrials and energy sectors detracted from returns relative to the benchmark. Its significant underweighting in the materials sector was also detrimental. |
Market Overview
U.S. stocks fell sharply during the first quarter, with investors spooked by a weakening economy and growing concerns about the health of the financial system. The market began to recover some lost ground early in the second quarter, however, as the Federal Reserve Board took aggressive action to restore market liquidity, cutting the target federal funds rate by 225 basis points by mid-April. Nonetheless this resurgence proved short-lived, as markets again succumbed to investor unease over surging energy and food prices, an ailing housing market, and a softening economy. For the six-month period ended June 30, 2008, the S&P 500® Index5 declined 11.91%, the Dow Jones Industrial Average6 declined 13.38%, and the Nasdaq Composite7 declined 13.55%.
Performance
The RS Equity Dividend VIP Series declined 10.27% during the period, outperforming the benchmark Russell 3000® Index, which declined 11.05% and the Dow Jones U.S. Select Dividend Index4, which declined 21.40%. The Russell 3000® Index has become our primary benchmark, given its unbiased sector diversification (driven by equity market capitalization) as compared with the Dow Jones U.S. Select Dividend Index, which is roughly 50% financials. The Russell 3000® Index also better represents our U.S. all-cap focus.
Portfolio Review
The Fund’s outperformance relative to the Russell 3000® Index during the period largely reflected our stock selection in the financials sector, where we were slightly overweighted relative to the benchmark. Within the financials category, we benefited from our overweight allocation to real estate investment trusts (REITs). Top-performing REIT holdings included Healthcare Realty Trust, which invests primarily in health care-related properties, and Digital Realty Trust, which focuses on technology-related real estate such as data centers. We believe Healthcare Realty Trust has benefited from its lower-risk and less competitive asset class and its more visible growth.
An underweight allocation to the IT sector also supported relative performance, as did the Fund’s stock selection in the software industry, in which video game
| | |
RS Equity Dividend VIP Series | | 3 |
| | |
| | RS Equity Dividend VIP Series (continued) |
company Nintendo was a solid contributor. The Fund’s modest underweighting in the health care sector also aided relative returns. Additionally, stock selection in consumer staples proved favorable due in part to gains by food company General Mills.
Among the Fund’s other top-contributing stocks were Halliburton, a leading global provider of energy services, and QUALCOMM, a manufacturer and licensor of wireless chipsets and technology. Halliburton in particular has benefited from an improved outlook for its U.S. pressure-pumping business and its continued strong earnings outlook, which has been driven mostly by growing worldwide demand for oil.
On a negative note, the Fund’s relative performance was hurt by its stock selection in the industrials sector, where notable detractors included commercial aircraft leasing and financing company Babcock & Brown Air and aircraft manufacturer Boeing. Aircraft-related stocks have been pressured by concerns about the outlook for the global airline industry, given high fuel prices and faltering consumer demand.
The energy sector was the strongest-performing area of the benchmark index in the first half of 2008. While the Fund benefited from its significant overweighting in energy, our stock selection in this area detracted from relative performance, with notable weakness in Targa Resources Partners, a U.S. provider of midstream natural gas and related services, and independent oil refiner Holly.
Performance also suffered from a decline in health care stock Brookdale Senior Living, which operates senior residential facilities across the United States. The Fund’s near lack of exposure to the outperforming materials sector also dampened relative performance.
Outlook
We retain a conservative stance on the equity market, especially given the uncertain economic outlook. Our bias within our all-cap strategy is toward large-caps to reduce downside risk. We are becoming more encouraged with valuations across the market-cap spectrum, however, given our focus on normalized earnings over a two- to five-year horizon. On that basis we are seeing opportunities to upgrade the Fund with market leaders, many among “early cyclicals” that are struggling now but we think are well positioned to create equity value in the future. We believe that the RS Equity Dividend VIP Series is well positioned for a continuation of a challenging stock market but also a positive change in investor sentiment.
Thank you for your investment. I look forward to reporting to you in the future.
| | |
Raymond Anello Portfolio Manager | | |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
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, 2008.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. Investing in mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Overweighting investments in certain sectors or industries increases the risk of loss due to general declines in the prices of stocks in those sectors or industries. Investing in a more limited number of issuers and sectors can be subject to greater market fluctuation. Investments in companies in natural resources industries may involve risks including changes in commodities prices, changes in demand for various natural resources, changes in energy prices, and international political and economic developments. Foreign securities are subject to political, regulatory, economic, and exchange-rate risks not present in domestic investments. The value of a debt security is affected by changes in interest rates and is subject to any credit risk of the issuer or guarantor of the security.
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4 | | RS Equity Dividend VIP Series |
| | |
Total Net Assets: $4,163,188 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| |
Company | | Percentage of Total Net Assets |
Targa Resources Partners, L.P. | | 4.51% |
Enterprise Products Partners, L.P. | | 4.48% |
Hiland Partners, L.P. | | 4.21% |
Halliburton Co. | | 4.08% |
AT&T, Inc. | | 3.79% |
Nokia Oyj | | 3.53% |
Plains All American Pipeline, L.P. | | 3.49% |
Abbott Laboratories | | 3.38% |
Cardinal Health, Inc. | | 3.12% |
Brookdale Senior Living, Inc. | | 2.90% |
Total | | 37.49% |
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 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. As of the latest reconstitution, the average market capitalization was approximately $4.8 billion; the median market capitalization was approximately $944.7 million. The index had a total market capitalization range of approximately $182.6 million to $386.9 billion. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
4 | The Dow Jones U.S. Select Dividend Index measures the total return of 100 leading U.S. dividend-paying companies. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in an index, and, unlike the Fund, the index does not incur fees or expenses. |
5 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
6 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
7 | The Nasdaq Composite Index is an unmanaged index that measures all Nasdaq domestic and non-U.S.-based common stocks listed on the Nasdaq stock market. |
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RS Equity Dividend VIP Series | | 5 |
| | |
| | RS Equity Dividend VIP Series (continued) |
| | |
| | Performance Update† As of 06/30/08 |
| | | | | | |
| | | |
| | Inception Date | | Year-to-Date | | Since Inception |
RS Equity Dividend VIP Series | | 07/31/07 | | -10.27% | | -15.24% |
Russell 3000® Index3 | | | | -11.05% | | -9.60% |
Dow Jones U.S. Select Dividend Index4 | | | | -21.40% | | -24.00% |
† | Since inception returns are not annualized and represent cumulative total returns. |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 07/31/07 in RS Equity Dividend VIP Series, the Russell 3000® Index and Dow Jones U.S. Select Dividend Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.
Performance quoted is for a very short time period and should not be used as the basis for an investment decision. Performance quoted represents past performance and does not guarantee future results. 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 1.90%. Fees and expenses are factored into the net asset value of your shares and any performance numbers we release. Total return figures reflect and 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 month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
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6 | | RS Equity Dividend 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $897.30 | | $10.14 | | 2.13% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,014.17 | | $10.77 | | 2.13% |
* | Expenses are equal to the Fund’s annualized expense ratio excluding offering costs, as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
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RS Equity Dividend VIP Series | | 7 |
| | |
| | Schedule of Investments – RS Equity Dividend VIP Series |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Common Stocks — 96.7% | | | | | |
Aerospace & Defense — 3.7% |
Lockheed Martin Corp. | | 400 | | $ | 39,464 |
The Boeing Co. | | 1,730 | | | 113,695 |
| | | | | |
| | | | | 153,159 |
Air Freight & Logistics — 1.2% | | | | | |
United Parcel Service, Inc., Class B | | 800 | | | 49,176 |
| | | | | |
| | | | | 49,176 |
Auto Components — 1.3% | | | | | |
Johnson Controls, Inc. | | 1,860 | | | 53,345 |
| | | | | |
| | | | | 53,345 |
Capital Markets — 1.3% | | | | | |
Bank of New York Mellon Corp. | | 1,390 | | | 52,584 |
| | | | | |
| | | | | 52,584 |
Commercial Banks — 2.0% | | | | | |
National City Corp. | | 4,300 | | | 20,511 |
The Colonial BancGroup, Inc. | | 9,700 | | | 42,874 |
Wachovia Corp. | | 1,200 | | | 18,636 |
| | | | | |
| | | | | 82,021 |
Communications Equipment — 4.8% | | | | | |
Nokia Oyj, ADR(1) | | 5,990 | | | 146,755 |
QUALCOMM, Inc. | | 1,210 | | | 53,688 |
| | | | | |
| | | | | 200,443 |
Containers & Packaging — 1.0% | | | | | |
Packaging Corp. of America | | 1,900 | | | 40,869 |
| | | | | |
| | | | | 40,869 |
Diversified Financial Services — 2.2% | | | | | |
JPMorgan Chase & Co. | | 2,620 | | | 89,892 |
| | | | | |
| | | | | 89,892 |
Diversified Telecommunication Services — 3.8% |
AT&T, Inc. | | 4,680 | | | 157,669 |
| | | | | |
| | | | | 157,669 |
Electric Utilities — 2.4% | | | | | |
Cleco Corp. | | 2,590 | | | 60,425 |
Pepco Holdings, Inc. | | 1,620 | | | 41,553 |
| | | | | |
| | | | | 101,978 |
Energy Equipment & Services — 4.1% | | | | | |
Halliburton Co. | | 3,200 | | | 169,824 |
| | | | | |
| | | | | 169,824 |
Food & Staples Retailing — 1.2% | | | | | |
Sysco Corp. | | 1,770 | | | 48,693 |
| | | | | |
| | | | | 48,693 |
Food Products — 3.4% | | | | | |
B&G Foods, Inc., Class A | | 5,630 | | | 52,584 |
General Mills, Inc. | | 390 | | | 23,700 |
Unilever PLC, ADR(1) | | 2,230 | | | 63,355 |
| | | | | |
| | | | | 139,639 |
Health Care Equipment & Supplies — 0.4% |
Meridian Bioscience, Inc. | | 700 | | | 18,844 |
| | | | | |
| | | | | 18,844 |
Health Care Providers & Services — 6.0% | | | |
Brookdale Senior Living, Inc. | | 5,930 | | | 120,735 |
Cardinal Health, Inc. | | 2,520 | | | 129,981 |
| | | | | |
| | | | | 250,716 |
| | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | |
Household Durables — 0.9% | | | | | |
Newell Rubbermaid, Inc. | | 2,180 | | $ | 36,602 |
| | | | | |
| | | | | 36,602 |
Insurance — 3.9% | | | | | |
ACE Ltd. | | 940 | | | 51,784 |
Lincoln National Corp. | | 1,590 | | | 72,059 |
The Chubb Corp. | | 760 | | | 37,248 |
| | | | | |
| | | | | 161,091 |
Internet Software & Services — 0.4% | | | |
TheStreet.com, Inc. | | 2,900 | | | 18,879 |
| | | | | |
| | | | | 18,879 |
Leisure Equipment & Products — 1.1% | | | |
Mattel, Inc. | | 2,600 | | | 44,512 |
| | | | | |
| | | | | 44,512 |
Media — 1.3% | | | |
The McGraw-Hill Companies, Inc. | | 1,400 | | | 56,168 |
| | | | | |
| | | | | 56,168 |
Multi-Utilities — 3.5% | | | | | |
OGE Energy Corp. | | 2,650 | | | 84,031 |
PG&E Corp. | | 1,590 | | | 63,107 |
| | | | | |
| | | | | 147,138 |
Multiline Retail — 1.4% | | | | | |
Target Corp. | | 1,300 | | | 60,437 |
| | | | | |
| | | | | 60,437 |
Oil, Gas & Consumable Fuels — 25.8% |
Enterprise Products Partners, L.P. | | 6,320 | | | 186,693 |
Hiland Holdings GP, L.P. | | 3,600 | | | 96,984 |
Hiland Partners, L.P. | | 3,520 | | | 175,190 |
Holly Corp. | | 3,230 | | | 119,252 |
Kinder Morgan Energy Partners, L.P. | | 340 | | | 18,948 |
Plains All American Pipeline, L.P. | | 3,220 | | | 145,254 |
SemGroup Energy Partners, L.P. | | 3,211 | | | 81,367 |
Targa Resources Partners, L.P. | | 8,140 | | | 187,627 |
Teekay LNG Partners, L.P. | | 2,470 | | | 65,035 |
| | | | | |
| | | | | 1,076,350 |
Pharmaceuticals — 4.7% | | | | | |
Abbott Laboratories | | 2,660 | | | 140,900 |
Schering-Plough Corp. | | 2,800 | | | 55,132 |
| | | | | |
| | | | | 196,032 |
Real Estate Investment Trusts — 5.5% |
Annaly Capital Management, Inc. | | 6,750 | | | 104,693 |
CapLease, Inc. | | 5,700 | | | 42,693 |
Digital Realty Trust, Inc. | | 1,510 | | | 61,774 |
Healthcare Realty Trust, Inc. | | 877 | | | 20,846 |
| | | | | |
| | | | | 230,006 |
Software — 2.5% | | | | | |
Microsoft Corp. | | 2,270 | | | 62,448 |
Nintendo Co., Ltd., ADR(1) | | 600 | | | 41,910 |
| | | | | |
| | | | | 104,358 |
Specialty Retail — 1.5% | | | | | |
Best Buy Co., Inc. | | 750 | | | 29,700 |
The Home Depot, Inc. | | 1,390 | | | 32,554 |
| | | | | |
| | | | | 62,254 |
The accompanying notes are an integral part of these financial statements.
| | |
8 | | RS Equity Dividend VIP Series |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value |
| | | | | | |
Thrifts & Mortgage Finance — 2.5% |
People’s United Financial, Inc. | | | 6,630 | | $ | 103,428 |
| | | | | | |
| | | | | | 103,428 |
Wireless Telecommunication Services — 2.9% |
America Movil SAB de C.V., ADR, Series L(1) | | | 2,270 | | | 119,743 |
| | | | | | |
| | | | | | 119,743 |
| | | | | | |
Total Common Stocks (Cost $4,348,321) | | | | | | 4,025,850 |
| | |
| | Principal Amount | | Value |
Convertible Bonds — 0.4% | | | | | | |
Biotechnology — 0.4% | | | | | | |
Gilead Sciences, Inc. Convt. 0.625% due 5/1/2013 | | $ | 11,000 | | | 16,280 |
| | | | | | |
| | | | | | 16,280 |
| | | | | | |
Total Convertible Bonds (Cost $11,990) | | | | | | 16,280 |
| | |
| | Shares | | Value |
Preferred Stocks — 1.0% | | | | | | |
Commercial Banks — 1.0% | | | | | | |
Keycorp, 7.75%, Series A(2) | | | 400 | | | 38,400 |
| | | | | | |
| | | | | | 38,400 |
| | | | | | |
Total Preferred Stocks (Cost $40,000) | | | | | | 38,400 |
| | |
| | Shares | | Value |
Short-Term Investments — 3.3% | | | | | | |
State Street Institutional Liquid Reserves(3) | | | 139,019 | | | 139,019 |
| | | | | | |
Total Short-Term Investments (Cost $139,019) | | | | | | 139,019 |
| | |
| | Shares | | Value |
Other Investments — For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(4)(5) | | | — | | | 14 |
RS Emerging Growth Fund, Class Y(5) | | | 1 | | | 19 |
RS Emerging Markets Fund, Class A(5) | | | 1 | | | 11 |
RS Equity Dividend Fund, Class Y(4)(5) | | | — | | | 3 |
RS Global Natural Resources Fund, Class Y(4)(5) | | | — | | | 14 |
RS Growth Fund, Class Y(5) | | | 1 | | | 6 |
RS Investment Quality Bond Fund, Class A(4)(5) | | | — | | | 3 |
RS Investors Fund, Class Y(4)(5) | | | — | | | 2 |
RS MidCap Opportunities Fund, Class Y(4)(5) | | | — | | | 1 |
| | | | | | |
June 30, 2008 (unaudited) | | Shares | | Value | |
| | | | | | |
Other Investments — For Trustee Deferred Compensation Plan (continued) | |
RS Partners Fund, Class Y(5) | | 1 | | $ | 12 | |
RS S&P 500 Index Fund, Class A(4)(5) | | — | | | 3 | |
RS Smaller Company Growth Fund, Class Y(4)(5) | | — | | | 5 | |
RS Technology Fund, Class Y(4)(5) | | — | | | 4 | |
RS Value Fund, Class Y(5) | | 1 | | | 17 | |
| | | | | | |
Total Other Investments (Cost $114) | | | | | 114 | |
| | | | | | |
Total Investments — 101.4% (Cost $4,539,444) | | | | | 4,219,663 | |
| | | | | | |
Other Liabilities, Net — (1.4)% | | | | | (56,475 | ) |
| | | | | | |
Total Net Assets — 100.0% | | | | $ | 4,163,188 | |
(1) | ADR — American Depositary Receipt. |
(2) | Non-income producing security. |
(3) | Money Market Fund registered under the Investment Company Act of 1940. |
(4) | Rounds to less than one share. |
(5) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
| |
Valuation Inputs | | Investments in Securities |
Level 1 — Quoted Prices | | $ | 4,203,383 |
Level 2 — Significant Other Observable Inputs | | | 16,280 |
Level 3 — Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 4,219,663 |
The accompanying notes are an integral part of these financial statements.
| | |
RS Equity Dividend VIP Series | | 9 |
| | |
| | Financial Information — RS Equity Dividend VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 4,219,663 | |
Dividends/interest receivable | | | 9,837 | |
Prepaid expenses | | | 1,794 | |
| | | | |
Total Assets | | | 4,231,294 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 53,349 | |
Payable to adviser | | | 2,127 | |
Payable to distributor | | | 886 | |
Trustees’ deferred compensation | | | 114 | |
Payable for fund shares redeemed | | | 6 | |
Accrued expenses/other liabilities | | | 11,624 | |
| | | | |
Total Liabilities | | | 68,106 | |
| | | | |
Total Net Assets | | $ | 4,163,188 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | $ | 4,772,322 | |
Distributions in excess of net investment income | | | (33,644 | ) |
Accumulated net realized loss from investments | | | (255,709 | ) |
Net unrealized depreciation on investments | | | (319,781 | ) |
| | | | |
Total Net Assets | | $ | 4,163,188 | |
| | | | |
Investments, at Cost | | $ | 4,539,444 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 497,216 | |
| |
Net Asset Value Per Share | | | $8.37 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 2,065 | |
Dividends | | | 45,080 | |
Withholding taxes on foreign dividends | | | (488 | ) |
| | | | |
Total Investment Income | | | 46,657 | |
| | | | |
Expenses | | | | |
Investment advisory fees | | | 9,729 | |
Custodian fees | | | 9,411 | |
Distribution fees | | | 4,054 | |
Professional fees | | | 3,478 | |
Shareholder reports | | | 1,759 | |
Trustees’ fees and expenses | | | 91 | |
Administrative service fees | | | 247 | |
Other expenses | | | 42 | |
Offering costs | | | 9,915 | |
| | | | |
Total Expenses | | | 38,726 | |
| | | | |
Net Investment Income | | | 7,931 | |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments | | | | |
Net realized loss from investments | | | (135,839 | ) |
Net change in unrealized depreciation on investments | | | (291,988 | ) |
| | | | |
Net Loss on Investments | | | (427,827 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (419,896 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Equity Dividend VIP Series |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 06/30/08 | | | For the Period Ended 12/31/07 | |
Operations | | | | | | | | |
Net investment income/(loss) | | $ | 7,931 | | | $ | (22,436 | ) |
Net realized loss from investments | | | (135,839 | ) | | | (103,016 | ) |
Net change in unrealized depreciation on investments | | | (291,988 | ) | | | (27,793 | ) |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Operations | | | (419,896 | ) | | | (153,245 | ) |
| | | | | | | | |
| | |
Distributions to Shareholders | | | | | | | | |
Net investment income | | | (9,574 | ) | | | (13,656 | ) |
Net realized gain on investments | | | — | | | | (14,984 | ) |
| | | | | | | | |
Total Distributions | | | (9,574 | ) | | | (28,640 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 2,321,952 | | | | 3,076,755 | |
Reinvestment of distributions | | | 9,574 | | | | 28,640 | |
Cost of shares redeemed | | | (610,155 | ) | | | (52,223 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 1,721,371 | | | | 3,053,172 | |
| | | | | | | | |
Net Increase in Net Assets | | | 1,291,901 | | | | 2,871,287 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 2,871,287 | | | | — | |
| | | | | | | | |
End of period | | $ | 4,163,188 | | | $ | 2,871,287 | |
| | | | | | | | |
Distributions in Excess of Net Investment Income Included in Net Assets | | $ | (33,644 | ) | | $ | (32,001 | ) |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 258,519 | | | | 309,180 | |
Reinvested | | | 1,144 | | | | 3,081 | |
Redeemed | | | (69,393 | ) | | | (5,315 | ) |
| | | | | | | | |
Net Increase | | | 190,270 | | | | 306,946 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements
| | |
RS Equity Dividend VIP Series | | 11 |
| | |
| | Financial Information — RS Equity Dividend 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). 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 distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Asset Value, Beginning of Period | | Net Investment Income/(Loss) | | | Net Realized and Unrealized Loss | | | Total Operations | | | Distributions From Net Investment Income | | | Distributions From Net Realized Capital Gains | | | Total Distributions | |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 9.35 | | $ | 0.06 | | | $ | (1.02 | ) | | $ | (0.96 | ) | | $ | (0.02 | ) | | $ | — | | | $ | (0.02 | ) |
| | | | | | | |
Period From 07/31/073 to 12/31/071 | | | 10.00 | | | (0.08 | ) | | | (0.48 | ) | | | (0.56 | ) | | | (0.04 | ) | | | (0.05 | ) | | | (0.09 | ) |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS Equity Dividend VIP Series |
| | | | | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | | 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/ (Loss) to Average Net Assets | | | Gross Ratio of Net Investment Income/ (Loss) to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$8.37 | | (10.27 | )% | | $ | 4,163 | | 2.13 | % | | 2.13 | % | | 0.74 | % | | 0.74 | % | | 59 | % |
| | | | | | | |
9.35 | | (5.54 | )% | | | 2,871 | | 3.39 | % | | 3.39 | % | | (0.14 | )% | | (0.14 | )% | | 87 | % |
Distributions reflect actual per-share amounts distributed for the period.
| 1 | Ratios for periods less than one year have been annualized excluding organization and offering costs, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
�� | 3 | Commencement of operations. |
| | |
RS Equity Dividend VIP Series | | 13 |
| | |
| | Notes to Financial Statements — RS Equity Dividend VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Equity Dividend VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class II shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157"), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability
| | |
14 | | RS Equity Dividend VIP Series |
developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 – quoted prices in active markets for identical investments |
Ø | | Level 2 – significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
e. Investment Income
Dividend income is generally recorded on the ex-dividend date except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
| | |
RS Equity Dividend VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS Equity Dividend VIP Series (unaudited) (continued) |
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically once each calendar quarter and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
| | | | | | | |
Amount Outstanding at 06/30/08 | | Average Borrowing* | | Average Interest Rate* | |
$ | — | | $ | 51,995 | | 3.58 | % |
* | For the six months ended June 30, 2008. |
k. Offering Costs
Offering costs are accounted for on an accrual basis. Offering costs are expensed over a 12-month period. These costs include printing, administration and other expenses associated with the initial registration of the Fund.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 0.60%.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust 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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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,
| | |
16 | | RS Equity Dividend VIP Series |
either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.
c. Distribution Fees
The Fund has entered into an agreement with GIS for distribution services with respect to its shares and has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, whose continuance is reviewed annually by the Trust’s Board of Trustees. Under the plan, GIS is compensated for the services it provides and for the expenses it bears in connection with the distribution of the Fund’s Class II shares at an annual rate of up to 0.25% of the average daily net assets of Class II shares of the Fund.
RS Investments may pay GIAC or other insurance companies or financial institutions compensation, at an annual rate of up to 0.15% of the Fund’s average daily net assets, for providing administrative and shareholder services. Payment of this compensation does not represent a separate or additional expense to the Fund.
Note 3. | | Federal Income Taxes |
a. Distributions to Shareholders
The tax character of distributions paid during the period ended December 31, 2007, which is the most recently completed tax year, was as follows:
| | | | |
Ordinary Income Total | | Long-Term Capital Gain Total |
$ | 28,570 | | $ | 70 |
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 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. 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.
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.
During the period ended December 31, 2007, the Fund did not utilize capital loss carryovers and no capital loss carryovers are available for use in future offsets.
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 period ended December 31, 2007, which is the most recently completed tax year, the Fund had deferred losses of $95,823.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $4,613,795. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $102,938 and $(497,070), respectively, resulting in net unrealized depreciation of $(394,132).
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $3,542,632 and $1,889,412, respectively, for the six months ended June 30, 2008.
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S.
| | |
RS Equity Dividend VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Equity Dividend VIP Series (unaudited) (continued) |
government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent, consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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.
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18 | | RS Equity Dividend VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS Equity Dividend VIP Series | | 19 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreement for RS Equity Dividend VIP Series*
The Trustees of RS Variable Products Trust (the “Trust”), including all the Trustees who are not interested persons of the Trust or RS Investment Management Co. LLC (“RS Investments”) (the “disinterested Trustees”), met in person on May 15-16, 2007, to consider the approval of the investment advisory agreement (the “Advisory Agreement”) for RS Equity Dividend VIP Series (the “Fund”), a new series of the Trust.
At their meeting, the Trustees considered a number of factors in determining to approve the Advisory Agreement. In all of their deliberations regarding the Advisory Agreement, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees. In addition, the Trustees had discussed with representatives of RS Investments in detail the proposed strategy of the new Fund at a telephone meeting held on April 4, 2007.
In their consideration of the Advisory Agreement, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration on a number of occasions with management and observed its effects over the course of the period following the acquisition.
The Trustees considered the fees to be charged by RS Investments to the Fund under the Advisory Agreement.
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
In this connection, representatives of RS Investments noted to the Trustees that the fees to be charged by RS Investments to the Fund reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers.
RS Investments furnished information to the Trustees compiled by the independent Morningstar and Lipper organizations showing a comparison of the proposed fee rate and expense ratio for the Fund compared to peer mutual funds having similar objectives and strategies. The data showed that the Fund’s proposed advisory fee rate was below the average and median advisory fee rates of the Fund’s peer group and that the Fund’s projected expense ratio, taking into account the proposed total expense ratio cap by RS Investments, was below the average and median of the Fund’s peer group.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Fund. RS Investments generally charges lower fees to those clients. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. RS Investments also noted that it provides advisory services in a number of investment disciplines (including an investment discipline similar to that of the Fund) to Guardian Life, at rates generally lower than it charges to other advisory clients, including the Fund.
Because the Fund had not yet commenced operations, RS Investments did not furnish financial information
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20 | | RS Equity Dividend VIP Series |
regarding the revenues and expenses related to the management of the Fund.
The Trustees considered whether economies of scale would likely be realized as the Fund grew and whether a reduction in the advisory fees paid by the Fund by means of breakpoints would be appropriate. Representatives of RS Investments noted that RS Investments has agreed to a cap on the Fund’s total expense ratio. On this basis, the Trustees concluded that implementation of breakpoints at this time would not necessarily be appropriate.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments. In this regard, the Trustees took into account the experience of the Fund’s portfolio management team and of RS Investments’ senior management, and the time and attention to be devoted by each to the Fund. Because the Fund had not commenced operations, it did not have a performance record for the Trustees to consider. The Trustees took into account the performance of a GIS proprietary account managed by the same team that will manage the Fund and that has an investment program similar to that of the Fund’s, and noted that this account had performance that compared favorably to the performance of the Dow Jones U.S. Select Dividend Index, which is the Fund’s proposed comparative index, and other broad-based securities market indexes.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it intends to place the Fund’s (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Fund) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Fund also may benefit from them.
The Trustees considered generally the nature and quality of the administrative services to be provided to the Fund by RS Investments including, among other things, changes in and enhancements to the firm’s personnel and capabilities, their recent performances, and the responsiveness of senior management to the Trustees’ requests.
After considering all of the information described above, the Trustees, including all of the disinterested Trustees, unanimously voted to approve the Advisory Agreement.
At a meeting held in person on March 18-19, 2008, the Trustees, including the disinterested Trustees, unanimously voted to approve the continuation of the Advisory Agreement through August 31, 2008.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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RS Equity Dividend VIP Series | | 21 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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22 | | RS Equity Dividend VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS Equity Dividend VIP Series | | 23 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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24 | | RS Equity Dividend VIP Series |
RS Variable Products Trust
RS Technology VIP Series (formerly The Information Age VIP Series)
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06.30.08 | | |
| | |
| | Table of Contents |
Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of June 30, 2008. 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 Technology VIP Series (formerly The Information Age VIP Series) |
| | |
| | Stephen J. Bishop Stephen J. Bishop (RS Investments) has been co-portfolio manager of RS Technology VIP Series (formerly The Information Age VIP Series) since July 2007. Mr. Bishop joined RS Investments in 1996 as a research analyst, primarily covering the technology sector. Prior to joining the firm, he worked as an analyst in the corporate finance department of Dean Witter Reynolds, Inc. for three years. Mr. Bishop holds a B.A. in economics from the University of Notre Dame and an M.B.A. from Harvard Business School. |
| |
| | Allison K. Thacker Allison K. Thacker (RS Investments) has been a co-portfolio manager of RS Technology VIP Series (formerly The Information Age VIP Series) since July 2007. Prior to joining RS Investments in 2000 as an analyst covering Internet and consumer discretionary stocks, she worked as a summer associate at Putnam Investments, and, prior to that, she was an analyst in the energy group at Merrill Lynch & Company for two years. Ms. Thacker holds a B.A. in economics from Rice University and an M.B.A. from Harvard Business School. |
The Statement of Additional Information provides further information about the portfolio managers, including information regarding their compensation, other accounts they manage, and their ownership interests in the Fund. For information on how to receive a copy of the Statement of Additional Information, please see the back cover of the relevant Prospectus or visit our Web site at www.guardianinvestor.com.
Highlights
Ø | | In a difficult environment for higher-valuation growth stocks, the RS Technology VIP Series lost ground while also underperforming its benchmark, the S&P North American Technology Sector Index™3. |
Ø | | The Fund’s performance during this period was hindered by its focus on higher-growth large and small technology companies, especially in the semiconductor, software, and computer technology areas. |
Ø | | The Fund’s relative performance benefited from stock selection in the communications technology group as well as from positive returns by individual holdings across a number of technology-related sectors. |
Market Overview
The past six months have been difficult for equity markets, as a combination of surging energy prices, slowing economic growth, and concerns about the health of the global financial system weighed on investor confidence. Faced with these headwinds, the stock market sold off sharply during the first quarter, as investors sought safety in Treasury bonds and other defensive investments. Against this backdrop, the Federal Reserve Board moved aggressively to help restore liquidity, reducing the target federal funds rate by 225 basis points to 2.00% by April. Fed rate cuts combined with some positive earnings news from nonfinancial corporations sparked a short-lived market resurgence in early spring before economic concerns again overwhelmed investor confidence, sending most market indexes lower in June. For the six-month period ended June 30, 2008, the S&P 500® Index4 declined 11.91%, the Dow Jones
| | |
RS Technology VIP Series | | 3 |
| | |
| | RS Technology VIP Series (formerly The Information Age VIP Series) (continued) |
Industrial Average5 declined 13.38%, and the Nasdaq Composite6 declined 13.55%.
Performance
The RS Technology VIP Series declined 17.04% in the six-month period ended June 30, 2008, while its benchmark, the S&P North American Technology Sector Index™, declined 12.45%.
Portfolio Review
The recent period has been difficult for virtually all tech stocks but especially for those with higher current and expected growth rates, higher valuations, and smaller capitalizations. Among the Fund’s major detractors for the period was O2Micro International, a maker of analog and mixed-signal semiconductors that help manage power for notebook computers, LCD monitors, and televisions. The stock corrected significantly on concerns over a greater-than-expected slowdown of seasonal orders during the first quarter as well as an excess inventory of its inverter chips in the marketplace. The inventory issues have subsided, but fears that weaker consumer spending might depress sales of computers and other electronics in its end-user market continued to weigh on the stock.
Another poor performer was Apple, which saw its price-to-earnings multiple contract due to slower iPod sales in the fourth quarter of 2007 and worries of potentially weaker iPhone and iMac sales in 2008. Despite these pressures, we believe that Apple is well positioned to continue expanding its foothold in both the handset and personal computer markets over the long term.
A number of growth-oriented Internet-related names also suffered during the period. Google lost ground as signs of a weakening economy prompted fears of declining search-advertising revenues. Other detractors included financial information provider TheStreet.com and Internet photo retailer Shutterfly.
On a positive note, the Fund had several strong performers in the Internet space, including Yahoo!, which was bid higher after receiving an unsolicited takeout offer from Microsoft, and Chinese Internet media company Sohu.com.
The Fund’s relative performance also benefited from stock selection in the communications technology area. Additionally, while many of the Fund’s semiconductor-related stocks lost ground during the period, performance benefited from solid gains by two individual holdings in this area—Marvell Technology Group and Broadcom, a diversified communications chip company that we bought after a significant pullback.
The Fund’s cash balance provided a cushion against the market’s downward volatility and has provided us with some dry powder we can use to selectively take advantage of attractive valuations on many promising technology shares caught in the recent market sell-off.
Outlook
While we remain cautious regarding the overall economy and its impact on consumer and technology spending, the current correction in tech stock prices appears to be already discounting for a significant slowdown. Inventories remain lean, and we believe new product cycles in the semiconductor and hardware sectors should provide a solid backdrop for fundamental improvement in late 2008 and 2009. Furthermore, the Internet and software sectors also have strong product cycles and adoption rates, which we believe should drive long-term earnings power. Above all we remain confident that our rigorous bottom-up selection process will help us deliver solid long-term performance by investing in companies engaged in emerging technology products or markets.
We thank you for your continued investment and support.
| | |
Steve Bishop Co-Portfolio Manager | | Allison Thacker Co-Portfolio Manager |
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4 | | RS Technology VIP Series |
RS Funds are sold by prospectus only. You should carefully consider the investment objectives, risks, charges and expenses of the RS Funds before making an investment decision. The prospectus contains this and other important information. Please read it carefully before investing or sending money. Please visit our web site at www.guardianinvestor.com or to obtain a printed copy, call 800-221-3253.
As with all mutual funds, the value of an investment in the Fund could decline, in which case you could lose money. Investing in small- and mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Funds that concentrate investments in a certain sector may be subject to greater risk than funds that invest more broadly, as companies in that sector may share common characteristics and may react similarly to market developments or other factors affecting their values. Investments in high-technology and Internet-related sectors may be highly volatile. Companies in these sectors operate in markets that are characterized by rapid change, evolving industry standards, frequent new service and product announcements, introductions, enhancements and changing customer demands.
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, 2008.
| | |
RS Technology VIP Series | | 5 |
| | |
| | RS Technology VIP Series (formerly The Information Age VIP Series) (continued) |
| | |
Total Net Assets: $2,760,707 | | Data as of June 30, 2008 |
| | |
| | Sector Allocation vs. Index1 |
| | |
| | Top Ten Holdings2 |
| | |
| |
Company | | Percentage of Total Net Assets |
Nintendo Co., Ltd. | | 5.01% |
Google, Inc. | | 4.20% |
Apple, Inc. | | 4.18% |
O2Micro International Ltd. | | 4.11% |
Research In Motion Ltd. | | 3.85% |
Microsoft Corp. | | 3.79% |
Marvell Technology Group Ltd. | | 3.71% |
Digital River, Inc. | | 3.42% |
First Solar, Inc. | | 3.36% |
QUALCOMM, Inc. | | 2.94% |
Total | | 38.57% |
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 S&P North American Technology Sector Index™ is a modified capitalization-weighted index based on a universe of technology-related stocks. Index results do not assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
4 | The S&P 500® Index is an unmanaged market-capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees or expenses. |
5 | The Dow Jones Industrial Average is a price-weighted index of 30 companies that serves as a measure of the entire U.S. market, covering such diverse industries as financial services, technology, retail, entertainment and consumer goods. |
6 | The Nasdaq Composite Index is an unmanaged index that measures all Nasdaq domestic and non-U.S.-based common stocks listed on the Nasdaq stock market. |
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6 | | RS Technology VIP Series |
| | |
| | Performance Update† As of 06/30/08 |
| | | | | | |
| | | |
| | Inception Date | | Year-to-Date | | Since Inception |
RS Technology VIP Series | | 07/31/07 | | -17.04% | | -13.80% |
S&P North American Technology Sector Index™3 | | | | -12.45% | | -6.87% |
S&P 500® Index4 | | | | -11.91% | | -10.34% |
† | Since inception returns are not annualized and represent cumulative total returns. |
| | |
| | Results of a Hypothetical $10,000 Investment |
The chart above shows the performance of a hypothetical $10,000 investment made on 07/31/07 in RS Technology VIP Series, the S&P North American Technology Sector Index™, and the S&P 500® Index.
Performance quoted represents past performance and does not guarantee future results. 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 3.31%. 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 800-221-3253 and is periodically updated on our Web site: www.guardianinvestor.com.
| | |
RS Technology 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. The example below 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 an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other mutual funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore the second section is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If these transactional costs were included, your costs would have been higher.
| | | | | | | | |
| | | | |
| | Beginning Account Value 01/01/08 | | Ending Account Value 06/30/08 | | Expenses Paid During Period* 01/01/08-06/30/08 | | Expense Ratio During Period 01/01/08-06/30/08 |
Based on Actual Return | | $1,000.00 | | $829.60 | | $16.92 | | 3.72% |
Based on Hypothetical Return (5% Return Before Expenses) | | $1,000.00 | | $1,006.37 | | $18.56 | | 3.72% |
* | Expenses are equal to the Fund’s annualized expense ratio excluding offering costs, as indicated, multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
| | |
8 | | RS Technology VIP Series |
| | |
| | Schedule of Investments – RS Technology VIP Series (formerly The Information Age VIP Series) |
| | | | | | | |
June 30, 2008 (unaudited) | | Foreign Currency | | Shares | | Value |
| | | | | | | |
Common Stocks — 97.0% | | | | | | | |
Advertising Agencies — 2.6% | | | | | | | |
ValueClick, Inc.(1) | | | | 4,680 | | $ | 70,902 |
| | | | | | | |
| | | | | | | 70,902 |
Cable Television Services — 1.0% | | | |
TiVo, Inc.(1) | | | | 4,580 | | | 28,259 |
| | | | | | | |
| | | | | | | 28,259 |
Communications Technology — 17.5% | | | |
Aruba Networks, Inc.(1) | | | | 3,930 | | | 20,554 |
Atheros Communications(1) | | | | 1,650 | | | 49,500 |
Cbeyond, Inc.(1) | | | | 1,070 | | | 17,141 |
Comtech Telecommunications Corp.(1) | | | | 950 | | | 46,550 |
Corning, Inc. | | | | 1,930 | | | 44,487 |
j2 Global Communications, Inc.(1) | | | | 1,950 | | | 44,850 |
QUALCOMM, Inc. | | | | 1,830 | | | 81,197 |
Research In Motion Ltd.(1) | | | | 910 | | | 106,379 |
ShoreTel, Inc.(1) | | | | 4,710 | | | 20,818 |
Syniverse Holdings, Inc.(1) | | | | 3,150 | | | 51,030 |
| | | | | | | |
| | | | | | | 482,506 |
Computer Services, Software & Systems — 24.9% | | | |
Absolute Software Corp.(1) | | CAD | | 2,240 | | | 23,044 |
Adobe Systems, Inc.(1) | | | | 850 | | | 33,481 |
Akamai Technologies, Inc.(1) | | | | 1,330 | | | 46,271 |
Citrix Systems, Inc.(1) | | | | 1,600 | | | 47,056 |
Concur Technologies, Inc.(1) | | | | 270 | | | 8,972 |
Digital River, Inc.(1) | | | | 2,450 | | | 94,521 |
Equinix, Inc.(1) | | | | 600 | | | 53,532 |
Internet Brands, Inc., Class A(1) | | | | 4,958 | | | 32,872 |
Microsoft Corp. | | | | 3,800 | | | 104,538 |
MicroStrategy, Inc., Class A(1) | | | | 380 | | | 24,605 |
Netezza Corp.(1) | | | | 2,902 | | | 33,315 |
Nuance Communications, Inc.(1) | | | | 2,760 | | | 43,249 |
PROS Holdings, Inc.(1) | | | | 6,260 | | | 70,300 |
Salesforce.com, Inc.(1) | | | | 1,040 | | | 70,959 |
| | | | | | | |
| | | | | | | 686,715 |
Computer Technology — 7.3% | | | |
Apple, Inc.(1) | | | | 690 | | | 115,534 |
Data Domain, Inc.(1) | | | | 1,370 | | | 31,962 |
Riverbed Technology, Inc.(1) | | | | 2,070 | | | 28,400 |
STEC, Inc.(1) | | | | 2,420 | | | 24,853 |
| | | | | | | |
| | | | | | | 200,749 |
Consumer Electronics — 5.7% | | | |
Google, Inc., Class A(1) | | | | 220 | | | 115,813 |
Sohu.com, Inc.(1) | | | | 610 | | | 42,968 |
| | | | | | | |
| | | | | | | 158,781 |
Consumer Products — 5.0% | | | |
Nintendo Co. Ltd., ADR(2) | | | | 1,980 | | | 138,303 |
| | | | | | | |
| | | | | | | 138,303 |
Electronics—Semi-Conductors/Components — 20.3% |
ANADIGICS, Inc.(1) | | | | 3,020 | | | 29,747 |
Cavium Networks, Inc.(1) | | | | 950 | | | 19,950 |
Cree, Inc.(1) | | | | 1,760 | | | 40,146 |
Entropic Communications, Inc.(1) | | | | 2,825 | | | 13,419 |
First Solar, Inc.(1) | | | | 340 | | | 92,759 |
| | | | | | | |
June 30, 2008 (unaudited) | | | | Shares | | Value |
| | | | | | | |
Electronics—Semi-Conductors/Components (continued) |
FormFactor, Inc.(1) | | | | 1,530 | | $ | 28,198 |
IPG Photonics Corp.(1) | | | | 1,730 | | | 32,541 |
Marvell Technology Group Ltd.(1) | | | | 5,800 | | | 102,428 |
Netlogic Microsystems, Inc.(1) | | | | 1,340 | | | 44,488 |
O2Micro International Ltd., ADR(1)(2) | | | | 17,050 | | | 113,382 |
PLX Technology, Inc.(1) | | | | 2,010 | | | 15,336 |
Volterra Semiconductor Corp.(1) | | | | 1,560 | | | 26,926 |
| | | | | | | |
| | | | | | | 559,320 |
Financial Information Services — 0.2% | | | |
TheStreet.com, Inc. | | | | 660 | | | 4,297 |
| | | | | | | |
| | | | | | | 4,297 |
Retail — 8.8% | | | | | | | |
Amazon.com, Inc.(1) | | | | 910 | | | 66,730 |
GSI Commerce, Inc.(1) | | | | 5,490 | | | 74,828 |
Priceline.com, Inc.(1) | | | | 480 | | | 55,421 |
Shutterfly, Inc.(1) | | | | 3,770 | | | 46,032 |
| | | | | | | |
| | | | | | | 243,011 |
Services—Commercial — 2.6% |
Ctrip.com International Ltd., ADR(2) | | | | 700 | | | 32,046 |
eBay, Inc.(1) | | | | 1,510 | | | 41,268 |
| | | | | | | |
| | | | | | | 73,314 |
Telecommunications Equipment — 1.1% | | | |
Nokia Oyj, ADR(2) | | | | 1,240 | | | 30,380 |
| | | | | | | |
| | | | | | | 30,380 |
| | | | | | | |
Total Common Stocks (Cost $2,898,352) | | | | | | | 2,676,537 |
| | | |
| | | | Shares | | Value |
Other Investments—For Trustee Deferred Compensation Plan — 0.0% |
RS Core Equity Fund, Class Y(3)(4) | | | | — | | | 7 |
RS Emerging Growth Fund, Class Y(3)(4) | | | | — | | | 10 |
RS Emerging Markets Fund, Class A(3)(4) | | | | — | | | 6 |
RS Equity Dividend Fund, Class Y(3)(4) | | | | — | | | 1 |
RS Global Natural Resources Fund, Class Y(3)(4) | | | | — | | | 8 |
RS Growth Fund, Class Y(3)(4) | | | | — | | | 3 |
RS Investment Quality Bond Fund, Class A(3)(4) | | | | — | | | 1 |
RS Investors Fund, Class Y(3)(4) | | | | — | | | 1 |
RS MidCap Opportunities Fund, Class Y(3)(4) | | | | — | | | 1 |
RS Partners Fund, Class Y(3)(4) | | | | — | | | 6 |
RS S&P 500 Index Fund, Class A(3)(4) | | | | — | | | 1 |
RS Smaller Company Growth Fund, Class Y(3)(4) | | | | — | | | 3 |
The accompanying notes are an integral part of these financial statements.
| | |
RS Technology VIP Series | | 9 |
| | |
| | Schedule of Investments – RS Technology VIP Series (formerly The Information Age VIP Series) |
| | | | | | | | | |
June 30, 2008 (unaudited) | | | | Shares | | Value | |
| | | | | | | | | |
Other Investments—For Trustee Deferred Compensation Plan (continued) | |
RS Technology Fund, Class Y(3)(4) | | | | | — | | $ | 2 | |
RS Value Fund, Class Y(3)(4) | | | | | — | | | 9 | |
| | | | | | | | | |
Total Other Investments (Cost $59) | | | | | | | | 59 | |
| | | |
| | | | Shares | | Value | |
Short-Term Investments — 10.4% | | | | |
| | | | | | | | | |
State Street Institutional Liquid Reserves(5) | | | | | 287,407 | | | 287,407 | |
| | | | | | | | | |
Total Short-Term Investments (Cost $287,407) | | | | | | | | 287,407 | |
| | | |
| | | | Principal Amount | | Value | |
Repurchase Agreements — 5.1% | | | | |
State Street Bank and Trust Co. Repurchase Agreement, 2.10% dated 6/30/2008, maturity value of $141,008, due 7/1/2008, collateralized by FHLB, 5.00%, due 6/11/2018, with a value of $148,125 | | | | $ | 141,000 | | | 141,000 | |
| | | | | | | | | |
Total Repurchase Agreements (Cost $141,000) | | | | | | | | 141,000 | |
| | | | | | | | | |
Total Investments — 112.5% (Cost $3,326,818) | | | | | | | | 3,105,003 | |
| | | | | | | | | |
Other Liabilities, Net — (12.5)% | | | | | | | | (344,296 | ) |
| | | | | | | | | |
Total Net Assets — 100.0% | | | | | | | $ | 2,760,707 | |
(1) | Non-income producing security. |
(2) | ADR — American Depositary Receipt. |
(3) | Rounds to less than one share. |
(4) | Investments in designated RS Mutual Funds under a deferred compensation plan adopted for disinterested Trustees. See 2b in Notes to Financial Statements. |
(5) | Money Market Fund registered under the Investment Company Act of 1940. |
Foreign-Denominated Security
Canadian Dollar — CAD
The following is a summary of the inputs used as of June 30, 2008 in valuing the Fund’s investments carried at value:
| | | |
Valuation Inputs | | Investments in Securities |
Level 1 – Quoted Prices | | $ | 3,105,003 |
Level 2 – Significant Other Observable Inputs | | | — |
Level 3 – Significant Unobservable Inputs | | | — |
| | | |
Total | | $ | 3,105,003 |
The accompanying notes are an integral part of these financial statements.
| | |
10 | | RS Technology VIP Series |
| | |
| | Financial Information — RS Technology VIP Series |
| | |
| | Statement of Assets and Liabilities As of June 30, 2008 (unaudited) |
| | | | |
| |
Assets | | | | |
Investments, at value | | $ | 3,105,003 | |
Cash and cash equivalents | | | 4,528 | |
Prepaid expenses | | | 10,945 | |
Dividends/interest receivable | | | 715 | |
Receivable for investments sold | | | 667 | |
| | | | |
Total Assets | | | 3,121,858 | |
| | | | |
Liabilities | | | | |
Payable for investments purchased | | | 322,362 | |
Payable for fund shares redeemed | | | 8,683 | |
Payable to adviser | | | 2,336 | |
Payable to distributor | | | 584 | |
Trustees’ deferred compensation | | | 59 | |
Accrued expenses/other liabilities | | | 27,127 | |
| | | | |
Total Liabilities | | | 361,151 | |
| | | | |
Total Net Assets | | $ | 2,760,707 | |
| | | | |
Net Assets Consist of: | | | | |
Paid-in capital | | | 3,206,686 | |
Accumulated undistributed net investment loss | | | (49,477 | ) |
Accumulated net realized loss from investments and foreign currency transactions | | | (174,687 | ) |
Net unrealized depreciation on investments | | | (221,815 | ) |
| | | | |
Total Net Assets | | $ | 2,760,707 | |
| | | | |
Investments, at Cost | | $ | 3,326,818 | |
| | | | |
Pricing of Shares | | | | |
| |
Shares of Beneficial Interest Outstanding with no Par Value | | | 320,106 | |
| |
Net Asset Value Per Share | | | $8.62 | |
| | |
| | Statement of Operations For the Six-Month Period Ended June 30, 2008 (unaudited) |
| | | | |
| |
Investment Income | | | | |
Interest | | $ | 3,268 | |
Dividends | | | 7,448 | |
Withholding taxes on foreign dividends | | | (162 | ) |
| | | | |
Total Investment Income | | | 10,554 | |
| | | | |
Expenses | | | | |
Custodian fees | | | 11,506 | |
Offering costs | | | 9,990 | |
Investment advisory fees | | | 9,144 | |
Professional fees | | | 3,307 | |
Distribution fees | | | 2,286 | |
Shareholder reports | | | 1,688 | |
Administrative service fees | | | 201 | |
Trustees’ fees and expenses | | | 60 | |
Other expense | | | 15 | |
| | | | |
Total Expenses | | | 38,197 | |
| | | | |
Net Investment Loss | | | (27,643 | ) |
| | | | |
Realized Gain/(Loss) and Change in Unrealized Appreciation/(Depreciation) on Investments and Foreign Currency Transactions | | | | |
Net realized loss from investments | | | (122,690 | ) |
Net realized loss from foreign currency transactions | | | (73 | ) |
Net change in unrealized depreciation on investments | | | (261,744 | ) |
Net change in unrealized appreciation on translation of assets and liabilities in foreign currencies | | | 96 | |
| | | | |
Net Loss on Investments and Foreign Currency Transactions | | | (384,411 | ) |
| | | | |
Net Decrease in Net Assets Resulting from Operations | | $ | (412,054 | ) |
| | | | |
The accompanying notes are an integral part of these financial statements.
| | |
RS Technology VIP Series | | 11 |
| | |
| | Financial Information — RS Technology VIP Series (continued) |
| | |
| | Statement of Changes in Net Assets Six-month-ended numbers are unaudited |
| | | | | | | | |
| | |
| | For the Six Months Ended 6/30/08 | | | For the Period Ended 12/31/07 | |
Operations | | | | | |
Net investment loss | | $ | (27,643 | ) | | $ | (36,089 | ) |
Net realized loss from investments and foreign currency transactions | | | (122,763 | ) | | | (43,930 | ) |
Net change in unrealized appreciation/(depreciation) on investments and translation of assets and liabilities in foreign currencies | | | (261,648 | ) | | | 39,833 | |
| | | | | | | | |
Net Decrease in Net Assets Resulting from Operations | | | (412,054 | ) | | | (40,186 | ) |
| | | | | | | | |
| | |
Capital Share Transactions | | | | | | | | |
Proceeds from sales of shares | | | 1,590,887 | | | | 2,387,642 | |
Cost of shares redeemed | | | (331,727 | ) | | | (433,855 | ) |
| | | | | | | | |
Net Increase in Net Assets Resulting from Capital Share Transactions | | | 1,259,160 | | | | 1,953,787 | |
| | | | | | | | |
| | |
Net Increase in Net Assets | | | 847,106 | | | | 1,913,601 | |
| | |
Net Assets | | | | | | | | |
| | |
Beginning of period | | | 1,913,601 | | | | — | |
| | | | | | | | |
End of period | | $ | 2,760,707 | | | $ | 1,913,601 | |
| | | | | | | | |
Accumulated Undistributed Net Investment Loss Included in Net Assets | | $ | (49,477 | ) | | $ | (21,834 | ) |
| | | | | | | | |
| | |
Other Information: | | | | | | | | |
| | |
Shares | | | | | | | | |
Sold | | | 172,860 | | | | 224,954 | |
Redeemed | | | (36,946 | ) | | | (40,762 | ) |
| | | | | | | | |
Net Increase | | | 135,914 | | | | 184,192 | |
| | | | | | | | |
The accompanying notes are an integral part of these financial statements.
| | |
12 | | RS Technology VIP Series |
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| | |
RS Technology VIP Series | | 13 |
| | |
| | Financial Information — RS Technology 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). 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 distributions).
| | |
| | Financial Highlights Six-month-ended numbers are unaudited |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Asset Value, Beginning of Period | | Net Investment Loss | | | Net Realized and Unrealized Gain/(Loss) | | | Total Operations | | | Distributions From Net Investment Income | | Distributions From Net Realized Capital Gains | | Total Distributions |
| | | | | | | |
Six Months Ended 06/30/081 | | $ | 10.39 | | $ | (0.04 | ) | | $ | (1.73 | ) | | $ | (1.77 | ) | | $ | — | | $ | — | | $ | — |
| | | | | | | |
Period From 07/31/073 to 12/31/071 | | | 10.00 | | | (0.20 | ) | | | 0.59 | | | | 0.39 | | | | — | | | — | | | — |
The accompanying notes are an integral part of these financial statements.
| | |
14 | | RS Technology VIP Series |
| | | | | | | | | | | | | | | | | | | | | |
Net Asset Value, End of Period | | Total Return2 | | | 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 Loss to Average Net Assets | | | Gross Ratio of Net Investment Loss to Average Net Assets | | | Portfolio Turnover Rate | |
| | | | | | | |
$8.62 | | (17.04 | )% | | $ | 2,761 | | 3.72 | % | | 3.72 | % | | (2.58 | )% | | (2.58 | )% | | 53 | % |
| | | | | | | |
10.39 | | 3.90 | % | | | 1,914 | | 4.77 | % | | 4.77 | % | | (4.14 | )% | | (4.14 | )% | | 56 | % |
| 1 | Ratios for periods less than one year have been annualized excluding organization costs and offering costs, except for total return and portfolio turnover rate. |
| 2 | Total returns do not reflect the effects of charges deducted pursuant to the terms of The Guardian Insurance & Annuity Company, Inc.’s variable contracts. Inclusion of such charges would reduce the total returns for all periods shown. |
| 3 | Commencement of operations. |
The accompanying notes are an integral part of these financial statements.
| | |
RS Technology VIP Series | | 15 |
| | |
| | Notes to Financial Statements — RS Technology VIP Series (unaudited) |
RS Variable Products Trust (the “Trust”), a Massachusetts business trust organized on May 18, 2006, is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust currently offers seventeen series. RS Technology VIP Series (the “Fund”) is a series of the Trust. The Fund is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.
The Fund has authorized an unlimited number of shares of beneficial interest with no par value. Class II shares of the Fund 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 (“Guardian Life”). The Fund is currently offered to insurance company separate accounts that fund certain variable annuity and variable life insurance contracts issued by GIAC.
Note 1. | | Significant Accounting Policies |
The following policies 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.
a. 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 is generally 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 4c). Foreign securities are valued in the currencies of the markets in which 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 in open-end management investment companies that are registered under the 1940 Act are valued based upon the net asset values determined by such investment companies.
Securities for which market quotations are not readily available or for which market quotations may be considered unreliable are valued at their fair values as determined in accordance with guidelines and procedures adopted by the Trust’s Board of Trustees.
Securities whose values have been materially affected by events occurring before the Fund’s valuation time but after the close of the securities’ principal exchange or market may be fair valued 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, the values of the Fund’s investments in foreign securities are generally determined by a pricing service using pricing models designed to estimate likely changes in the values of those securities.
In its normal course of business, the Fund may invest a significant portion of its assets in companies concentrated within a number of industries or sectors. As a result, the Fund may be subject to a greater risk of loss than that of a fund invested in a wider spectrum of industries or sectors because the stocks of many or all of the companies in the industry, group of industries, sector, or sectors may decline in value due to developments adversely affecting the industry, group of industries, sector, or sectors.
The Fund adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), effective January 1, 2008. In accordance with FAS 157, fair value is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or
| | |
16 | | RS Technology VIP Series |
most advantageous market of the investment. FAS 157 established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy of inputs is summarized in the three broad levels listed below.
Ø | | Level 1 — quoted prices in active markets for identical investments |
Ø | | Level 2 — significant other observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risks, etc.) |
Ø | | Level 3 — significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Changes in valuation techniques may result in transfers in or out of an investment’s assigned level within the hierarchy. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
b. Federal Income 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 substantially 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 if the cost of making the required distribution exceeds the amount of the excise tax.
The Fund adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”) on January 1, 2007. FIN 48 permits the recognition of tax benefits of an uncertain tax position only when the position is “more likely than not” to be sustained assuming examination by taxing authorities. The Trust has reviewed the Fund’s tax positions for all open tax years, and concluded that adoption had no effect on the Fund’s financial position or results of operations. The Fund has recorded no liability for net unrecognized tax benefits relating to uncertain income tax positions it has taken or expects to take in future tax returns.
The Fund files U.S. tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the prior three fiscal years, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
c. Securities Transactions
Securities transactions are accounted for on the date securities are purchased or sold (trade date). Realized gains or losses on securities transactions are determined on the basis of specific identification.
d. Foreign Currency Translation
The accounting records of the Fund are maintained in U.S. dollars. Investment securities and all other assets and liabilities of the Fund denominated in a foreign currency are generally translated into U.S. dollars at the exchange rates quoted at the close of the NYSE on each business day. 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.
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RS Technology VIP Series | | 17 |
| | |
| | Notes to Financial Statements — RS Technology VIP Series (unaudited) (continued) |
e. Investment Income
Dividend income is generally recorded on the ex-dividend date, except certain cash dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Interest income, which includes amortization/accretion of premium/discount, is accrued and recorded daily.
f. Expenses
Many expenses of the Trust can be directly attributed to a specific series of the Trust. Expenses that cannot be directly attributed to a specific series of the Trust are generally apportioned among all the series in the Trust, based on relative net assets.
g. Custody Credits
The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce the Fund’s custodian expenses. The Fund could have employed the uninvested assets to produce income in the Fund if the Fund had not entered into such an arrangement. The Fund’s custody credits, if any, are shown in the accompanying Statement of Operations.
h. Distributions to Shareholders
The Fund intends to distribute substantially all of its net investment income typically at least once each year and any net realized capital gains once each year. Unless the Fund is instructed otherwise, all distributions to shareholders are credited in the form of additional shares of the Fund at the net asset value, recorded on the ex-dividend date.
i. Capital Accounts
Due to the timing of dividend distributions and the differences in accounting for income and realized gains/(losses) for financial statement purposes versus 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.
j. Temporary Borrowings
The Fund, with other funds managed by RS Investment Management Co. LLC (“RS Investments”), shares in a $75 million committed revolving credit/overdraft protection facility from State Street Bank and Trust Company for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on 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 net assets. 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 Prospectus.
For the six months ended June 30, 2008, the Fund did not borrow from the facility.
k. Offering Costs
Offering costs are accounted for on an accrual basis. Offering costs are expensed over a 12-month period. These costs include printing, administration and other expenses associated with the initial registration of the Fund.
Note 2. | | Transactions with Affiliates |
a. Advisory Fee
Under the terms of the advisory agreement, which is reviewed and approved annually by the Board of Trustees, the Fund pays an investment advisory fee to RS Investments. Guardian Investor Services LLC (“GIS”), a subsidiary of Guardian Life, holds a majority interest in RS Investments. RS Investments receives an investment advisory fee based on the average daily net assets of the Fund, at an annual rate of 1.00%.
b. Compensation of Trustees and Officers
Trustees and officers of the Trust 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 Trust who are not interested persons of RS Investments (“disinterested Trustees”) receive compensation and reimbursement of expenses.
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18 | | RS Technology VIP Series |
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 RS Funds. The Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the RS 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.
c. Distribution Fees
The Fund has entered into an agreement with GIS for distribution services with respect to its shares and has adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act, whose continuance is reviewed annually by the Trust’s Board of Trustees. Under the plan, GIS is compensated for the services it provides and for the expenses it bears in connection with the distribution of the Fund’s Class II shares at an annual rate of up to 0.25% of the average daily net assets of Class II shares of the Fund.
RS Investments may pay GIAC or other insurance companies or financial institutions compensation, at an annual rate of up to 0.15% of the Fund’s average daily net assets, for providing administrative and shareholder services. Payment of this compensation does not represent a separate or additional expense to the Fund.
Note 3. | | Federal Income Taxes |
a. Distributions to Shareholders
No distributions were paid during the period ended December 31, 2007.
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 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. 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.
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.
During the period ended December 31, 2007, the Fund did not utilize capital loss carryovers and no capital loss carryovers are available for use in future offsets.
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 period ended December 31, 2007, which is the most recently completed tax year, the Fund had $48,560 in deferred losses.
b. Tax Basis of Investments
The cost of investments for federal income tax purposes at June 30, 2008, was $3,368,991. The gross unrealized appreciation and depreciation of investments, on a tax basis, at June 30, 2008, aggregated $72,259 and $(336,247), respectively, resulting in net unrealized depreciation of $(263,988).
a. Investment Purchases and Sales
The cost of investments purchased and the proceeds from investments sold (excluding short-term investments) amounted to $2,277,934 and $955,270, respectively, for the six months ended June 30, 2008.
| | |
RS Technology VIP Series | | 19 |
| | |
| | Notes to Financial Statements — RS Technology VIP Series (unaudited) (continued) |
b. Foreign Securities
Foreign securities investments involve special risks and considerations not typically associated with those of U.S. origin. These risks include, but are not limited to, currency risk; adverse political, social, and economic developments; and less reliable information about issuers. Moreover, securities of some foreign companies may be less liquid and their prices more volatile than those of comparable U.S. companies.
c. Repurchase Agreements
The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities (including U.S. government agency securities). Repurchase agreements are fully collateralized (including the interest accrued thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the repurchase price plus accrued interest, the Fund will typically require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, the Fund maintains the right to sell the collateral and may claim any resulting loss against the seller.
Note 5. | | New Accounting Pronouncement |
In March 2008, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“FAS 161”). FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. FAS 161 requires enhanced disclosures about the Fund’s derivative and hedging activities. The Trust is currently evaluating the impact the adoption of FAS 161 will have on the Fund’s financial statement disclosures.
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.
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 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 has been distributed to certain current and former shareholders of certain RS Funds in a manner determined by an independent consultant. Details are available on RS Investments’ Settlement Web site at www.rssettlement.com. The settlement agreement with the NYAG also requires RS Investments to reduce its management fee for certain RS 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.
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20 | | RS Technology VIP Series |
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 Fund redemptions and reduced sales of Fund shares, which could result in increased costs and expenses, or may otherwise adversely affect the Fund.
After the announcement of those settlements, three related civil lawsuits were 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 certain RS Funds between October 6, 1999, and October 5, 2004, seeks compensatory damages and other related relief. The complaint originally named 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 tracked the factual allegations made in the SEC and NYAG settlements, including the allegations that fund prospectuses were false and misleading, and alleged 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 alleged 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 1940 Act; 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 1940 Act. 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 discovery phase has been completed with respect to the litigation and the defendants have made a motion for summary judgment.
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 Fund 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 the Fund.
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RS Technology VIP Series | | 21 |
| | |
| | Supplemental Information — unaudited |
Approval of Investment Advisory Agreements for Certain Series of RS Variable Products Trust*
The Trustees of RS Variable Products Trust (the “Trust”), including all the Trustees who are not interested persons of the Trust or RS Investment Management Co. LLC (“RS Investments”) (the “disinterested Trustees”), met in person on May 15-16, 2007, to consider the approval of the investment advisory agreement (the “Advisory Agreement”) for RS Technology VIP Series (formerly, The Information Age VIP Series) (the “Fund”), a new series of the Trust.
At their meeting, the Trustees considered a number of factors in determining to approve the Advisory Agreement. In all of their deliberations regarding the Advisory Agreement, the disinterested Trustees were advised by their independent counsel, with whom they had separate meetings and discussions during and preceding the dates of the official Board meeting. In addition, the Trustees were assisted in their review by the Chief Compliance Officer of the Trust, who reviewed all of the information presented to the Trustees.
In their consideration of the Advisory Agreement, the Trustees were mindful generally of the recent changes in the structure and organization of RS Investments, noting specifically the acquisition by Guardian Investor Services LLC (“GIS”), a subsidiary of The Guardian Life Insurance Company of America (“Guardian Life”), of a majority ownership of the firm, and the continuing integration of the investment management capabilities of RS Investments and of GIS. They considered RS Investments’ representations that the integration of the two firms had been implemented successfully to date and had resulted in a stronger, deeper, and more diverse portfolio management organization. The Trustees had also discussed the integration on a number of occasions with management and observed its effects over the course of the period following the acquisition.
The Trustees considered the fee to be charged by RS Investments to the Fund under the Advisory Agreement. In this connection, representatives of RS Investments noted to the Trustees that the Fund has a comparable investment objective and principal investment strategies to RS Technology Fund, a series of RS Investment Trust, and that the Fund’s portfolio management team, and the advisory fee to be paid by the new Fund, were the same as those of RS Technology Fund. The Trustees further noted that they had previously approved the investment advisory agreement of RS Technology Fund, including the fees to be paid by RS Technology Fund.
Representatives of RS Investments noted to the Trustees that the fees to be charged by RS Investments to the Fund reflect a number of factors. They noted, for example, the generally high quality of the investment management teams at RS Investments, the high levels of compensation that are required to retain the firm’s investment professionals, and the alternative employment opportunities available to many of those professionals, including highly remunerative positions at hedge fund managers.
The Trustees considered information provided by RS Investments as to the fees charged by RS Investments to clients other than the Fund. RS Investments generally charges lower fees to those clients. Representatives of RS Investments explained that compliance, reporting, and other legal burdens of providing investment advice to mutual funds exceed those required to provide advisory services to non-mutual fund clients such as retirement or pension plans. In addition, they pointed out that there is substantially greater legal and other risk to RS Investments in managing public mutual funds than in managing private accounts. RS Investments also noted that it provides advisory services in a number of investment disciplines to Guardian Life, at rates generally lower than it charges to other advisory clients, including the Fund.
Because the Fund had not yet commenced operations, RS Investments did not furnish financial information regarding the revenues and expenses related to the management of the Fund.
The Trustees considered whether economies of scale would likely be realized as the Fund grew and whether a
* | The Advisory Agreements for the series of the Trust not discussed at the meeting were not subject to review by the Trustees at the meeting. |
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22 | | RS Technology VIP Series |
reduction in the advisory fees paid by the Fund by means of breakpoints would be appropriate.
The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments. In this regard, the Trustees took into account the experience of the Fund’s portfolio management team and of RS Investments’ senior management, and the time and attention to be devoted by each to the Fund. Because the Fund had not commenced operations, it did not have a performance record for the Trustees to consider. The Trustees took into account the performance of RS Technology Fund.
The Trustees also considered the research and other similar services RS Investments receives from many of the broker-dealers with which it intends to place the Fund’s (as well as other RS Investments clients’) portfolio transactions and from third parties with which these broker-dealers have arrangements. The Trustees receive information on those arrangements quarterly throughout the year and have the opportunity to discuss that information with representatives of RS Investments at the meetings. The Trustees considered the benefit to RS Investments and its affiliates from such services including that (1) the services are of value to RS Investments and its affiliates in advising RS Investments’ clients (including the Fund) and (2) RS Investments might otherwise be required to purchase some of these services for cash. The Trustees considered information provided to them quarterly during the year regarding the benefits to RS Investments of research and brokerage services provided in connection with so-called “bundled brokerage” arrangements. The Trustees concluded that these “soft dollar” relationships’ benefit to RS Investments was reasonable and that the Fund also may benefit from them.
The Trustees considered generally the nature and quality of the administrative services to be provided to the Fund by RS Investments including, among other things, changes in and enhancements to the firm’s personnel and capabilities, their recent performances, and the responsiveness of senior management to the Trustees’ requests.
After considering all of the information described above, the Trustees, including all of the disinterested Trustees, unanimously voted to approve the Advisory Agreement. At a meeting held in person on March 18-19, 2008, the Trustees, including the disinterested Trustees, unanimously voted to approve the continuation of the Advisory Agreement through August 31, 2008.
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 800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 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 most recent 12-month period ended June 30 will be available (i) without charge, upon request, by calling toll-free 800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.
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RS Technology VIP Series | | 23 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Disinterested Trustees | | | | | | | | |
Judson Bergman, February 1957 | | Trustee | | Since May 2006 | | Founder and CEO, Envestnet Asset Management, a provider of back-office solutions for financial advisors and the wealth management industry. | | 40 | | None |
Kenneth R. Fitzsimmons, Jr., October 1945 | | Trustee | | Since May 2007 | | Retired since September 2002; formerly, Managing Director, Robertson Stephens, an investment banking firm. | | 40 | | None |
Anne M. Goggin, November 1948 | | Trustee, Chairman of the Board | | Since August 2006 | | Attorney at law in private practice; formerly, Partner, Edwards and Angell, LLP; formerly, Chief Counsel–Individual Business, Metropolitan Life Insurance Company, an insurance company; and Chairman, President and CEO, MetLife Advisors LLC, an investment management firm. | | 40 | | None |
Christopher C. Melvin, Jr., September 1954 | | Trustee | | Since November 2007 | | Chairman & CEO, Melvin & Company, LLC, a brokerage firm. | | 40 | | Board Member, Boston Stock Exchange Inc. |
Gloria S. Nelund, May 1961 | | Trustee | | Since November 2007 | | President, Titus Development Group, LLC, a consulting firm; formerly, Head of U.S. Private Wealth Management, Deutsche Bank. | | 40 | | None |
John P. Rohal, April 1947 | | Trustee | | Since February 2008; Also from December 2006 to March 2007 | | Member, Makena Capital Management LLC; formerly Chairman of EGM Capital, LLC, an investment management firm. | | 40 | | None |
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24 | | RS Technology VIP Series |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers | | | | | | |
Dennis J. Manning,** January 1947 | | Trustee | | Since August 2006 | | Chairman, RS Investments; President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Director, Life Insurance Council of New York, Inc., a life insurance trade association. | | 40 | | None |
Terry R. Otton,*** March 1954 | | Trustee; President and Principal Executive Officer | | Trustee since December 2006; President and Principal Executive Officer since May 2006 | | CEO (prior to September 2005, co-CEO, COO, and CFO and prior to August 2006, CEO and CFO), RS Investments; formerly, Managing Director, Putnam Lovell NBF Group Inc., an investment banking firm. | | 40 | | None |
James E. Klescewski, November 1955 | | Treasurer and Principal Financial and Accounting Officer | | Since September 2006 | | CFO, RS Investments; formerly, CFO, JCM Partners, LLC, an investment management firm; formerly, CFO, Private Wealth Partners, LLC, an investment management firm; formerly, CFO, Fremont Investment Advisors, Inc., an investment management firm; formerly, CFO, Montgomery Asset Management, LLC, an investment management firm. | | N/A | | N/A |
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RS Technology VIP Series | | 25 |
| | |
| | Supplemental Information — unaudited (continued) |
| | |
| | Trustees and Officers Information Table (continued) |
| | | | | | | | | | |
| | | | | |
Name, Address,* and Month and Year of Birth | | Position(s) Held with Trust | | Term of Office and Length of Time Served† | | Principal Occupation(s) During Past 5 Years | | Number of Portfolios in Fund Complex Overseen by Trustee | | Other Directorships Held by Trustee†† |
Interested Trustees and Principal Officers (continued) | | | | |
Benjamin L. Douglas, January 1967 | | Vice President, Secretary, and Chief Legal Officer | | Since May 2006 | | General Counsel, RS Investments; formerly, Vice President and Senior Counsel, Charles Schwab Investment Management, Inc., an investment management firm. | | N/A | | N/A |
John J. Sanders, Jr., August 1945 | | Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer | | Since May 2006 | | Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and co-COO, Husic Capital Management, an investment management firm. | | N/A | | N/A |
† | Under the Trust’s Agreement and Declaration of Trust, a Trustee serves until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Under the Trust’s By-Laws, officers hold office at the pleasure of the Trustees. In addition, the Trustees have designated a mandatory retirement age of 72, which can be deferred annually by unanimous vote of all members of the Board, excluding the member who has reached the retirement age. |
†† | Directorships or trusteeships of companies required to report to the SEC (i.e., “public companies”). |
* | c/o RS Investments, 388 Market Street, 17th Floor, San Francisco, CA 94111. |
** | Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the parent of Guardian Investor Services LLC, which owns a majority of the ownership interest in RS Investments, the Trust’s investment adviser, and by virtue of his position as Chairman of RS Investments. |
*** | Mr. Otton is an “interested person” under the 1940 Act by virtue of his position with RS Investments. |
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26 | | RS Technology 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.
| (a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
Item 7. | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. |
Not applicable to the registrant.
Item 8. | Portfolio Managers of Closed-End Management Investment Companies. |
Not applicable to the registrant.
Item 9. | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. |
Not applicable to the registrant.
Item 10. | Submission of Matters to a Vote of Security Holders. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees, where those changes were implemented after the registrant last provided disclosure in response to the requirements of Item 407(c) (2)(iv) of Regulation S-K (as required by Item 22(b)(15) of Schedule 14A) or this Item.
Item 11. | Controls and Procedures. |
| (a) | The registrant’s principal executive and principal financial officers have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c)) are effective, as of a date within 90 days of the filing date of this Form N-CSR, to provide reasonable assurance that the information required to be disclosed by the registrant on Form N-CSR is recorded, processed, summarized, and reported within the time periods specified in the Commission’s rules and forms, based on their evaluation of these disclosure controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and 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 registrant’s 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. |
| (a)(2) | Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
| (b) | Certification pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | |
(Registrant) | | RS Variable Products Trust |
| |
By (Signature and Title)* | | /s/ Terry R. Otton |
| | Terry R. Otton, President (Principal Executive Officer) |
Date: September 8, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| |
By (Signature and Title)* | | /s/ Terry R. Otton |
| | Terry R. Otton, President (Principal Executive Officer) |
Date: September 8, 2008
| | |
| |
By (Signature and Title)* | | /s/ James E. Klescewski |
| | James E. Klescewski, Treasurer (Principal Financial Officer) |
Date: September 8, 2008