N-CSR/A 1 dncsra.htm RS VARIABLE PRODUCTS TRUST RS Variable Products Trust
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM N-CSR/A

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

 

 

Investment Company Act file number

    333-135544

 

 

 

 

 

 

 

 

RS Variable Products Trust

(Exact name of registrant as specified in charter)

 

388 Market Street

San Francisco, CA

   94111
(Address of principal executive offices)   (Zip code)

 

 

 

Terry R. Otton

c/o RS Investments

388 Market Street

San Francisco, CA 94111

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 800-766-3863

 

 

Date of fiscal year end: December 31

 

 

Date of reporting period: December 31, 2006

 

 

Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.

 

A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.

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Item 1. Reports to Stockholders.

 

The Report to Shareholders is attached herewith.

 

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06   ANNUAL REPORT

RS Variable Products Trust

 

RS Core Equity VIP Series

12.31.06   LOGO

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Table of Contents

 

RS Core Equity VIP Series   
Portfolio Manager Biography    3
Letter from Portfolio Manager    3
Fund Performance    7
Understanding Your Fund’s Expenses    8
Financial Information   
Schedule of Investments    9
Statement of Assets and Liabilities    11
Statement of Operations    11
Statements of Changes in Net Assets    12
Financial Highlights    13
Notes to Financial Statements    14
Report of Independent Registered Public Accounting Firm    18
Supplemental Information    19
Administration    25
RS Investments’ Senior Management Biographies    26

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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 Core Equity VIP Series

 

LOGO     

Manind V. Govil (RS Investments)

Has managed the RS Core Equity VIP Series since 2005 (includes time managing The Guardian Stock Fund). Mr. Govil joined RS Investments in October 2006 in connection with Guardian Investor Services LLC (GIS)’s acquisition of an interest in RS Investments. Prior to that, Mr. Govil 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, Mr. Govil was lead portfolio manager — core equity, at Mercantile. Mr. Govil received a B.A. degree from the University of Bombay, India, and an M.B.A. from the University of Cincinnati and is a Chartered Financial Analyst.

 

Fund Philosophy

Seeks long-term growth of capital.

 

Investment Process

We seek investment opportunities across the entire market spectrum, from growth stocks to value stocks. In our view “growth,” “value,” and “core” represent a continuum of investing rather than opposing or incompatible strategies. We do not employ preset hurdles for earnings growth or limits on valuation metrics; rather we look for stocks that we believe are mispriced relative to a company’s underlying fundamental prospects, creating an opportunity where potential reward significantly outweighs risk.

 

Intensive fundamental research is the cornerstone of our investment process, which involves a willingness to question consensus. Key elements of our research process include judging the skill, track record, and integrity of a company’s management as well as analyzing the company’s market share and profitability trends vs. peer companies.

 

We use a bottom-up investment process to invest in what we believe are the best individual stock opportunities within key market sectors. We also apply a risk-controlled portfolio construction process. As fundamental investors we use rigorous quantitative tools to help us screen a vast large-cap universe and highlight potentially mispriced securities as well as to manage our portfolio. Then our team of sector managers analyzes the fundamentals and the valuations of these individual companies to assess their risk/reward profiles and decide whether to recommend particular stocks for the Fund.

 

Performance

The RS Core Equity Fund returned 5.54% during the fourth quarter vs. 6.70% for the S&P 500® Index1. The Fund was up 17.26% for the year compared with the benchmark, S&P 500® Index, which was up 15.79%.

 

Portfolio Review

For the fourth quarter, positive stock selection in financials was overcome by weaker results in health care and technology. Sector weights had a modestly negative impact on relative performance. MasterCard continued to provide a strong source of fourth quarter returns along with newly-public KBR, Inc. (a former Halliburton subsidiary) (1.2%) and the Mexican media giant Grupo Televisa (1.39%). Among the largest detractors to performance during the fourth quarter were Pfizer, Inc. (0.0%), Motorola, Inc. (0.0%) and Caterpillar, Inc. (2.1%).

 

Throughout 2006 relative performance was driven by stock selection, with virtually no net overall impact on the Fund from sector allocations. Relative to the benchmark, we benefited from our overweight position in telecom services. Our underweighting in energy cost

 

RS CORE EQUITY VIP SERIES   3

 

1 The S&P 500® Index of 500 primarily large-cap U.S. stocks is generally considered to be representative of U.S. stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses.

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RS Core Equity VIP Series (continued)

 

some performance relative to the benchmark. In both sectors, however, these allocation effects were overwhelmed by positive stock selection.

 

Stock selection was positive in seven of 10 major market sectors over the full year 2006. Top contributors were MasterCard Inc. (3.2%), AT&T, Inc. (4.0%), and Goldman Sachs Group, Inc. (2.7%).

 

MasterCard, the credit and debit payments network, is a household name. “Some things money can’t buy. For everything else there’s MasterCard.” We would love to hear from you about your experience vs. other cards such as Visa and American Express. MasterCard is a perfect example of our toll keeper stock. It was previously owned by a consortium of banks and run more like a cooperative transactional exchange for the benefit of its many owners, each of whom had a minimal financial stake in MasterCard’s success as a stand-alone entity. We believe that MasterCard was never managed to anywhere near its full profit potential. At the time of the public offering, we believed that the stock market did not fully appreciate MasterCard’s potential to drive profitability gains. Our analysis revealed substantial “low-hanging fruit” in terms of profit levers that management could utilize to boost profit growth in excess of rather timid consensus sales and earnings expectations. It was our belief that the key to unlocking this potential was change of ownership to public shareholders, essentially a shot of adrenaline to motivate the senior management team. We think Wall Street was most likely overly focused on the company’s litigation issues and did not fully appreciate the future potential to accelerate revenue and earnings and the management’s urgency to get there.

 

AT&T is a combination of SBC Communications, BellSouth, Cingular Wireless, and the old AT&T. It is déjà vu all over again. AT&T, the icon, was broken up after an

antitrust case in 1984. Ma Bell, as it was subsequently known, has substantially put itself back together again. AT&T enjoys the competitive advantages associated with scale and robust end-to-end offerings. We believe the stock market did not appreciate the potential to accelerate cash flow. Our dividend portfolio manager and then telecom sector manager Ray Anello did a wonderful job of recognizing the efficiencies that could be created with these combinations.

 

Goldman Sachs is a global investment bank and securities firm. We have always been impressed by the talent at Goldman Sachs and how the company is very dynamic in response to the changing marketplace. There can be no better testament to talent than the fact

that two of the U.S. Treasury secretaries over the past 10 years are Goldman Sachs alumni. In our opinion this company qualifies for the superior execution characteristic we discussed earlier. We believe the stock was mispriced when other peers sold at more expensive valuations. The Fund performed well with one of these peers, Lehman Brothers, and elected to reinvest the proceeds into Goldman Sachs. Our mid-cap portfolio manager and financials sector manager Ben Ram was instrumental in our investment in Goldman Sachs.

 

KB Home (1.2%), a leading national homebuilder was among our biggest detractor from performance. Stock prices had already fallen quite sharply from their mid-2005 peak when we invested in the company. Our analysis indicated that a housing slowdown was priced in. The slowdown so far has been in line with what we had modeled as part of our scenario analysis, but it appears the stock market expects fundamentals to further worsen before they get better and hence the decline in stock price. The stock has recovered from its low over the past few months, though it is still off our purchase price as orders appear to be stabilizing and sector meltdown fears from the summer months look to have been significantly overblown.

 

Personnel Update

We are pleased to announce the addition to our team of Adam Weiner as sector manager for industrial companies. Mr. Weiner joined us from Credit Suisse

Asset Management, where he had similar duties. Previously, he was an analyst at Credit Suisse First Boston and Morgan Stanley, after beginning his financial career at Dun & Bradstreet. Mr. Weiner brings a solid stock-picking track record and a wealth of experience to the RS Core Equity Team, which now numbers 12

 

4    RS CORE EQUITY VIP SERIES

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investment professionals with more than a hundred years of combined experience. Here are the members who help manage your Fund:

 

   
Name    Responsibility

Mani Govil

    Overall fund

Ray Anello

    Energy and utilities

Joy Budzinski

    Health care

Tony Gennaro

    Internet, media, and telecommunications

Magnus Krantz

    Technology

Eric Larson

    Trading

Kristin Pak

    Consumer

Ben Ram

    Financials

Raman Vardharaj

    Quantitative analysis

Adam Weiner

    Industrials and materials

Tony Zaffaro

    Trading

Matt Ziehl

    Real estate investment trusts and hotels

 

Outlook

As a core offering, the RS Core Equity VIP Series seeks to deliver solid long-term results across the range of market environments. We believe over long periods of time, a consistent focus on fundamental research and disciplined stock selection is the key to building solid investment results.

 

Dispersion of valuation has narrowed over the past year. There seem to be fewer valuation anomalies. This backdrop leads us to favor the best-positioned companies with regard to market share and profitability

across market sectors. We believe that companies that can grow market share will, by definition, post stronger growth in sales than their competitors and will likely outperform from an earnings standpoint as well; therefore they are likely to experience the best relative stock price gains. We do not let ourselves get distracted by short-term price movements. As bottom-up investors, this is how we approach the investing landscape as we seek to outperform the S&P 500 Index.

 

We wish to add a final point about the RS Core Equity VIP Series investment team. Over the past year and a half, we have diligently built a group of seasoned investment professionals with proven research and stock-picking ability and a team-player mentality. Together these individual attributes have fostered a performance-driven investment culture that is also mutually supportive and collegial.

 

Most important, we hold ourselves to the highest standards of professionalism and integrity for the benefit of our investors. Thank you for your investment in the RS Core Equity VIP Series and for your ongoing support. We promise to do our very best, and we appreciate your confidence in us.

 

 

LOGO

 

Manind V. Govil

Portfolio Manager

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.

 

RS CORE EQUITY VIP SERIES   5

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RS Core Equity VIP Series (continued)

 

Assets under Management $1,048,865,126   Data as of December 31, 2006

 

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Sector Allocation vs. Index

 
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Top Ten Holdings1

   
Company      Percentage of Total Net Assets

AT & T, Inc.

      3.99%

J.P. Morgan Chase & Co.

      3.68%

Apple Computer, Inc.

      3.52%

MasterCard, Inc. - Class A

      3.22%

Transocean, Inc.

      2.94%

AES Corp.

      2.88%

Goldman Sachs Group, Inc.

      2.66%

Abbott Laboratories

      2.55%

Wyeth

      2.51%

Aon Corp.

      2.50%

 

1 Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

6    RS CORE EQUITY VIP SERIES

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Performance Update

As of 12/31/06

   
     Inception
Date		   1-Year Total
Return		   3-Year
Annualized
Return		   5-Year
Annualized
Return		   10-Year
Annualized
Return		   Annualized Return
Since Fund
Inception

RS Core Equity VIP Series

   4/13/1983   17.26%   9.04%   4.49%   5.46%   11.81%

S&P 500® Index

       15.79%   10.44%   6.19%   8.43%   12.68%

 

The Series is the successor to The Guardian Stock Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

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Growth of a Hypothetical $10,000 Investment

If invested on 12/31/96

 
LOGO

 

The chart above shows the performance of a hypothetical $10,000 investment made 10 years ago in RS Core Equity VIP Series and the S&P 500® Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.

 

Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

RS CORE EQUITY VIP SERIES   7

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Understanding Your Fund’s Expenses — Unaudited

 

By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Fund’s expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

   

Based on Actual Return

    $1,000.00    $1,146.80    $3.08    0.57%
   

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,022.33    $2.91    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 184/365 (to reflect the one-half year period).

 

8    RS CORE EQUITY VIP SERIES

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Schedule of Investments — RS Core Equity VIP Series

 

December 31, 2006

 

Shares          Value
     
Common Stocks — 99.0%   
Aerospace and Defense — 3.0%
209,500   

Boeing Co.

    $ 18,611,980
168,000   

General Dynamics Corp.

      12,490,800
         
        31,102,780
 
Biotechnology — 1.8%
283,600   

Gilead Sciences, Inc.*

      18,414,148
 
Capital Markets — 4.4%
139,800   

Goldman Sachs Group, Inc.

      27,869,130
194,300   

Legg Mason, Inc.

      18,468,215
         
        46,337,345
 
Chemicals — 1.6%
256,400   

Dow Chemical Co.

      10,240,616
132,800   

Rohm & Haas Co.

      6,788,736
         
        17,029,352
 
Commercial Banks — 1.1%
156,400   

PNC Financial Svcs. Group, Inc.

      11,579,856
 
Commercial Services and Supplies — 0.6%
163,300   

Robert Half Int’l., Inc.

      6,061,696
 
Communications Equipment — 3.3%
376,000   

Corning, Inc.*

      7,034,960
469,800   

Nokia Corp. ADR

      9,546,336
464,300   

QUALCOMM, Inc.

      17,545,897
         
        34,127,193
 
Computers and Peripherals — 4.8%
435,300   

Apple Computer, Inc.*

      36,930,852
1,033,500   

EMC Corp.*

      13,642,200
         
        50,573,052
 
Construction and Engineering — 1.2%
484,760   

KBR, Inc.*

      12,681,322
 
Consumer Finance — 1.9%
395,400   

Americredit Corp*

      9,952,218
200,900   

SLM Corp.

      9,797,893
         
        19,750,111
 
Diversified Financial Services — 3.7%
798,300   

J.P. Morgan Chase & Co.

      38,557,890
 
Diversified Telecommunication Services — 4.0%
1,171,736   

AT & T, Inc.

      41,889,562
 
Electronic Equipment and Instruments — 0.9%
406,700   

Jabil Circuit, Inc.

      9,984,485
 
Energy Equipment and Services — 5.4%
823,100   

Halliburton Co.

      25,557,255
381,500   

Transocean, Inc.*

      30,859,535
         
        56,416,790
 
Food and Staples Retailing — 1.0%
223,900   

Wal-Mart Stores, Inc.

      10,339,702
 
Food Products — 2.9%
215,200   

Campbell Soup Co.

      8,369,128
378,300   

General Mills, Inc.

      21,790,080
         
        30,159,208
 
Gas Utilities — 1.8%
641,100   

Enterprise Products Partners LP

      18,579,078
 
Health Care Equipment and Supplies — 0.9%
124,030   

Zimmer Hldgs., Inc.*

      9,721,471
 
Shares          Value
     
Health Care Providers and Services — 2.8%
208,300   

Medco Health Solutions, Inc.*

    $ 11,131,552
338,900   

UnitedHealth Group, Inc.

      18,209,097
         
        29,340,649
 
Hotels, Restaurants and Leisure — 2.1%
508,800   

McDonald’s Corp.

      22,555,104
 
Household Durables — 2.5%
244,800   

KB Home

      12,553,344
476,900   

Newell Rubbermaid, Inc.

      13,806,255
         
        26,359,599
 
Independent Power Producers and Energy Traders — 2.9%
1,371,700   

AES Corp.*

      30,232,268
 
Industrial Conglomerates — 3.2%
633,500   

General Electric Co.

      23,572,535
322,700   

Tyco Int’l. Ltd.

      9,810,080
         
        33,382,615
 
Information Technology Services — 6.5%
647,000   

Accenture Ltd. — Class A

      23,893,710
157,234   

Fidelity Nat’l. Information Svcs., Inc.

      6,303,511
342,900   

MasterCard, Inc. — Class A

      33,772,221
195,000   

Western Union Co.

      4,371,900
         
        68,341,342
 
Insurance — 6.8%
344,400   

American Int’l. Group, Inc.

      24,679,704
742,400   

Aon Corp.

      26,236,416
306,541   

Fidelity Nat’l. Financial — Class A

      7,320,199
385,800   

Genworth Financial, Inc. — Class A

      13,198,218
         
        71,434,537
 
Internet Software and Services — 2.6%
440,800   

eBay, Inc.*

      13,254,856
30,100   

Google, Inc. — Class A*

      13,860,448
         
        27,115,304
 
Machinery — 2.1%
367,100   

Caterpillar, Inc.

      22,514,243
 
Media — 1.4%
534,900   

Grupo Televisa S.A. ADR

      14,447,649
 
Multiline Retail — 1.3%
368,800   

Federated Department Stores, Inc.

      14,062,344
 
Oil, Gas and Consumable Fuels — 5.0%
320,500   

Chevron Corp.

      23,566,365
278,500   

Devon Energy Corp.

      18,681,780
205,800   

Noble Energy, Inc.

      10,098,606
         
        52,346,751
 
Pharmaceuticals — 5.1%
548,200   

Abbott Laboratories

      26,702,822
517,600   

Wyeth

      26,356,192
         
        53,059,014
 
Road and Rail — 1.7%   
245,400   

Burlington Northern Santa Fe

      18,112,974
 
Software — 2.5%   
140,200   

Amdocs Ltd.*

      5,432,750
708,275   

Microsoft Corp.

      21,149,092
         
        26,581,842
 
Specialty Retail — 1.0%   
339,000   

Lowe’s Cos., Inc.

      10,559,850
 

 

See notes to financial statements.

 

    9

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Schedule of Investments — RS Core Equity VIP Series (continued)

 

December 31, 2006

 

Shares          Value
     
Thrifts and Mortgage Finance — 1.7%   
268,100   

Federal Home Loan Mortgage Corp.

    $ 18,203,990
 
Tobacco — 2.4%   
294,000   

Altria Group, Inc.

      25,231,080
 
Wireless Telecommunication Services — 1.1%   
257,800   

America Movil SAB de C.V. ADR

      11,657,716
 
  

Total Common Stocks
(Cost $905,903,878)

      1,038,843,912
 
     
Other Investments - For Trustee Deferred
Compensation Plan (1) — 0.0%
35   

RS Emerging Growth Fund, Class A

    $ 1,242
59   

RS Global Natural Resources Fund, Class A

      1,819
48   

RS Growth Fund, Class A

      725
134   

RS Investors Fund, Class A

      1,579
28   

RS MidCap Opportunities Fund, Class A

      399
17   

RS Partners Fund, Class A

      591
30   

RS Smaller Company Growth Fund, Class A

      639
15   

RS Value Fund, Class A

      399
 
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $7,393)

      7,393
 
     
Short-Term Investment — 1.0%   
  

Federated Prime Obligations Fund (2)
(Cost $9,991,895)

    $ 9,991,895
 
Total Investments — 100.0%
(Cost $915,903,166)		      1,048,843,200
Cash, Receivables, and Other Assets
Less Liabilities — 0.0%		      21,926
 
Net Assets — 100%    $ 1,048,865,126
 

 

*   Non-income producing security.
(1)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(2)   Money Market Fund registered under the Investment Company Act of 1940.

 

Glossary:

ADR — American Depositary Receipt.

 

See notes to financial statements.

 

10     

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Financial Information — RS Core Equity VIP Series

 

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Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $915,903,166)

    $ 1,048,843,200  

Dividends receivable

      788,064  

Receivable for fund shares sold

      86,755  

Interest receivable

      53,083  

Prepaid insurance

      13,484  
        

Total Assets

      1,049,784,586  
        

LIABILITIES

   

Payable for fund shares redeemed

      287,379  

Accrued expenses

      168,662  

Due to custodian

      7,393  

Deferred trustees’ compensation

      7,393  

Due to Adviser

      448,633  
        

Total Liabilities

      919,460  
        

Net Assets

    $ 1,048,865,126  
        

COMPONENTS OF NET ASSETS

   

Paid-in capital

    $ 1,336,023,815  

Undistributed net investment income

      403,986  

Accumulated net realized loss on investments

      (420,502,709 )

Net unrealized appreciation of investments

      132,940,034  
        

Net Assets

    $ 1,048,865,126  
        

Shares of beneficial interest outstanding with no par value

      31,152,199  

Net Asset Value Per Share

      $33.67  
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Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Dividends

    $ 17,147,903  

Interest

      578,260  

Less: Foreign tax withheld

      (70,583 )
        

Total Income

      17,655,580  
        

Expenses:

   

Investment advisory fees — Note B

      5,086,092  

Trustees’ fees — Note B

      151,413  

Custodian fees

      146,215  

Printing expense

      141,735  

Audit fees

      101,812  

Insurance expense

      68,572  

Legal fees

      51,675  

Loan commitment fees — Note F

      16,149  

Registration fees

      6,371  

Other

      2,606  
        

Total Expenses before Custody credits

      5,772,640  

Less: Custody credits — Note A

      (693 )
        

Expenses Net of Custody credits

      5,771,947  
        

Net Investment Income

      11,883,633  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS

   

Net realized gain on investments — Note A

      109,138,789  

Net change in unrealized appreciation
of investments — Note C

      41,502,180  
        

Net Realized and Unrealized Gain
on Investments

      150,640,969  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 162,524,602  
        

 

See notes to financial statements.

 

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Financial Information — RS Core Equity VIP Series (continued)

 

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Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 11,883,633        $ 18,438,411  

Net realized gain on investments

        109,138,789          82,377,554  

Net change in unrealized appreciation of investments

        41,502,180          (61,998,935 )
                     

Net Increase in Net Assets Resulting from Operations

        162,524,602          38,817,030  
                     

Dividends to Shareholders from:

          

Net investment income

        (19,311,193 )        (12,958,536 )
                     

From Capital Share Transactions:

          

Net decrease in net assets from capital share transactions — Note E

        (129,582,259 )        (251,827,836 )
                     

Net Increase/(Decrease) in Net Assets

        13,631,150          (225,969,342 )

NET ASSETS:

          

Beginning of year

        1,035,233,976          1,261,203,318  
                     

End of year*

      $ 1,048,865,126        $ 1,035,233,976  
                     

*   Includes undistributed net investment income of

      $ 403,986        $ 8,000,130  

 

See notes to financial statements.

 

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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 dividends and distributions).

 

 

Financial Highlights

    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $29.29     $28.42     $27.30     $22.71     $28.94  
   

Net investment income

   0.39     0.50     0.39     0.28     0.24  

Net realized and
unrealized gain/(loss)

   4.59     0.70     1.23     4.57     (6.25 )
   

Total from Investment Operations

   4.98     1.20     1.62     4.85     (6.01 )
   

Dividends to Shareholders from:

          

Net Investment Income

   (0.60 )   (0.33 )   (0.50 )   (0.26 )   (0.22 )
   

Net asset value, end of year

   $33.67     $29.29     $28.42     $27.30     $22.71  
   

Total Return*

   17.26 %   4.30 %   6.00 %   21.45 %   (20.88 )%
   

Net assets, end of year (thousands)

   $1,048,865     $1,035,234     $1,261,203     $1,454,546     $1,365,328  

Net ratio of expenses to average net assets

   0.57 %   0.56 %   0.54 %   0.54 %   0.54  %

Net ratio of net investment income to average net assets

   1.17 %   1.67 %   1.29 %   1.06 %   0.85  %

Portfolio turnover rate

   85 %   103 %   76 %   77 %   65  %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.

 

See notes to financial statements.

 

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Notes to Financial Statements — RS Core Equity VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Core Equity VIP Series (the “Fund” or “CEV”) is a series of the Trust. CEV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian Stock Fund (“GSF”), a series (“Predecessor Fund”) of The Guardian Variable Contract Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of CEV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Repurchase agreements are carried at cost which approximates market value (see Note D).

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Foreign Currency Translation

 

CEV is permitted to buy international securities that are not U.S. dollar denominated. CEV’s books and records are maintained in U.S. dollars as follows:

 

(1)  The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange.

 

(2)  Security purchases and sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.

 

The resulting gains and losses are included in the Statement of Operations as follows:

 

Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Realized foreign exchange gains and losses, which result from changes in foreign exchange rates between the date on which CEV earns dividends and interest or pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are actually received or paid, are included in net realized gains

 

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or losses on foreign currency related transactions. Realized foreign exchange gains and losses which result from changes in foreign exchange rates between the trade and settlement dates on security and currency transactions are also included in net realized gains and losses on foreign currency related transactions. Net currency gains and losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies.

 

Forward Foreign Currency Contracts

 

CEV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the value of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by CEV. When forward contracts are closed, CEV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. CEV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.

 

Futures Contracts

 

CEV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, CEV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by CEV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by CEV. The daily changes in the variation margin are recognized as unrealized gains or losses by CEV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, CEV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for CEV. Net realized short-term and long-term capital gains for CEV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of CEV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

     Ordinary
Income

2006

    $ 19,311,193

2005

      12,958,536

 

As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Capital Loss
Carryforward
(Including Post-
October Loss)		     Unrealized
Appreciation
$ 411,379   $ (419,817,030 )   $ 132,254,354

 

Taxes

 

CEV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

Withholding taxes on foreign interest, dividends and capital gains in CEV have been provided for in accordance with the applicable country’s tax rules and rates.

 

As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:

 

    Capital Loss
Carryforward		     Expiration
Date
  $ (83,266,729 )   2009
    (240,321,401 )   2010
    (95,938,938 )   2011
         
Total   $ (419,527,068 )  
         

 

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Notes to Financial Statements — RS Core Equity VIP Series (continued)

 

December 31, 2006

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

During the year ended December 31, 2006, the Fund reclassified amounts to paid-in capital from undistributed net investment income and accumulated net realized loss on investments. Increases/(decreases) to the various capital accounts were as follows:

 

Paid-In
Capital		   Undistributed
Net Investment
Income		     Accumulated
Net Realized
Loss on
Investments
$ —   $ (168,584 )   $ 168,584

 

Custody Credits

 

CEV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, CEV’s custodian fees were reduced by $693. CEV could have employed the uninvested assets to produce income if CEV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. RS Investments, as adviser, provides day-to-day investment advisory services to CEV. Fees for investment advisory services are at an annual rate of 0.50% of the average daily net assets of the Fund.

 

For services under a Sub-Administration and Accounting Services Agreement, GIS receives fees at an annual rate of 0.052% of CEV’s average daily net assets from RS Investments.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 0.57% of the average daily net assets of CEV. No subsidy of the ordinary operating expenses of CEV was required for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $859,662,049 and $991,524,630, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, at December 31, 2006 aggregated $155,273,292 and $23,018,938, respectively, resulting in net unrealized appreciation of $132,254,354. The cost of investments owned at December 31, 2006 for federal income tax purposes was $916,588,846.

 

Note D.   Repurchase Agreements

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of

 

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the collateral falls below the value of the repurchase price plus accrued interest, CEV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, CEV maintains the right to sell the collateral and may claim any resulting loss against the seller.

 

Note E.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for CEV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      1,388,085        919,355        $ 42,985,511        $ 25,782,156  

Shares issued in reinvestment of dividends

      643,933        468,155          19,311,192          12,958,536  

Shares repurchased

      (6,223,863 )      (10,428,273 )        (191,878,962 )        (290,568,528 )
   

Net decrease

      (4,191,845 )      (9,040,763 )      $ (129,582,259 )      $ (251,827,836 )
   

 

Note F.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note G.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note H.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note I.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS Core Equity VIP Series:

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Core Equity VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

 

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian Stock Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Variable Contract Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS Core Equity VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
28,165,504.886   1,203,041.875   3,040,986.506   32,409,533.267

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution

 

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capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Supplemental Information — Unaudited (continued)

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

22     

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

    23

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LOGO  

Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

24     

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Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

    25

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RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

 
26    RS CORE EQUITY VIP SERIES

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RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

  
RS CORE EQUITY VIP SERIES   27

Table of Contents

LOGO

 

06   ANNUAL REPORT

RS Variable Products Trust

 

RS Small Cap Core Equity VIP Series

12.31.06
As Revised 4.06.07		   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS Small Cap Core Equity VIP Series   
Portfolio Manager Biography    3
Letter from Portfolio Manager    3
Fund Performance    7
Understanding Your Fund’s Expenses    8
Financial Information   
Schedule of Investments    9
Statement of Assets and Liabilities    11
Statement of Operations    11
Statements of Changes in Net Assets    12
Financial Highlights    13
Notes to Financial Statements    14
Report of Independent Registered Public Accounting Firm    18
Supplemental Information    19
Administration    25
RS Investments’ Senior Management Biographies    26

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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.

Table of Contents
LOGO  

RS Small Cap Core Equity VIP Series

 

LOGO     

Matthew P. Ziehl (RS Investments)

has managed the RS Small Cap Core Equity VIP Series since 2002 (includes time managing The Guardian Small Cap Stock Fund). 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. Mr. Ziehl is also a Chartered Financial Analyst.

 

Fund Philosophy

Seeks long-term growth of capital.

 

Investment Process

We seek investment opportunities across the entire U.S. small-cap market spectrum, from growth stocks to value stocks. In our view “growth,” “value,” and “core” represent a continuum of investing rather than opposing or incompatible strategies. We do not employ preset hurdles for earnings growth or limits on valuation metrics; rather we look for stocks that are mispriced relative to a company’s underlying fundamental prospects, creating an opportunity where potential reward significantly outweighs risk.

 

We use a bottom-up investment process to invest in what we believe to be the best individual stock opportunities within all the key market sectors. As fundamental investors we also use rigorous quantitative tools to help us screen a vast small-cap universe and highlight stocks that appear to be attractive on both earnings and valuation metrics. Then our team of sector managers analyzes the fundamentals and the valuations of these individual companies to assess their risk/reward profiles and decide whether to recommend particular stocks for the Fund. Key elements of our research process include judging the skill, track record, and integrity of a company’s management as well as analyzing the company’s market share and profitability trends vs. peer companies.

 

Performance

The RS Small Cap Core Equity VIP Series trailed the benchmark, Russell 2000® Index1, during the fourth quarter’s market rally, returning 7.78% vs. 8.90% for the benchmark. For the full year, the Fund returned 17.17% vs. 18.37% for the Index.

 

Portfolio Review

Relative performance was driven primarily by stock selection, which was strongly positive in technology, health care, and energy, but quite weak in industrials. Performance was also hurt modestly by the Fund’s underweight positions in basic materials and utilities, which were among the benchmark’s strongest groups.

 

In technology, we focused on growth areas, such as the enabling of personal and business communications. This niche generated one of the Fund’s best performers: Polycom, Inc. (1.7%) a maker of audio- and videoconferencing equipment. Polycom experienced strong demand growth on the videoconferencing side of its business in 2006, and recent investor excitement about the company’s newly launched high-definition (HD) videoconferencing systems is building. We think these systems should sell at higher prices and profit margins than non-HD gear, and demand growth among corporations is likely to follow the pattern set by consumers,

 

1

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which consists of the 3,000 largest U.S. companies based on total market capitalization. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses

 

RS SMALL CAP CORE EQUITY VIP SERIES   3

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RS Small Cap Core Equity VIP Series (continued)

 

who have responded favorably to the improved quality of HD television images.

 

Our top contributor in the health care space was Immucor, which makes automated systems and consumable reagents for analyzing and typing blood and blood components, thereby ensuring improved safety prior to transfusions. Immucor is already the number one player in the United States, and we believe it is gaining share in Europe with its Galileo system for hospitals and blood banks. It is also on the verge of launching a cost-effective solution for smaller health care facilities. We think this strategy should greatly expand the company’s addressable market and help maintain its rapid growth pace.

 

Ironically, our two best-performing sectors — technology and health care — also gave us two of our worst-performing individual stocks. In health care we were hurt by Discovery Labs (0.0%), a development-stage pharmaceutical company developing a synthetic version of a lung surfactant for premature infants. Clinical trials demonstrated the product’s superiority to animal-derived surfactins in terms of efficacy and lower potential for allergic reactions. In early 2006, however, the company announced a major setback to commercialization of this product due to manufacturing issues that caused the product to be unstable after production. A similar issue arose in 2005, and we had held on to the stock because we believed that management would quickly correct the problem and the drug would then be approved by the federal Food and Drug Administration (FDA). After the second setback, we liquidated the position at a loss.

 

NetLogic Microsystems, Inc. (1.69%) a specialized networking semiconductor maker, was another significant detractor from performance. NetLogic’s processors allow advanced networking and Internet functionality, primarily by enabling the analysis and routing of information on the network down to the level of individual data packets. After strong results early in the year, the company found itself with an inventory glut after its largest customer abruptly stopped ordering during the second quarter, causing an earnings miss. Production bottlenecks at NetLogic leading into 2006 had apparently led the customer to order an excess of product to safeguard against component shortages in its high-end router products. Despite this execution stumble causing an inventory spike, we added to the position on weakness as the production problem appeared largely fixed and the inventory issue temporary. We view NetLogic as a strong player in a secular growth space, trading at a depressed stock valuation.

 

Personnel Update

We are pleased to announce the addition to our team of Adam Weiner as sector manager for industrial companies. Mr. Weiner joined us from Credit Suisse Asset Management, where he had similar duties. Previously, he was an analyst at Credit Suisse First Boston and Morgan Stanley, after beginning his financial career at Dun & Bradstreet. Mr. Weiner brings a solid stock-picking track record and a wealth of experience to the RS Core Equity Team, which now numbers 12 investment professionals with more than a hundred years of combined experience. As portfolio manager I feel privileged to work with this fine team of individuals, and I firmly believe that we have the people and the process to deliver solid investment results in the future.

 

Most important, we hold ourselves to the highest standards of professionalism and integrity for the benefit of our Fund investors.

 

Outlook

During the fourth quarter, we increased the Fund’s health care weighting and trimmed positions in industrial names. Much of the reduction was in transportation stocks, which we believed had experienced their peak earnings growth for the current economic cycle. As we move into 2007, health care and technology remain our largest overweighted sectors vs. the benchmark, while industrials, utilities, and basic materials are underweighted. Consistent with our bottom-up style, we are seeking compelling individual stock ideas rather than any overarching themes or predictions of relative sector returns.

 

One of the health care ideas we added during the fourth quarter is Mentor Corp. (1.2%), a leading maker

 

4    RS SMALL CAP CORE EQUITY VIP SERIES

Table of Contents

 

of silicone breast implants. We purchased the stock expecting that the FDA would approve silicone implants for a full-scale return to the U.S. market after being withdrawn roughly 15 years ago (except for limited circumstances and participants enrolled in a long-term study). Following exhaustive testing and multiyear safety follow-ups with thousands of patients, the FDA approved silicone implants for cosmetic augmentation in November, shortly after we bought the stock. Because a majority of U.S. surgeons who perform implant procedures were part of the extended trial, doctor training and certification are not major hurdles, which is often the case with a new type of medical device or procedure. From the demand side, we expect a fairly steady conversion of future procedures from saline implants to silicone, as silicone is generally considered the better product. This is certainly true in Europe, where silicone implants were never taken off the market, and silicone’s market share is close to 90%.

 

Thank you for your investment in the RS Small Cap Core Equity VIP Series and for your ongoing support. We strive for investment excellence to reward the confidence you have shown in us.

 

LOGO

 

Matthew P. Ziehl

Portfolio Manager

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

Small cap investing entails special risks, as small cap stocks have tended to be more volatile and to drop more in down markets than large cap stocks. This may happen because small companies may be limited in terms of product lines, financial resources and management.

 

RS SMALL CAP CORE EQUITY VIP SERIES   5

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RS Small Cap Core Equity VIP Series (continued)

 

6    RS SMALL CAP CORE EQUITY VIP SERIES

 

Assets Under Management: $233,009,692

Data as of December 31, 2006

 

LOGO 
                                    [GRAPHIC]
 

Sector Allocation vs. Index

 
LOGO

 

LOGO  

Top Ten Holdings1

   
Company      Percentage of Total Net Assets

TETRA Technologies, Inc.

      2.91%

Digital Realty Trust, Inc.

      2.48%

Trident Microsystems, Inc.

      2.40%

Orient-Express Hotels Ltd. - Class A

      2.35%

Korn/Ferry Int’l.

      2.21%

WebEx Comm., Inc.

      2.21%

Blackboard, Inc.

      2.03%

Informatica Corp.

      1.94%

Int’l. Securities Exchange, Inc.

      1.85%

Psychiatric Solutions, Inc.

      1.83%

 

1

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

Table of Contents

 

LOGO  

Performance Update

as of 12/31/06

   
     Inception
Date		   1-Year Total
Return		   3-Year
Annualized
Return		   5-Year
Annualized
Return		   Annualized Return
Since Fund
Inception

RS Small Cap Core Equity VIP Series

   5/1/1997   17.17%   10.57%   10.38%   9.96%

Russell 2000® Index

       18.37%   13.56%   11.39%   10.26%

 

The Series is the successor to The Guardian Small Cap Stock Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

LOGO  

Growth of a Hypothetical $10,000 Investment

If invested on 5/1/97

 
LOGO

 

The chart above shows the performance of a hypothetical $10,000 investment made in RS Small Cap Core Equity VIP Series and the Russell 2000® Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.

 

Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

RS SMALL CAP CORE EQUITY VIP SERIES   7

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Understanding Your Fund’s Expenses — Unaudited

 

By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Fund’s expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

   

Based on Actual Return

    $1,000.00    $1,100.60    $4.50    0.85%
   

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,020.92    $4.33    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 184/365 (to reflect the one-half year period).

 

8    RS SMALL CAP CORE EQUITY VIP SERIES

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Schedule of Investments — RS Small Cap Core Equity VIP Series

 

December 31, 2006

 

Shares          Value
     
Common Stocks — 99.0%   
Aerospace and Defense — 2.5%   
92,300   

AAR Corp.*

    $ 2,694,237
118,400   

BE Aerospace, Inc.*

      3,040,512
         
        5,734,749
 
Airlines — 1.0%   
94,300   

Skywest, Inc.

      2,405,593
 
Biotechnology — 1.4%   
15,500   

Digene Corp.*

      742,760
110,300   

Keryx Biopharmaceuticals, Inc.*

      1,466,990
43,500   

Progenics Pharmaceuticals, Inc.*

      1,119,690
         
        3,329,440
 
Capital Markets — 2.8%   
27,800   

Affiliated Managers Group, Inc.*

      2,922,614
84,100   

Investment Technology Group, Inc.*

      3,606,208
         
        6,528,822
 
Chemicals — 0.8%   
30,700   

Cytec Inds., Inc.

      1,734,857
 
Commercial Banks — 4.6%   
88,500   

Center Financial Corp.

      2,121,345
86,600   

East West Bancorp, Inc.

      3,067,372
32,100   

IBERIABANK Corp.

      1,895,505
49,500   

PrivateBancorp, Inc.

      2,060,685
51,200   

Signature Bank*

      1,586,176
         
        10,731,083
 
Commercial Services and Supplies — 4.9%   
96,600   

Administaff, Inc.

      4,131,582
224,700   

Korn/Ferry Int’l.*

      5,159,112
110,800   

Labor Ready, Inc.*

      2,030,964
         
        11,321,658
 
Communications Equipment — 2.4%   
68,900   

Blue Coat Systems, Inc.*

      1,650,155
127,600   

Polycom, Inc.*

      3,944,116
         
        5,594,271
 
Computers and Peripherals — 1.3%   
217,200   

Palm, Inc.*

      3,060,348
 
Diversified Financial Services — 2.8%   
101,255   

Apollo Investment Corp.

      2,268,112
92,300   

Int’l. Securities Exchange, Inc.

      4,318,717
         
        6,586,829
 
Electric Utilities — 0.8%   
48,100   

ITC Hldgs. Corp.

      1,919,190
 
Electronic Equipment and Instruments — 2.7%   
129,950   

Benchmark Electronics, Inc.*

      3,165,582
131,900   

Plexus Corp.*

      3,149,772
         
        6,315,354
 
Energy Equipment and Services — 4.2%   
87,700   

Teekay LNG Partners LP

      2,921,287
265,100   

TETRA Technologies, Inc.*

      6,781,258
         
        9,702,545
 
Food Products — 2.8%   
126,900   

Flowers Foods, Inc.

      3,425,031
118,800   

Reddy Ice Hldgs., Inc.

      3,067,416
         
        6,492,447
 
Shares          Value
     
Gas Utilities — 1.8%   
63,900   

DCP Midstream Partners LP

    $ 2,207,745
70,700   

Hiland Hldgs. GP LP*

      2,043,230
         
        4,250,975
 
Health Care Equipment and Supplies — 11.3%   
200,900   

American Medical Systems Hldgs., Inc.*

      3,720,668
128,100   

Conceptus, Inc.*

      2,727,249
42,000   

DJ Orthopedics, Inc.*

      1,798,440
39,000   

Hologic, Inc.*

      1,843,920
130,000   

Immucor, Inc.*

      3,799,900
45,300   

Integra LifeSciences Hldgs.*

      1,929,327
57,500   

Kensey Nash Corp.*

      1,828,500
58,600   

Mentor Corp.

      2,863,782
124,700   

NuVasive, Inc.*

      2,880,570
97,500   

SonoSite, Inc.*

      3,015,675
         
        26,408,031
 
Health Care Providers and Services — 2.7%   
60,666   

Amedisys, Inc.*

      1,994,091
113,900   

Psychiatric Solutions, Inc.*

      4,273,528
         
        6,267,619
 
Health Care Technology — 0.6%   
40,170   

Vital Images, Inc.*

      1,397,916
 
Hotels, Restaurants and Leisure — 5.2%   
78,000   

Cheesecake Factory, Inc.*

      1,918,800
48,300   

Chipotle Mexican Grill, Inc. - Class A*

      2,753,100
65,500   

Domino’s Pizza, Inc.

      1,834,000
115,900   

Orient-Express Hotels Ltd. - Class A

      5,484,388
         
        11,990,288
 
Insurance — 2.7%   
67,600   

Endurance Specialty Hldgs. Ltd.

      2,472,808
78,500   

Hanover Insurance Group, Inc.

      3,830,800
         
        6,303,608
 
Internet Software and Services — 3.2%   
267,481   

TheStreet.com, Inc.

      2,380,581
147,800   

WebEx Comm., Inc.*

      5,156,742
         
        7,537,323
 
Machinery — 1.1%   
67,000   

Gardner Denver, Inc.*

      2,499,770
 
Metals and Mining — 1.7%   
86,900   

Century Aluminum Co.*

      3,880,085
 
Multiline Retail — 1.5%   
102,900   

Bon-Ton Stores, Inc.

      3,565,485
 
Oil, Gas and Consumable Fuels — 2.6%   
136,100   

Bill Barrett Corp.*

      3,703,281
232,400   

Geomet, Inc.*

      2,416,960
         
        6,120,241
 
Pharmaceuticals — 1.0%   
42,300   

New River Pharmaceuticals, Inc.*

      2,314,233
 
Real Estate Investment Trusts — 7.2%   
174,400   

Ashford Hospitality Trust

      2,171,280
170,200   

DiamondRock Hospitality Co.

      3,065,302
168,600   

Digital Realty Trust, Inc.

      5,771,178
80,800   

New Plan Excel Realty Trust

      2,220,384
92,100   

Tanger Factory Outlet Centers, Inc.

      3,599,268
         
        16,827,412
 

 

See notes to financial statements.

 

    9

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LOGO  

Schedule of Investments — RS Small Cap Core Equity VIP Series (continued)

 

December 31, 2006

 

Shares          Value  
     
Semiconductors and Semiconductor Equipment — 5.2%  
174,200   

Netlogic Microsystems, Inc.*

    $ 3,778,398  
307,300   

Trident Microsystems, Inc.*

      5,586,714  
58,600   

Varian Semiconductor Equipment Assoc., Inc.*

      2,667,472  
           
        12,032,584  
   
Software — 7.0%  
121,200   

Ansoft Corp.*

      3,369,360  
157,500   

Blackboard, Inc.*

      4,731,300  
66,100   

FactSet Research Systems, Inc.

      3,733,328  
369,700   

Informatica Corp.*

      4,514,037  
           
        16,348,025  
   
Specialty Retail — 6.3%  
72,000   

Aeropostale, Inc.*

      2,222,640  
131,200   

bebe stores, inc.

      2,596,448  
78,800   

Heelys, Inc.*

      2,530,268  
92,800   

Men’s Wearhouse, Inc.

      3,550,528  
99,200   

Pacific Sunwear of California, Inc.*

      1,942,336  
59,900   

Zumiez, Inc.*

      1,769,446  
           
        14,611,666  
   
Textiles, Apparel and Luxury Goods — 1.4%  
126,600   

Carter’s, Inc.*

      3,228,300  
   
Thrifts and Mortgage Finance — 1.5%   
128,300   

BankUnited Financial Corp. — Class A

      3,587,268  
   
  

Total Common Stocks
(Cost $198,877,715)

      230,628,015  
   
Other Investments — For Trustee Deferred
Compensation Plan (1) — 0.0%		  
 
8   

RS Emerging Growth Fund, Class A

    $ 275  
13   

RS Global Natural Resources Fund, Class A

      403  
11   

RS Growth Fund, Class A

      161  
30   

RS Investors Fund, Class A

      350  
6   

RS MidCap Opportunities Fund, Class A

      88  
4   

RS Partners Fund, Class A

      131  
7   

RS Smaller Company Growth Fund, Class A

      141  
3   

RS Value Fund, Class A

      88  
   
  

Total Other Investments — For Trustee Deferred Compensation Plan
(Cost $1,637)

      1,637  
   
Short-Term Investment — 1.0%  
  

Federated Prime Obligations Fund(2)
(Cost $2,487,395)

    $ 2,487,395  
   
Total Investments — 100.0%
(Cost $201,366,747)		      233,117,047  
Liabilities in Excess of Cash, Receivables and
Other Assets — 0.0%		      (107,355 )
   
Net Assets — 100%    $ 233,009,692  
   

 

*   Non-income producing security.
(1)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(2)   Money Market Fund registered under the Investment Company Act of 1940.

 

 

See notes to financial statements.

 

10     

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LOGO  

Financial Information — RS Small Cap Core Equity VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $201,366,747)

    $ 233,117,047

Dividends receivable

      203,617

Interest receivable

      11,375

Receivable for fund shares sold

      6,381

Prepaid insurance

      3,226
      

Total Assets

      233,341,646
      

LIABILITIES

   

Payable for fund shares redeemed

      132,299

Accrued expenses

      47,037

Due to custodian

      1,637

Deferred trustees’ compensation

      1,637

Due to Adviser

      149,344
      

Total Liabilities

      331,954
      

Net Assets

    $ 233,009,692
      

COMPONENTS OF NET ASSETS

   

Paid-in capital

    $ 195,212,078

Undistributed net investment income

      283,520

Accumulated net realized gain on investments

      5,763,794

Net unrealized appreciation of investments

      31,750,300
      

Net Assets

    $ 233,009,692
      

Shares of beneficial interest outstanding with no par value

      15,502,791

Net Asset Value Per Share

      $15.03

 

LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Dividends

    $ 2,129,320  

Interest

      182,082  
        

Total Income

      2,311,402  
        

Expenses:

   

Investment advisory fees — Note B

      1,789,055  

Custodian fees

      95,207  

Printing expense

      43,709  

Trustees’ fees — Note B

      36,508  

Audit fees

      28,648  

Insurance expense

      16,338  

Legal fees

      13,729  

Loan commitment fees — Note F

      4,128  

Registration fees

      1,380  

Other

      505  
        

Total Expenses before Custody credits

      2,029,207  

Less: Custody credits — Note A

      (1,325 )
        

Expenses Net of Custody credits

      2,027,882  
        

Net Investment Income

      283,520  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS

   

Net realized gain on investments — Note A

      23,342,844  

Net change in unrealized appreciation
of investments — Note C

      15,006,687  
        

Net Realized and Unrealized Gain
on Investments

      38,349,531  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 38,633,051  
        

 

See notes to financial statements.

 

    11

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LOGO  

Financial Information — RS Small Cap Core Equity VIP Series (continued)

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 283,520        $ 597,370  

Net realized gain on investments

        23,342,844          28,758,714  

Net change in unrealized appreciation of investments

        15,006,687          (33,349,898 )
                     

Net Increase/(Decrease) in Net Assets Resulting from Operations

        38,633,051          (3,993,814 )
                     

Dividends and Distributions to Shareholders from:

          

Net investment income

        —          (539,657 )

Net realized gain on investments

        (21,654,308 )        (44,506,200 )
                     

Total Dividends and Distributions to Shareholders

        (21,654,308 )        (45,045,857 )
                     

From Capital Share Transactions:

          

Net decrease in net assets from capital share transactions — Note E

        (23,047,561 )        (16,191,071 )
                     

Net Decrease in Net Assets

        (6,068,818 )        (65,230,742 )

NET ASSETS:

          

Beginning of year

        239,078,510          304,309,252  
                     

End of year*

      $ 233,009,692        $ 239,078,510  
                     

*  Includes undistributed net investment income of:

      $ 283,520        $ —  

 

See notes to financial statements.

 

12     

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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 dividends and distributions).

 

 

Financial Highlights

   

Year Ended

12/31/06

    

Year Ended

12/31/05

    

Year Ended

12/31/04

    

Year Ended

12/31/03

    

Year Ended

12/31/02

  

Net asset value,
beginning of year

   $14.13     $17.22     $17.83     $12.43     $14.71  
   

Net investment income/(loss)

   0.02     0.04     (0.05 )   (0.04 )   (0.01 )

Net realized and
unrealized gain/(loss)

   2.35     (0.08 )   2.66     5.44     (2.27 )
   

Total from Investment Operations

   2.37     (0.04 )   2.61     5.40     (2.28 )
   

Dividends from net investment income

   —     (0.04 )   —     —     (0.00 )(a)

Distributions from net realized capital gains

   (1.47 )   (3.01 )   (3.22 )   —     —  
   

Total Dividends and Distributions

   (1.47 )   (3.05 )   (3.22 )   —     (0.00 )
   

Net asset value, end of year

   $15.03     $14.13     $17.22     $17.83     $12.43  
   

Total Return*

   17.17 %   0.16 %   15.17  %   43.44  %   (15.50 )%
   

Net assets, end of year (thousands)

   $233,010     $239,079     $304,309     $303,927     $228,953  

Net ratio of expenses to
average net assets

   0.85 %   0.84 %   0.82  %   0.83  %   0.84  %

Net ratio of net investment
income/(loss) to average net assets

   0.12 %   0.24 %   (0.28 )%   (0.24 )%   (0.05 )%

Portfolio turnover rate

   136 %   133 %   125  %   107  %   109  %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Rounds to less than $0.01.

 

See notes to financial statements.

 

    13

Table of Contents
LOGO  

Notes to Financial Statements — RS Small Cap Core Equity VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Small Cap Core Equity VIP Series (the “Fund” or “SCV”) is a series of the Trust. SCV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian Small Cap Stock Fund (“GSCSF”), a series (“Predecessor Fund”) of GIAC Funds, Inc. was reorganized into the Fund, effective October 9, 2006 pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of SCV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are

considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted

by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Repurchase agreements are carried at cost which approximates market value (see Note D).

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Foreign Currency Translation

 

SCV is permitted to buy international securities that are not U.S. dollar denominated. SCV’s books and records are maintained in U.S. dollars as follows:

 

(1)  The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange.

 

(2)  Security purchases and sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.

 

The resulting gains and losses are included in the Statement of Operations as follows:

 

Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Realized foreign exchange gains and losses, which result from changes in foreign exchange rates between the date on which SCV earns dividends and interest or pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are actually received or paid, are included in net realized gains or losses on foreign currency related transactions. Realized foreign exchange gains and losses which result from changes in foreign exchange rates between the trade and settlement dates on security and currency transactions are also included in net realized gains and losses on foreign currency related transactions. Net currency gains and losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change

 

14     

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in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies.

 

Forward Foreign Currency Contracts

 

SCV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the value of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by SCV. When forward contracts are closed, SCV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. SCV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for SCV. Net realized short-term and long-term capital gains for SCV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of SCV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends and distributions paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

     Ordinary
Income		    Long-Term
Capital Gain		    Total

2006

    $ 3,086,381    $ 18,567,927    $ 21,654,308

2005

      9,652,253      35,393,604      45,045,857

 

As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Long-Term
Capital Gain		   Unrealized
Appreciation
$ 3,794,425   $ 3,071,242   $ 30,933,585

 

Taxes

 

SCV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

Withholding taxes on foreign interest, dividends and capital gains in SCV have been provided for in accordance with the applicable country’s tax rules and rates.

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

Custody Credits

 

SCV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, SCV’s custodian fees were reduced by $1,325. SCV could have employed the uninvested assets to produce income if SCV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser

 

    15

Table of Contents
LOGO  

Notes to Financial Statements — RS Small Cap Core Equity VIP Series (continued)

 

December 31, 2006

 

and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. RS Investments, as adviser, provides day-to-day investment advisory services to SCV. Fees for investment advisory services are at an annual rate of 0.75% of the average daily net assets of the Fund.

 

For services under a Sub-Administration and Accounting Services Agreement, GIS receives fees at an annual rate of 0.078% of SCV’s average daily net assets from RS Investments.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 0.85% of the average daily net assets of SCV. No subsidy of the ordinary operating expenses of SCV was required for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $318,691,593 and $362,950,091, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, at December 31, 2006 aggregated $31,884,933 and $951,348, respectively, resulting in net unrealized appreciation of $30,933,585. The cost of investments owned at December 31, 2006 for federal income tax purposes was $202,183,462.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, SCV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, SCV maintains the right to sell the collateral and may claim any resulting loss against the seller.

 

 

Note E.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for SCV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      1,416,254        1,563,547        $ 21,648,107        $ 24,510,981  

Shares issued in reinvestment of dividends and distributions

      1,470,317        3,100,696          21,654,308          45,045,857  

Shares repurchased

      (4,299,080 )      (5,417,150 )        (66,349,976 )        (85,747,909 )
   

Net decrease

      (1,412,509 )      (752,907 )      $ (23,047,561 )      $ (16,191,071 )
   

 

16     

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Note F.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note G.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note H.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note I.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS Small Cap Core Equity VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Small Cap Core Equity VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian Small Cap Stock Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between GIAC Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS Small Cap Core Equity VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
13,956,052.072   454,557.527   1,151,099.632   15,561,709.230

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution

 

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Supplemental Information — Unaudited (continued)

 

capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

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Supplemental Information — Unaudited (continued)

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

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Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

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Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

    25

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RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

26    RS SMALL CAP CORE EQUITY VIP SERIES

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RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

RS SMALL CAP CORE EQUITY VIP SERIES   27

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06   ANNUAL REPORT

RS Variable Products Trust

 

RS Large Cap Value VIP Series

12.31.06
As Revised 4.06.07		   LOGO

Table of Contents
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Table of Contents

 

RS Large Cap Value VIP Series   
Portfolio Manager Biographies    3
Letter from Portfolio Managers    4
Fund Performance    8
Understanding Your Fund’s Expenses    9
Financial Information   
Schedule of Investments    10
Statement of Assets and Liabilities    12
Statement of Operations    12
Statements of Changes in Net Assets    13
Financial Highlights    14
Notes to Financial Statements    15
Report of Independent Registered Public Accounting Firm    19
Supplemental Information    20
Administration    26
RS Investments’ Senior Management Biographies    27

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or UBS Global Asset Management (Americas) Inc. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

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RS Large Cap Value VIP Series

 

John Leonard, Thomas M. Cole, Thomas Digenan and Scott Hazen are the members of the North American Equities investment management team primarily responsible for the day-to-day management of the 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 each 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 each 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 each Fund.

 

LOGO   

John Leonard (UBS Global Asset Management (Americas) Inc.)

is the Head of North American Equities and Deputy Global Head of Equities at UBS Global Asset Management. Mr. Leonard is also a Managing Director of UBS Global Asset Management and has been an investment professional with UBS Global Asset Management since 1991.

LOGO   

Thomas M. Cole (UBS Global Asset Management (Americas) Inc.)

is Head of Research — North American Equities and a Managing Director of UBS Global Asset Management. Mr. Cole has been an investment professional with UBS Global Asset Management since 1995.

LOGO   

Thomas Digenan (UBS Global Asset Management (Americas) Inc.)

has been a North American Equity Strategist at UBS Global Asset Management since 2001 and is an Executive Director of UBS Global Asset Management. Mr. Digenan was President of The UBS Funds from 1993 to 2001.

LOGO   

Scott Hazen (UBS Global Asset Management (Americas) Inc.)

has been a North American Equity Strategist at UBS Global Asset Management since 2004 and is an Executive Director of UBS Global Asset Management. From 1992 to 2004, Mr. Hazen was a Client Service and Relationship Management professional with UBS Global Asset Management.

 

RS LARGE CAP VALUE VIP SERIES   3

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Fund Philosophy

The RS Large Cap Value VIP Series seeks to maximize total return, consisting of capital appreciation and current income by investing principally in large capitalization companies.

 

Investment Process

Under normal market conditions, the Fund invests at least 80% of its net assets (plus borrowings for investment purposes, if any) in equity securities of large capitalization companies. The Fund defines such companies as those with a capitalization of at least $3 billion at the time of initial purchase.

 

The Fund normally invests in companies whose stock prices, in the opinion of UBS Global Asset Management (Americas) Inc. (“UBS Global AM”), the Fund’s investment subadviser, do not reflect the company’s full value. These expectations are based on UBS Global AM’s assessment of a company’s ability to generate profit and grow the business in the future.

 

Performance

For the year ending December 31, 2006, the RS Large Cap Value VIP Series had a total return of 18.29% versus a return of 22.25% for its benchmark, the Russell 1000® Value Index.1

 

Portfolio Review

The Russell 1000 Value Index performed very strongly during the calendar year 2006, owing to its relatively heavy exposure to four of the five top performing sectors. Telecom, energy, utilities and financials each outperformed over the course of the year, and our relative positioning in these sectors in many ways determined the absolute and relative performance of the Fund.

 

Telecom benefited from continued consolidation and solid earnings. The portfolio was negatively impacted by our underweight to the sector, and the fact that our holdings within the sector underperformed their peers — see more below. The energy sector was volatile during the year as oil prices fluctuated. Our positioning within energy benefited the portfolio in that, although we were underweight in the sector overall, our overexposure to oil services and underexposure to oil reserves proved to be the right strategy. Utilities impacted the portfolio positively, although most of the benefit came at the security level as holdings like First Energy (0.0%), Northeast Utilities (1.2%), and Sempra Energy (1.0%) performed well. The portfolio’s overall exposure to financials was quite similar to that of the Russell 1000 Value Index, but the positioning within the sector detracted from results. The portfolio’s overweights to global financial companies with global capital markets exposure, and underweights to regional banks and high-beta brokers and exchanges worked against us — particularly for the broker’s and exchanges where the market’s focus on elevated levels of global liquidity drove their prices significantly higher.

 

As is often the case, security selection within the sectors was very important to overall results. Top contributors to performance include Marathon Oil (0.0%), DirecTV (0.0%), and Mellon Financial Corp. (2.2%). Shares of Marathon Oil also traded higher particularly during the fourth quarter as the oil and gas producer continues to provide strong financial performance. Marathon Oil has been the top performing stock for the portfolio for the year and we have closed out of our position as we believe the stock has reached fair value. The company outlined its plans through 2010 during the quarter with major projects in Equatorial Guinea, the Gulf of Mexico, and Norway as well as an increase in production through acquisitions. Marathon also mentioned that there is an increasing risk of higher operating costs, regulation, and commodity price volatility.

 

DirecTV has performed well for the portfolio. Most recently, DirecTV received a favorable court ruling in September when a federal judge dismissed fraud charges brought by Darlene Investments, a former strategic partner, and in turn is holding Darlene liable for breach of contract. We have sold out of our position during the quarter, believing that the stock has reached fair value.

 

1

The Russell 1000® Value Index offers investors access to the large-cap value segment of the U.S. equity universe. The Russell 1000 Value Index® is constructed to provide a comprehensive and unbiased barometer of the large-cap value market. Based on ongoing empirical research of investment manager behavior, the methodology used to determine growth probability approximates the aggregate large-cap value manager’s opportunity set. The index is unmanaged and cannot be invested in directly.

 

4    RS LARGE CAP VALUE VIP SERIES

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Mellon Financial traded higher during the fourth quarter as the Federal Reserve has paused from making additional rate hikes. Mellon continues to provide a wide array of products and services and announced additional retail product offerings during the quarter.

 

Detractors to performance included Sprint Nextel Corp. (2.0%), Expedia (0.0%), and UnitedHealth Group Inc. (1.5%). The Sprint/Nextel merger integration has experienced a larger number of customer losses than were expected, which has led to the sell-off in the stock. Despite these short-term negative results, we expect the merger to yield significant long-term benefits to the combined company. We believe the combined company’s customer bases and distribution channels are complementary, with Nextel focused largely on business customers and Sprint more consumer-focused. In addition, we believe there are also several operational synergies that will accrue in marketing, distribution, network operations and administrative overheads.

 

Expedia Inc.’s stock plunged just over 26% on a single day in May, skidding to a new yearly low, due, we believe to U.S. growth decelerating faster than anticipated. The company is being forced to spend heavily on technological improvements, which is eroding short-term margins. While necessary, the spending was greater than we anticipated. The antiquated software system currently being used is insufficient for future growth and it will take a couple of years to implement the new system.

 

UnitedHealth Group traded down 21.7% during the second quarter. The company was weighed down by pricing pressures across the managed-care sector, coupled with concerns over back-dated options.

 

Outlook

At year end, we have limited factor exposures in the portfolio, since we find that most of the opportunities available in the current market continue to be more bottom-up in nature. We do have a slight factor exposure against volatility, essentially a by-product of stock selection. We continue to feel comfortable being underweighted to volatility given the historically low levels of implied and realized market volatility over the past couple of years. Such significant deviations tend to revert to, in this case higher, equilibrium levels over time.

 

We believe the rail road sector continues to provide us with an attractive opportunity. Pricing power is still strong and we believe it is sustainable due to the fact that excess capacity, which had been in the rail sector for decades, is nearly gone. With even minimal volume growth, we think pricing power should remain strong. Rails continue to gain market share from trucking. The rail rates are going up but not as fast as trucking. Trucking normally demands a 20%-25% pricing premium; however pricing premiums are currently 30%-35%, due to driver shortages and high fuel costs.

 

Over the last few years, utilities have been among the hardest working sectors. Utilities have now outperformed the overall S&P 500 Index2 for three consecutive years. This is unprecedented. It has also occurred during a time of overall market strength in a sector normally considered defensive. We believe there still are opportunities in the utility sector. First are unregulated nuclear power plants, which are the low cost providers in a high rate environment, like the one we are experiencing. Second is regulated coal plants, which are the low cost coal providers. If there is a carbon tax, the regulated plants can pass that on to the consumer. Third is in transmission. This is an under built area, which is generally FERC (Federal Energy Regulatory Commission) regulated. FERC is providing attractive incentives for build out of transmission (utilities get much better pricing under FERC regulation).

 

2 The S&P 500® Index of 500 primarily large-cap U.S. stocks is generally considered to be representative of U.S. stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses.

 

RS LARGE CAP VALUE VIP SERIES   5

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LOGO  

RS Large Cap Value VIP Series (continued)

 

Fourth is gas infrastructure, including pipelines and liquefied natural gas terminals that generally generate high returns.

 

We think the financial sector also provides us with interesting opportunities. Our portfolio is overweight capital markets, but the investment banking cycle in the U.S. is entering the mature phase. The overweight and attractiveness remain but come from global platforms. As seen this past year, the heavy merger and acquisition (M&A) activity looks likely to continue, as liquidity is solid and backlogs continue. Buyers are not stretching to the degree we normally see at cycle end. This is important, as the amount of ancillary revenues generated by an incremental dollar of M&A revenue has increased significantly.

 

Oil price volatility remains and while we are still well-above our expected normal price ($34 price per barrel by end of the decade), we think tight spare capacity and concerns over supply interruptions in Iran, Iraq and Nigeria will be with us into 2007. We remain underweight in this sector.

 

With property/casualty insurance industry capital levels at an all-time high and strong profitability trends, competition is heating up and we expect to see margin compression. We are defensively positioned in property/casualty, which we expect will sustain strong margins for a longer period given its underwriting and distribution competitive advantages. We believe multi-line insurers who have the ability to deploy capital toward life and international opportunities as the U.S. market slows are providing us with opportunities as well.

 

The pharmacy industry dynamics have changed with generic challenges and increasing FDA safety pressures. Players with unique or non-commodity product concentrations, in our view, remain attractive. Pharmacy benefit managers and managed care operators provide infrastructure for the Medicare prescription drug program, and have experienced initial increases in volume. However, they do face increased pressure from other forms of retail and wholesale distribution. We think large cap pharmaceutical companies may increasingly look to acquire growth platforms to leverage their established distribution networks. We continue to look for company-specific opportunities in companies which we believe have strong and expanding product pipelines.

 

Thank you for your continued support.

 

John Leonard    Thomas M. Cole
Co-Portfolio Manager    Co-Portfolio Manager
Thomas Digenan    Scott Hazen
Co-Portfolio Manager    Co-Portfolio Manager

 

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.

 

6    RS LARGE CAP VALUE VIP SERIES

Table of Contents

 

Assets Under Management: $70,632,248

Data as of December 31, 2006

 

LOGO  

Sector Allocation vs. Index

 

 

LOGO

 

LOGO  

Top Ten Holdings1

   
Company    Percentage of Total Net Assets

Citigroup, Inc.

    5.35%

Morgan Stanley

    4.92%

Wells Fargo & Co.

    4.21%

J.P. Morgan Chase & Co.

    3.73%

Exxon Mobil Corp.

    3.60%

S&P Depositary Receipts Trust Series I

    3.17%

Chevron Corp.

    3.11%

American Int’l. Group, Inc.

    2.98%

Fifth Third Bancorp

    2.44%

Exelon Corp.

    2.42%

 

1

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

RS LARGE CAP VALUE VIP SERIES   7

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LOGO  

RS Large Cap Value VIP Series (continued)

 

LOGO  

Performance

As of 12/31/06

   
     Inception
Date		   1-Year
Total
Return		   3-Year
Annualized
Return		   Annualized Return
Since Fund
Inception

RS Large Cap Value VIP Series

   2/3/2003   18.29%   13.83%   18.61%

Russell 1000® Value Index

       22.25%   15.09%   19.70%

 

The Series is the successor to The Guardian UBS VC Large Cap Value Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

LOGO  

Results of a Hypothetical $10,000 Investment

If invested on 2/3/03

 
LOGO

 

The chart above shows the performance of a hypothetical $10,000 investment made in RS Large Cap Value VIP Series and the Russell 1000® Value Index. 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. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

8    RS LARGE CAP VALUE VIP SERIES

Table of Contents
LOGO  

Understanding Your Fund’s Expenses — Unaudited

 

By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Funds’ expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

Based on Actual Return

    $1,000.00    $1,134.10    $5.27    0.98%

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,020.27    $4.99    0.98%

 

* Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

 

RS LARGE CAP VALUE VIP SERIES   9

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LOGO  

Schedule of Investments — RS Large Cap Value VIP Series

 

December 31, 2006

 

Shares          Value
     
Common Stocks — 95.3%
Aerospace and Defense — 1.9%   
5,200   

Lockheed Martin Corp.

    $ 478,764
12,300   

Northrop Grumman Corp.

      832,710
         
        1,311,474
 
Air Freight and Logistics — 1.5%   
10,000   

FedEx Corp.

      1,086,200
 
Auto Components — 3.4%   
12,900   

BorgWarner, Inc.

      761,358
18,900   

Johnson Controls, Inc.

      1,623,888
         
        2,385,246
 
Automobiles — 0.7%   
6,800   

Harley-Davidson, Inc.

      479,196
 
Beverages — 1.9%   
16,300   

Anheuser-Busch Cos., Inc.

      801,960
18,000   

Constellation Brands, Inc. — Class A*

      522,360
         
        1,324,320
 
Biotechnology — 0.6%   
6,200   

Cephalon, Inc.*

      436,542
 
Building Products — 1.7%   
39,700   

Masco Corp.

      1,185,839
 
Capital Markets — 8.4%   
37,000   

Mellon Financial Corp.

      1,559,550
42,700   

Morgan Stanley

      3,477,061
14,600   

Northern Trust Corp.

      886,074
         
        5,922,685
 
Commercial Banks — 9.3%   
5,700   

City National Corp.

      405,840
42,100   

Fifth Third Bancorp

      1,723,153
19,400   

PNC Financial Svcs. Group, Inc.

      1,436,376
83,600   

Wells Fargo & Co.

      2,972,816
         
        6,538,185
 
Diversified Financial Services — 10.8%   
22,458   

Bank of America Corp.

      1,199,033
67,800   

Citigroup, Inc.

      3,776,460
54,500   

J.P. Morgan Chase & Co.

      2,632,350
         
        7,607,843
 
Diversified Telecommunication Services — 2.5%   
44,300   

AT & T, Inc.

      1,583,725
3,708   

Embarq Corp.

      194,892
         
        1,778,617
 
Electric Utilities — 6.3%   
30,300   

American Electric Power, Inc.

      1,290,174
27,600   

Exelon Corp.

      1,708,164
30,600   

Northeast Utilities

      861,696
24,100   

Pepco Hldgs., Inc.

      626,841
         
        4,486,875
 
Energy Equipment and Services — 3.3%   
15,100   

ENSCO Int’l., Inc.

      755,906
13,800   

GlobalSantaFe Corp.

      811,164
24,900   

Halliburton Co.

      773,145
         
        2,340,215
 
Food and Staples Retailing — 1.6%   
21,500   

Costco Wholesale Corp.

      1,136,705
 
Shares          Value
     
Health Care Providers and Services — 2.6%   
15,500   

Medco Health Solutions, Inc.*

    $ 828,320
19,500   

UnitedHealth Group, Inc.

      1,047,735
         
        1,876,055
 
Hotels, Restaurants and Leisure — 0.3%   
6,420   

Wyndham Worldwide Corp.*

      205,568
 
Household Durables — 0.4%   
3,300   

Fortune Brands, Inc.

      281,787
 
Information Technology Services — 1.3%   
24,200   

Accenture Ltd. — Class A

      893,706
 
Insurance — 6.1%   
16,100   

Allstate Corp.

      1,048,271
29,400   

American Int’l. Group, Inc.

      2,106,804
12,600   

Hartford Financial Svcs. Group, Inc.

      1,175,706
         
        4,330,781
 
Machinery — 3.0%   
29,000   

Illinois Tool Works, Inc.

      1,339,510
11,700   

PACCAR, Inc.

      759,330
         
        2,098,840
 
Media — 3.6%   
36,600   

News Corp. — Class A

      786,168
11,600   

Omnicom Group, Inc.

      1,212,664
6,500   

R.H. Donnelley Corp.

      407,745
3,300   

Univision Comm., Inc. — Class A*

      116,886
         
        2,523,463
 
Multi–Utilities — 1.8%   
23,100   

NiSource, Inc.

      556,710
13,000   

Sempra Energy

      728,520
         
        1,285,230
 
Oil, Gas and Consumable Fuels — 6.7%   
29,900   

Chevron Corp.

      2,198,547
33,200   

Exxon Mobil Corp.

      2,544,116
         
        4,742,663
 
Pharmaceuticals — 5.9%   
38,200   

Bristol-Myers Squibb Corp.

      1,005,424
7,900   

Johnson & Johnson

      521,558
25,500   

Merck & Co., Inc.

      1,111,800
29,500   

Wyeth

      1,502,140
         
        4,140,922
 
Real Estate Management and Development — 0.3%   
7,975   

Realogy Corp.*

      241,802
 
Road and Rail — 1.8%   
17,500   

Burlington Northern Santa Fe

      1,291,675
 
Software — 3.3%   
1,200   

McAfee, Inc.*

      34,056
44,700   

Microsoft Corp.

      1,334,742
46,800   

Symantec Corp.*

      975,780
         
        2,344,578
 
Specialty Retail — 1.1%   
19,100   

Home Depot, Inc.

      767,056
 
Thrifts and Mortgage Finance — 1.2%   
12,300   

Federal Home Loan Mortgage Corp.

      835,170
 
Wireless Telecommunication Services — 2.0%   
74,874   

Sprint Nextel Corp.

      1,414,370
 
  

Total Common Stocks
(Cost $48,874,003)

      67,293,608
 

 

See notes to financial statements.

 

10     

Table of Contents

 

Shares          Value  
     
Exchange-Traded Fund — 3.2%  
15,800   

S&P Depositary Receipts Trust Series I

exp. 12/31/2099
(Cost $2,124,139)

    $ 2,238,702  
   
     
Other Investments - For Trustee Deferred
Compensation Plan (1) — 0.0%		  
 
2   

RS Emerging Growth Fund, Class A

    $ 81  
4   

RS Global Natural Resources Fund,
Class A

      118  
3   

RS Growth Fund, Class A

      47  
9   

RS Investors Fund, Class A

      103  
2   

RS MidCap Opportunities Fund, Class A

      26  
1   

RS Partners Fund, Class A

      39  
2   

RS Smaller Company Growth Fund,
Class A

      42  
1   

RS Value Fund, Class A

      26  
   
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $482)

      482  
   
     
Principal
Amount		          Value  
Repurchase Agreement — 2.4%  
$  1,731,000   

State Street Bank and Trust Co.
repurchase agreement,
dated 12/29/2006, maturity
value $1,731,981 at
5.10%, due 1/2/2007 (2)
(Cost $1,731,000)

    $ 1,731,000  
   
Total Investments — 100.9%
(Cost $52,729,624)		      71,263,792  
Liabilities in Excess of Cash, Receivables and
Other Assets — (0.9)%		      (631,544 )
   
Net Assets — 100%    $ 70,632,248  
   

 

*   Non-income producing security.
(1)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(2)   The repurchase agreement is fully collateralized by $1,725,000 in U.S. Government Agency, 5.45%, due 10/18/2021, with a value of $1,765,969.

 

 

 

See notes to financial statements.

 

    11

Table of Contents
LOGO  

Financial Information — RS Large Cap Value VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $52,729,624)

    $ 71,263,792

Cash

      188

Receivable for securities sold

      204,249

Dividends receivable

      106,766

Receivable for fund shares sold

      88,773

Interest receivable

      736

Prepaid insurance

      789
      

Total Assets

      71,665,293
      

LIABILITIES

   

Payable for securities purchased

      966,951

Accrued expenses

      16,183

Deferred trustees’ compensation

      482

Payable for fund shares redeemed

      205

Due to Adviser

      49,224
      

Total Liabilities

      1,033,045
      

Net Assets

    $ 70,632,248
      

COMPONENTS OF NET ASSETS

   

Paid-in capital

    $ 51,022,041

Undistributed net investment income

      46,579

Accumulated net realized gain on investments

      1,029,460

Net unrealized appreciation of investments

      18,534,168
      

Net Assets

    $ 70,632,248
      

Shares of beneficial interest outstanding with no par value

      5,149,340

Net Asset Value Per Share

      $13.72
LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Dividends

    $ 1,307,761  

Interest

      43,935  
        

Total Income

      1,351,696  
        

Expenses:

   

Investment advisory fees — Note B

      508,165  

Custodian fees

      53,749  

Printing expense

      14,961  

Audit fees

      12,184  

Trustees’ fees — Note B

      8,708  

Insurance expense

      3,879  

Legal fees

      2,966  

Loan commitment fees — Note F

      932  

Registration fees

      306  

Other

      455  
        

Total Expenses before Waivers and Custody credits

      606,305  

Less: Expenses waived by GIS — Note B

      (4,783 )

Custody credits — Note A

      (47 )
        

Expenses Net of Waivers and Custody credits

      601,475  
        

Net Investment Income

      750,221  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS

   

Net realized gain on investments — Note A

      4,145,632  

Net change in unrealized appreciation
of investments — Note C

      5,758,542  
        

Net Realized and Unrealized Gain
on Investments

      9,904,174  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 10,654,395  
        

 

 

See notes to financial statements.

 

12     

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LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 750,221        $ 722,784  

Net realized gain on investments

        4,145,632          7,969,413  

Net change in unrealized appreciation of investments

        5,758,542          (3,610,213 )
                     

Net Increase in Net Assets Resulting from Operations

        10,654,395          5,081,984  
                     

Dividends and Distributions to Shareholders from:

          

Net investment income

        (707,156 )        (747,978 )

Net realized gain on investments

        (3,959,097 )        (7,973,280 )
                     

Total Dividends and Distributions to Shareholders

        (4,666,253 )        (8,721,258 )
                     

From Capital Share Transactions:

          

Net increase/(decrease) in net assets from capital share transactions — Note E

        6,539,874          (12,151,920 )
                     

Net Increase/(Decrease) in Net Assets

        12,528,016          (15,791,194 )

NET ASSETS:

          

Beginning of year

        58,104,232          73,895,426  
                     

End of year*

      $ 70,632,248        $ 58,104,232  
                     

*  Includes undistributed net investment income of

      $ 46,579        $ 3,514  

 

See notes to financial statements.

 

    13

Table of Contents
LOGO  

Financial Information — RS Large Cap Value VIP Series (continued)

 

The financial highlights table is intended to help you understand the Fund’s financial performance for the past five years (or, if shorter, the period of the Fund’s operations). Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions).

 

Financial Highlights

    Year ended
12/31/06		     Year ended
12/31/05		    

Year ended

12/31/04

     Period from
February 3, 2003†
to December 31, 2003		  

Net asset value,
beginning of period

   $12.47     $13.35     $12.82     $10.00  
   

Net investment income

   0.16     0.19     0.14     0.14  

Net realized and
unrealized gain

   2.07     1.09     1.57     3.06  
   

Total from Investment Operations

   2.23     1.28     1.71     3.20  
   

Dividends from net investment income

   (0.15 )   (0.19 )   (0.14 )   (0.14 )

Distributions from net realized capital gains

   (0.83 )   (1.97 )   (1.04 )   (0.24 )
   

Total Dividends and Distributions

   (0.98 )   (2.16 )   (1.18 )   (0.38 )
   

Net asset value, end of period

   $13.72     $12.47     $13.35     $12.82  
   

Total Return*

   18.29 %   9.63 %   13.74 %   32.07 %(a)
   

Net assets, end of period (thousands)

   $70,632     $58,104     $73,895     $58,493  

Net ratio of expenses to
average net assets

   0.98 %(c)   1.02 %   0.97 %   1.08 %(b)

Net ratio of net investment
income to average net assets

   1.23 %(c)   1.21 %   1.12 %   1.27 %(b)

Portfolio turnover rate

   41 %   40 %   41 %   48 %
   

 

†   Commencement of operations.
*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Not annualized.
(b)   Annualized.
(c)   Includes the effect of expenses waived by GIS.

 

See notes to financial statements.

 

14     

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LOGO  

Notes to Financial Statements — RS Large Cap Value VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Large Cap Value VIP Series (the “Fund” or “LCV”) is a series of the Trust. LCV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian UBS VC Large Cap Value Fund (“GLCVF”), a series (“Predecessor Fund”) of The Guardian Variable Contract Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of LCV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Repurchase agreements are carried at cost which approximates market value (see Note D).

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Foreign Currency Translation

 

LCV is permitted to buy international securities that are not U.S. dollar denominated. LCV’s books and records are maintained in U.S. dollars as follows:

 

(1)  The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange.

 

(2)  Security purchases and sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.

 

The resulting gains and losses are included in the Statement of Operations as follows:

 

Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Realized foreign exchange gains and losses, which result from changes in foreign exchange rates between the date on which LCV earns dividends and interest or pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are actually received or paid, are included in net realized gains or losses on foreign currency related transactions. Realized foreign exchange gains and losses which result from changes in foreign exchange rates between the trade and

 

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Notes to Financial Statements — RS Large Cap Value VIP Series (continued)

 

December 31, 2006

 

settlement dates on security and currency transactions are also included in net realized gains and losses on foreign currency related transactions. Net currency gains and losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies.

 

Forward Foreign Currency Contracts

 

LCV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the value of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by LCV. When forward contracts are closed, LCV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. LCV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.

 

Futures Contracts

 

LCV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, LCV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by LCV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by LCV. The daily changes in the variation margin are recognized as unrealized gains or losses by LCV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, LCV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for LCV. Net realized short-term and long-term capital gains for LCV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of LCV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends and distributions paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

     Ordinary
Income		    Long-Term
Capital Gain		    Total

2006

    $ 741,050    $ 3,925,203    $ 4,666,253

2005

      2,144,666      6,576,592      8,721,258

 

As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Long-Term
Gain		   Unrealized
Appreciation
$ 229,618   $ 973,454   $ 18,407,616

 

Taxes

 

LCV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

Custody Credits

 

LCV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested

 

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cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, LCV’s custodian fees were reduced by $47. LCV could have employed the uninvested assets to produce income if LCV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.83% of the average daily net assets of the Fund.

 

RS Investments has entered into a Sub-Advisory contract with UBS Global Asset Management (Americas), Inc. (“UBS Global AM”). UBS Global AM is responsible for the day-to-day investment advisory services of LCV, subject to the supervision and direction of the Board of Trustees of the Trust and review by RS Investments. As compensation for its services, RS Investments pays UBS Global AM at an annual rate of 0.43% of LCV’s average daily net assets . Payment of the sub-investment advisory fees does not represent a separate or additional expense to LCV.

 

For services under a Sub-Administration and Accounting Services Agreement, GIS receives fees at an annual rate of 0.042% of LCV’s average daily net assets from RS Investments.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 0.98% of the average daily net assets of LCV. GIS subsidized 0.01% of the ordinary operating expenses of LCV or $4,783 for the year ended December 31, 2006.

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $27,132,469 and $24,854,303, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, at December 31, 2006 aggregated $18,561,422 and $153,806, respectively, resulting in net unrealized appreciation of $18,407,616. The cost of investments owned at December 31, 2006 for federal income tax purposes was $52,856,176.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, LCV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, LCV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

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Notes to Financial Statements — RS Large Cap Value VIP Series (continued)

 

December 31, 2006

 

Note E.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for LCV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      978,699        603,899        $ 12,972,894        $ 8,086,451  

Shares issued in reinvestment of dividends and distributions

      351,103        689,327          4,666,253          8,721,258  

Shares repurchased

      (838,190 )      (2,172,377 )        (11,099,273 )        (28,959,629 )
   

Net increase/(decrease)

      491,612        (879,151 )      $ 6,539,874        $ (12,151,920 )
   

 

Note F.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note G.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note H.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note I.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS Large Cap VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Large Cap VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian UBS VC Large Cap Value Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Variable Contract Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS Large Cap Value VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
4,182,311.216   119,646.247   254,162.487   4,556,119.950

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution

 

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Supplemental Information — Unaudited (continued)

 

capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

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Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

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Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

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Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

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RS Investments’ Senior Management Biographies

 

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Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

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James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

RS LARGE CAP VALUE VIP SERIES   27

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RS Investments’ Senior Management Biographies (continued)

 

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Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

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John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

28    RS LARGE CAP VALUE VIP SERIES

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06   ANNUAL REPORT

RS Variable Products Trust

 

RS Partners VIP Series

12.31.06   LOGO

Table of Contents
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Table of Contents

 

RS Partners VIP Series   
Portfolio Manager Biographies    3
Letter from Portfolio Managers    4
Fund Performance    9
Understanding Your Fund’s Expenses    10
Financial Information   
Schedule of Investments    11
Statement of Assets and Liabilities    13
Statement of Operations    13
Statements of Changes in Net Assets    14
Financial Highlights    15
Notes to Financial Statements    16
Report of Independent Registered Public Accounting Firm    20
Supplemental Information    21
Administration    27
RS Investments’ Senior Management Biographies    28

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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

 

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Andrew Pilara (RS Investments)

has managed RS Partners VIP Series since October 2006. Prior to joining the firm in 1993, he was president of Pilara Associates, an investment management firm he established in 1974. He has been involved in the securities business for over thirty years, with experience in portfolio management, research, trading, and sales. Mr. Pilara holds a B.A. in economics from Saint Mary’s College.

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MacKenzie Davis (RS Investments)

has been a co-portfolio manager of RS Partners VIP Series since October 2006. Prior to joining RS Investments in March 2004 as an analyst in the RS Value Group, Mr. Davis spent four years as a high yield analyst at Fidelity Management & Research Company. Previously, he was a vice president at Fidelity Capital Markets. He was also an analyst at Goldman Sachs & Company. Mr. Davis holds an A.B. from Brown University in mathematical economics and modern American history. He is a Chartered Financial Analyst.

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David Kelley (RS Investments)

has been a co-portfolio manager of RS Partners VIP Series since October 2006. Prior to joining RS Investments in 2002 as an analyst in the RS Value Group, Mr. Kelley was a small-cap analyst at Pequot Capital Management from 2001 to 2002. Previously, he had served as an analyst for three years with Crestwood Capital, an ING-affiliated hedge fund group, and spent three years at Goldman Sachs & Company in the mergers and acquisitions department. Mr. Kelley earned a B.A. in history from Yale University and an M.B.A. from Harvard Business School.

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Joe Wolf (RS Investments)

has been a co-portfolio manager of RS Partners VIP Series since October 2006. Prior to joining RS Investments in 2001 as an analyst in the RS Value Group, Mr. Wolf was the founder, director, and vice president of corporate development for zUniversity, an affinity marketing company focused on university students and alumni. Previously, he had worked as a senior financial analyst at Goldman Sachs & Company for four years in both the equities division and the strategic consulting group. Mr. Wolf holds a B.A. in medicine and psychology from Vanderbilt University and an M.B.A. from Harvard Business School.

 

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RS Partners VIP Series (continued)

Fund Philosophy

RS Partners VIP Series seeks long-term growth of capital by investing in equity securities — principally of companies with market capitalizations of up to $3 billion — using a value methodology combining balance sheet analysis with cash flow analysis.

 

Investment Process

Cash flow return analysis drives our investment process. We invest in companies that manage capital, not earnings, and we look for businesses that we believe have sustainable, long-term returns in excess of their cost of capital. We seek managers who are good capital allocators within a strong corporate culture. We invest when our calculated warranted value substantially exceeds the current market price.

 

Performance

The small-cap value segment of the market ended the year with a strong rally, with the Russell 2000 Value® Index1 gaining 9.03% during the fourth quarter. RS Partners VIP Series lagged the Index but still posted strong positive returns for the quarter. The Fund returned 9.35% for the one-year period, compared with the Index return of 23.48%.

 

Portfolio Review

Effective October 9, 2006, The Guardian UBS VC Small Cap Value Fund was reorganized as RS Partners VIP Series. Prior to the reorganization, the Fund was managed by portfolio management personnel of UBS Global Asset Management (Americas) Inc. (“UBS”). For the period from January 1, 2006 through September 30, 2006, the Fund’s return was 2.18% compared to a return of 13.26% for the Russell 2000 Value Index. UBS has identified the following factors that materially affected the Fund’s performance during the period from January 1, 2006 through September 30, 2006: The portfolio underperformed the strongly performing Index for style-characteristic related issues, but also due to industry selection by underweighting materials companies and REITs. The portfolio did benefit from being underweight in technology hardware and banks, but this was not enough to compensate for the REIT underweight. Stock selection detracted, partially due to underperformance in names such as Ryland Group, National Financial Partners, Comstock Homebuilding and Centene Corp.

 

Since the reorganization, the Fund is managed by portfolio management personnel of RS Investments pursuant to a similar investment objective and similar strategies. We have realigned the Fund’s portfolio based on the Fund’s objectives and strategies adopted in connection with the reorganization and are constructive about the long-term prospects for the Fund and believe that the portfolio is well positioned. Our time horizon is years, not months or quarters. If you believe that a strong, speculative bull market will persist in 2007, our Funds will likely underperform the indexes. We are not positioned to be a top performer in a speculative market. We believe that we are paid to optimize the portfolio for long-term results, being careful not to take outsized mistakes, thereby giving the Fund the best chance to compound wealth over time.

 

Consumer, Business Services, Health Care, and Technology

Our business services exposure is across a wide variance of different end markets and segments of the economy. We are attracted to these types of companies because they often exhibit durable, predictable business models that generate recurring cash flow. We are likely to maintain a large concentration in these types of companies.

 

In the consumer area, we have generally been cautious on businesses with direct exposure to the health of the consumer. Instead, we prefer media companies, processing companies that service the consumer area, and manufacturers of products that do not exhibit economic sensitivity.

 

4    RS PARTNERS VIP SERIES

 

1 The Russell 2000® Value Index is an unmanaged market-capitalization-weighted index that measures the performance of those companies in the Russell 2000® Index with lower price-to-book ratios and lower forecasted growth values. (The Russell 2000® Value Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which consists of the 3,000 largest U.S. companies based on total market capitalization.) Index results assume the reinvestment of dividends paid on the stocks constituting the index. You may not invest in the index, and, unlike the Fund, the index does not incur fees and expenses.

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In the health care arena, we retain our cautious stance given mediocre trends in fundamentals and return on invested capital. Like in all sectors, we will continue to look for company-specific structural changes that will drive improving returns on invested capital. We do not think there is a tide that will lift all boats in the health care space.

 

Financials

Over the past several years, banks had been significant beneficiaries of a steep yield curve (banks borrow short and lend long), a strong mortgage environment, and improving credit quality. Starting in 2005, however, we became concerned that returns for the banks had peaked and would eventually begin to deteriorate. Our initial thesis was confirmed in 2006 as fundamentals for the group worsened. We expect returns for banks to continue to decline, although we anticipate that the decline will be gradual and not dramatic. We believe that what were once tailwinds for the group will now be headwinds as the flat yield curve pressures net interest margins, the mortgage market remains challenged, credit quality is likely to worsen, and valuations still do not accurately reflect the deteriorating fundamental environment. As always, our approach within financials continues to be focused on special situations as opposed to making a broad macroeconomic call.

 

Our investment process requires us to identify companies with improving returns on capital that are available at attractive valuations. These criteria largely keep us underweighted in the REIT segment. Surprising, at least to us, the REIT group produced another year of very strong returns, fueling much of the of the financial sector returns in the index.

 

We are searching for names in which returns on invested capital is improving, quality of management is sound, and asymmetric risk/reward profile is adequate to make an investment.

 

Natural Resources, Energy and Industrials

It is our contention that the supply response resulting from the run-up in commodity prices would lead to lower commodity prices in the intermediate term (two to four years) but that deteriorating capital efficiencies would result in higher midcycle prices. These transitory periods are generally marked with increased volatility in both stock and commodity prices, and 2006 was certainly no exception. We continue to believe that while commodity index returns are highly correlated to fluctuations in commodity prices, companies with high-quality assets, purchased at a discount to warranted value and run by management teams who are attuned to and incented by returns on invested capital will generate superior risk-adjusted returns for the long-term investor.

 

In 2006 we laid out a three-part thesis that summarized our belief regarding future commodity prices:

 

1. Commodity prices will be lower in three years due to the supply response to current high prices.

 

2. Midcycle prices in the future will be higher than historical averages.

 

3. Commodity-related companies that generate excess cash flow return on investment (CFROI) will generate superior risk-adjusted returns compared with the pure commodities.

 

As we enter 2007, there is little evidence to suggest that our medium-term fundamental outlook has changed, as we are clearly witnessing the impact of incremental supply in both the base metals and hydrocarbon segments. There has been no reversal to the continued deterioration of capital efficiencies in the production of any of the commodities, however, and it is this factor that will ultimately establish forward midcycle prices, and thus valuations.

 

Outlook

Year in and year out, we believe that the best way to optimize portfolio performance is to own low-expectation, value-creating companies at attractive prices. This will be our strategy at the beginning of each year. We spend the

 

RS PARTNERS VIP SERIES   5

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RS Partners VIP Series (continued)

 

majority of our time as bottom-up stock pickers looking for the proverbial fifty-cent dollar.

 

In 2007, as in 2006, we think risk appears to be underpriced, margins and global liquidity are high, and the relative discount rate between small- and large-cap stocks is still inverted. Against the backdrop of a slowing U.S. economy, we remain cautious and will wait for the inevitable return of volatility to provide us with opportunities to deploy our shareholders’ capital. In addition, numerous factors — ETFs , the proliferation of hedge funds, large program trading operations — create large capital flows that have an impact stock valuations, often with limited correlation to long-term fundamentals. To quote veteran financial journalist Alan Abelson, “more than half the volume in many stocks is now dependent on index or sector sponsorship, the obvious results of a market that has been increasingly sectored to death and indexed beyond any efficiency imagined by academics. For ETFs, in other words, valuations don’t matter.” These types of dynamics inevitably produce market aberrations, which, again, create opportunities for long-term, fundamental investors.

 

When we observe the vast amount of money going to alternative investments (hedge funds, international markets, and private equity), we believe that the best contrarian opportunities might just be good, old-fashioned, fundamental, domestic investments. As usual, the question will be Can we find value-creating companies that provide us with an adequate margin of safety? We ask each of our nine investment professionals at the beginning of the year to find roughly one core investment every two months and to know it extremely well — certainly not an insurmountable task in our universe of value companies.

 

Team

The end of the year is a good time to review how our research team operates and to highlight the investments we have made during the year to expand our research capabilities. For each industry within our coverage universe, we have created redundancy whereby at least two senior team members analyze each investment. We believe that this redundancy allows us to better understand businesses and identify key investment risks. Each of our portfolio managers also acts as a security analyst. We have created a role we call “due diligence expert” that augments the analytical efforts of the senior investment team. These experts are in charge of facilitating our extensive grassroots research, including conversations with suppliers, customers, former employees, and top industry experts. We currently have two due diligence experts on the team and plan to add one or two similar resources in 2007.

 

In 2006 we added two senior investment professionals to the RS Value Team:

 

Prior to joining the firm in June, Ernst Schleimer spent eight years at RCM Global Investors, where he was a senior analyst and sector leader in the financial services group. He was also the lead portfolio manager of the RCM Financial Services Fund for almost two years. Prior to that he spent four years as an equity analyst at Franklin Resources, covering the financial services sector. Mr. Schleimer holds a B.A. in economics and German area studies from Tufts University and an M.B.A. from the Stanford Graduate School of Business. He is also a Chartered Financial Analyst. He works directly with Rob Harris, focusing on the financials area of the portfolio.

 

6    RS PARTNERS VIP SERIES

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Prior to joining the firm in September, Ken Settles was a senior energy analyst for seven years at Neuberger Berman, where he also co-managed the Neuberger Berman Premier Energy Portfolio. Previously, he spent three years as a financial analyst at Salomon Smith Barney. Mr. Settles holds a B.A. in economics from Williams College and is a Chartered Financial Analyst. He works with MacKenzie Davis in the hard-assets area.

 

Thank you for your continued support.

 

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    LOGO

Andrew Pilara

Portfolio Manager

   

MacKenzie Davis

Co-Portfolio Manager

 

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    LOGO

David Kelley

Co-Portfolio Manager

   

Joe Wolf

Co-Portfolio Manager

 

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

Small Cap investing entails special risks, as small cap stocks have tended to be more volatile and to drop more in down markets than large cap stocks. This may happen because small companies may be limited in terms of product lines, financial resources and management.

 

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RS Partners VIP Series (continued)

 

Assets Under Management: $ 22,337,807 Data as of December 31, 2006

 

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Sector Allocation Index

 
 
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Top Ten Holdings1

   
Company      Percentage of Total Net Assets

Triarc Cos., Inc.

      5.07%

Key Energy Services, Inc.

      4.25%

Corrections Corp. of America

      3.60%

Hanover Insurance Group, Inc.

      3.30%

Mi Developments, Inc.

      3.24%

Coinstar, Inc.

      3.17%

Corinthian Colleges, Inc.

      3.02%

Liberty Global, Inc.

      3.01%

Allegheny Technologies, Inc.

      2.88%

Peabody Energy Corp.

      2.82%

 

1

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

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Performance Update

as of 12/31/06

   
        Inception
Date		      1-Year
Total
Return		      3-Year
Annualized
Return		     

Annualized

Since Fund
Inception

RS Partners VIP Series

      2/3/03      9.35%      10.54%      16.69%

Russell 2000® Value Index

             23.48%      16.48%      24.89%

 

The Series is the successor to The Guardian UBS VC Small Cap Value Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above is that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

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Growth of a Hypothetical $10,000 Investment

If invested on 2/3/03

 
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The chart above shows the performance of a hypothetical $10,000 investment made 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. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

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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. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying 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” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

   

Based on Actual Return

    $ 1,000.00    $ 1,073.60    $7.11    1.36%
   

Based on Hypothetical Return (5% return before expenses)

    $ 1,000.00    $ 1,018.35    $6.92    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 184/365 (to reflect the one-half year period).

 

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Schedule of Investments — RS Partners VIP Series

 

December 31, 2006

 

Shares          Value
     
Common Stocks — 83.9%   
Air Transport — 2.2%   
10,280   

Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. ADR*

    $ 228,833
6,600   

Grupo Aeroportuario del Pacifico S.A. de C.V. ADR

      258,654
         
        487,487
 
Aluminum — 1.9%   
9,500   

Century Aluminum Co.*

      424,175
 
Auto Parts–After Market — 1.9%   
19,300   

Commercial Vehicle Group, Inc.*

      420,740
 
Banks–Outside New York City — 2.6%   
5,400   

Hancock Holding Co.

      285,336
9,300   

Whitney Holding Corp.

      303,366
         
        588,702
 
Cable Television Services — 3.0%   
11,700   

Liberty Global Inc. — Class A*

      341,055
11,800   

Liberty Global, Inc. — Series C*

      330,400
         
        671,455
 
Casinos & Gambling — 2.5%   
18,800   

Scientific Games Corp. — Class A*

      568,324
 
Coal — 2.8%   
15,600   

Peabody Energy Corp.

      630,396
 
Computer Services, Software & Systems — 1.1%   
3,100   

Ariba, Inc.*

      23,994
14,600   

Quest Software, Inc.*

      213,890
         
        237,884
 
Education Services — 3.0%   
49,500   

Corinthian Colleges, Inc.*

      674,685
 
Electronics–Medical Systems — 0.2%   
5,800   

eResearch Technology, Inc.*

      39,034
 
Electronics–Semi-Conductors/Components — 1.3%   
11,400   

Avnet, Inc.*

      291,042
 
Finance Companies — 3.6%   
16,600   

Assured Guaranty Ltd.

      441,560
7,800   

Lazard Ltd. — Class A

      369,252
         
        810,812
 
Financial Data Processing Services & Systems — 1.3%
10,300   

eFunds Corp.*

      283,250
 
Financial Information Services — 0.7%   
6,500   

Interactive Data Corp.

      156,260
 
Health Care Facilities — 3.8%   
12,700   

Kindred Healthcare, Inc.*

      320,675
11,100   

LCA-Vision, Inc.

      381,396
5,000   

United Surgical Partners Int’l., Inc.*

      141,750
         
        843,821
 
Health Care Management Services — 1.0%   
6,300   

Sierra Health Services, Inc.*

      227,052
 
Identification Control & Filter Devices — 1.2%   
11,300   

Paxar Corp.*

      260,578
 
Insurance–Multi-Line — 3.4%   
15,100   

Hanover Insurance Group, Inc.

      736,880
400   

Zenith Nat’l. Insurance Corp.

      18,764
         
        755,644
 
Shares          Value
     
Insurance–Property & Casualty — 1.0%   
7,990   

OneBeacon Insurance Group Ltd.*

    $ 223,720
 
Investment Management Companies — 1.7%   
3,700   

Affiliated Managers Group, Inc.*

      388,981
 
Machinery–Oil/ Well Equipment & Services — 4.2%   
60,700   

Key Energy Services, Inc.*

      949,955
 
Medical Services — 2.7%   
13,900   

Magellan Health Services, Inc.*

      600,758
 
Metals & Minerals–Miscellaneous — 1.8%   
37,800   

Sherritt Int’l. Corp. (1)

      401,614
 
Oil–Crude Producers — 1.3%   
31,200   

Compton Petroleum Corp* (1)

      284,937
 
Oil–Integrated International — 1.7%   
19,000   

Paramount Resources Ltd. — Class A* (1)

      391,030
 
Real Estate — 3.2%   
20,300   

MI Developments, Inc. — Class A

      724,710
 
Real Estate Investment Trusts — 3.0%   
9,000   

BioMed Realty Trust, Inc.

      257,400
15,300   

KKR Financial Corp.

      409,887
         
        667,287
 
Rental & Leasing Services–Consumer — 2.8%   
21,600   

Aaron Rents, Inc.

      621,648
 
Restaurants — 5.1%   
56,600   

Triarc Cos., Inc. — Class B

      1,132,000
 
Services–Commercial — 9.8%   
7,700   

Coinmach Service Corp. — Class A

      91,630
15,700   

Coinmach Service Corp. IDS

      288,880
23,200   

Coinstar, Inc.*

      709,224
9,500   

Copart, Inc.*

      285,000
17,800   

Corrections Corp. of America*

      805,094
         
        2,179,828
 
Steel — 4.6%   
7,100   

Allegheny Technologies, Inc.

      643,828
3,700   

Carpenter Technology Corp.

      379,324
         
        1,023,152
 
Textile–Apparel Manufacturers — 2.6%   
22,900   

Carter’s, Inc.*

      583,950
 
Transportation–Miscellaneous — 0.9%   
4,900   

Grupo Aeroportuario del Sureste S.A.B. de C.V. ADR

      208,103
 
  

Total Common Stocks
(Cost $17,588,993)

      18,753,014
 
     
Other Investments — For Trustee
Deferred Compensation Plan (2) — 0.0%		   
1   

RS Emerging Growth Fund, Class A

    $ 26
1   

RS Global Natural Resources Fund, Class A

      37
1   

RS Growth Fund, Class A

      15
3   

RS Investors Fund, Class A

      32
1   

RS MidCap Opportunities Fund, Class A

      8
  

RS Partners Fund, Class A

      12
1   

RS Smaller Company Growth Fund, Class A

      13
  

RS Value Fund, Class A

      8
 
  

Total Other Investments — For Trustee Deferred Compensation Plan (Cost $151)

      151
 

 

See notes to financial statements.

 

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Schedule of Investments — RS Partners VIP Series (continued)

 

December 31, 2006

 

Principal
Amount		          Value  
     
  Repurchase Agreement — 16.0%  
$ 3,573,000   

State Street Bank and Trust Co.

repurchase agreement,

dated 12/29/06, maturity

value $3,575,025 at

5.10%, due 1/2/2007 (3)
(Cost $3,573,000)

    $ 3,573,000  
     
 
 		 Total Investments — 99.9%
(Cost $21,162,144)		      22,326,165  
 
 		 Cash, Receivables, and Other Assets
Less Liabilities — 0.1%		      11,642  
     
  Net Assets — 100%    $ 22,337,807  
     

 

*   Non-income producing security.
(1)   Foreign-denominated security: CAD — Canadian Dollar.
(2)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(3)   The repurchase agreement is fully collateralized by $3,560,000 in U.S. Government Agency, 5.45%, due 10/18/2021, with a value of $3,644,550.

 

ADR — American Depositary Receipt.

IDS — Income Deposit Security.

 

See notes to financial statements.

 

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LOGO  

Financial Information — RS Partners VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $21,162,144*)

    $ 18,753,165

Repurchase agreements

      3,573,000
      

Total Investments

      22,326,165

Cash

      331

Receivable for fund shares sold

      35,002

Dividends receivable

      6,271

Interest receivable

      1,519

Prepaid insurance

      295
      

Total Assets

      22,369,583
      

LIABILITIES

   

Accrued expenses

      7,172

Payable for securities purchased

      5,433

Payable for fund shares redeemed

      219

Deferred trustees’ compensation

      151

Due to Adviser

      18,801
      

Total Liabilities

      31,776
      

Net Assets

    $ 22,337,807
      

COMPONENTS OF NET ASSETS

   

Paid-in capital

    $ 20,916,776

Undistributed net investment income

      12,486

Accumulated net realized gain on investments and foreign currency related transactions

      244,527

Net unrealized appreciation of investments and translation of other assets and liabilities denominated in foreign currencies

      1,164,018
      

Net Assets

    $ 22,337,807
      

Shares of beneficial interest outstanding with no par value

      1,907,962

Net Asset Value Per Share

      $11.71

 

*   Includes repurchase agreement.
LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Dividends

    $ 291,022  

Interest

      65,171  

Less: Foreign tax withheld

      (628 )
        

Total Income

      355,565  
        

Expenses:

   

Investment advisory fees — Note B

      218,728  

Custodian fees

      63,005  

Printing expense

      14,634  

Audit fees

      8,435  

Trustees’ fees — Note B

      3,452  

Insurance expense

      1,529  

Legal fees

      1,305  

Loan commitment fees — Note F

      369  

Registration fees

      104  

Other

      505  
        

Total Expenses before Waivers and Custody credits

      312,066  

Less: Expenses waived by GIS— Note B

      (14,353 )

Custody credits — Note A

      (113 )
        

Expenses Net of Waivers and Custody credits

      297,600  
        

Net Investment Income

      57,965  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES

   

Net realized gain on investments — Note A

      3,715,613  

Net realized gain on foreign currency related transactions — Note A

      2,702  

Net change in unrealized appreciation
of investments — Note C

      (1,705,563 )

Net change in unrealized appreciation from translation of other assets and liabilities denominated in foreign currencies — Note A

      (3 )
        

Net Realized and Unrealized Gain
on Investments and Foreign Currencies

      2,012,749  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 2,070,714  
        

 

See notes to financial statements.

 

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Financial Information — RS Partners VIP Series (continued)

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 57,965        $ 24,117  

Net realized gain on investments and foreign currency related transactions

        3,718,315          2,850,638  

Net change in unrealized appreciation of investments and foreign currency related transactions

        (1,705,566 )        (1,917,299 )
                     

Net Increase in Net Assets Resulting from Operations

        2,070,714          957,456  
                     

Dividends and Distributions to Shareholders from:

          

Net investment income

        (48,181 )        (28,221 )

Net realized gain on investments and foreign currency related transactions

        (3,930,666 )        (2,595,950 )
                     

Total Dividends and Distributions to Shareholders

        (3,978,847 )        (2,624,171 )
                     

From Capital Share Transactions:

          

Net increase/(decrease) in net assets from capital share transactions — Note E

        (156,713 )        759,365  
                     

Net Decrease in Net Assets

        (2,064,846 )        (907,350 )

NET ASSETS:

          

Beginning of year

        24,402,653          25,310,003  
                     

End of year*

      $ 22,337,807        $ 24,402,653  
                     

*  Includes undistributed net investment income of:

      $ 12,486        $ —  

 

See notes to financial statements.

 

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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 dividends and distributions).

 

Financial Highlights

    Year Ended
12/31/06		     Year Ended
12/31/05		    

Year Ended

12/31/04

     Period from
February 3, 2003† to
December 31, 2003		  

Net asset value,
beginning of period

   $13.01     $13.97     $12.94     $10.00  
   

Net investment income

   0.04     0.02     0.04     0.04  

Net realized and
unrealized gain

   1.15     0.57     2.32     3.50  
   

Total from Investment Operations

   1.19     0.59     2.36     3.54  
   

Dividends from net investment income

   (0.03 )   (0.02 )   (0.04 )   (0.04 )

Distributions from net realized capital gains

   (2.46 )   (1.53 )   (1.29 )   (0.56 )
   

Total Dividends and Distributions

   (2.49 )   (1.55 )   (1.33 )   (0.60 )
   

Net asset value, end of period

   $11.71     $13.01     $13.97     $12.94  
   

Total Return*

   9.35 %   4.22 %   18.52 %   35.39 %(a)
   

Net assets, end of period (thousands)

   $22,338     $24,403     $25,310     $16,884  

Net ratio of expenses to
average net assets

   1.36 %(c)   1.41 %   1.36 %   1.68 %(b)

Net ratio of net investment
income to average net assets

   0.28 %(c)   0.10 %   0.33 %   0.42 %(b)

Portfolio turnover rate

   172 %   97 %   71 %   75 %
   

 

†   Commencement of operations.
*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Not annualized.
(b)   Annualized.
(c)   Includes the effect of expenses waived by GIS.

 

See notes to financial statements.

 

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LOGO  

Notes to Financial Statements — RS Partners VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Partners VIP Series (the “Fund” or “PV”) is a series of the Trust. PV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian UBS VC Small Cap Value Fund (“GSCVF”), a series (“Predecessor Fund”) of The Guardian Variable Contract Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of PV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Repurchase agreements are carried at cost which approximates market value (see Note D).

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Foreign Currency Translation

 

PV is permitted to buy international securities that are not U.S. dollar denominated. PV’s books and records are maintained in U.S. dollars as follows:

 

(1)  The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange.

 

(2)  Security purchases and sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.

 

The resulting gains and losses are included in the Statement of Operations as follows:

 

Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Realized foreign exchange gains and losses, which result from changes in foreign exchange rates between the date on which PV earns dividends and interest or pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are actually received or paid, are included in net realized gains or losses on foreign currency related transactions. Realized foreign exchange gains and losses which result from changes in foreign exchange rates between the trade and settlement dates on

 

16     

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security and currency transactions are also included in net realized gains and losses on foreign currency related transactions. Net currency gains and losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies.

 

Forward Foreign Currency Contracts

 

PV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the value of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by PV. When forward contracts are closed, PV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. PV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.

 

Futures Contracts

 

PV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, PV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by PV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by PV. The daily changes in the variation margin are recognized as unrealized gains or losses by PV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, PV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for PV. Net realized short-term and long-term capital gains for PV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of PV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends and distributions paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

     Ordinary
Income		    Long-Term
Capital Gain		    Total

2006

    $ 419,473    $ 3,559,374    $ 3,978,847

2005

      125,824      2,498,347      2,624,171

 

As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Long-Term
Gain		   Unrealized
Appreciation
$ 174,211   $ 88,049   $ 1,158,923

 

Taxes

 

PV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

Withholding taxes on foreign interest, dividends and capital gains in PV have been provided for in accordance with the applicable country’s tax rules and rates.

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains

 

    17

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or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

During the year ended December 31, 2006, the Fund reclassified amounts to paid-in capital from undistributed net investment income and accumulated net realized gain on investments. Increases/(decreases) to the various capital accounts were as follows:

 

Paid-in
Capital		   Undistributed
Net Investment
Income		   Accumulated
Net Realized
Gain on
Investments		  
$   —   $ 2,702   $ (2,702 )

 

Custody Credits

 

PV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, PV’s custodian fees were reduced by $113. PV could have employed the uninvested assets to produce income if PV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. RS Investments, as adviser, provides day-to-day investment advisory services to PV. Fees for investment advisory services are at an annual rate of 1.00% of PV’s average daily net assets for the first $50 million and an annual rate of 0.95% of PV’s net assets in excess of $50 million.

 

For services under a Sub-Administration and Accounting Services Agreement, GIS receives fees at an annual rate of 0.042% of PV’s average daily net assets from RS Investments.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 1.36% of the average daily net assets of PV. GIS subsidized 0.07% of the ordinary operating expenses of PV or $14,353 for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $35,724,658 and $42,700,975, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding foreign currency at December 31, 2006 aggregated $1,452,063 and $293,137, respectively, resulting in net unrealized appreciation of $1,158,926. The cost of investments owned at December 31, 2006 for federal income tax purposes was $21,167,239.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, PV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, PV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

18     

 

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Notes to Financial Statements — RS Partners VIP Series (continued)

 

December 31, 2006

Table of Contents

 

Note E.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for PV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      390,612        598,573        $ 5,153,609        $ 8,184,123  

Shares issued in reinvestment of dividends
and distributions

      333,885        199,822          3,978,847          2,624,171  

Shares repurchased

      (692,456 )      (734,398 )        (9,289,169 )        (10,048,929 )
   

Net increase/(decrease)

      32,041        63,997        $ (156,713 )      $ 759,365  
   
Note F.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note G.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note H.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the RS Funds after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note I.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

 

    19

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LOGO  

Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS Partners VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Partners VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian UBS VC Small Value Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Variable Contract Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS Partners VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
1,516,314.691   10,445.741   65,574.262   1,592,334.694

 

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Supplemental Information — Unaudited (continued)

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their

 

22     

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clients at improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

    23

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Supplemental Information — Unaudited (continued)

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

24     

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

    25

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Supplemental Information — Unaudited (continued)

 

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Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

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Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

    27

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RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

28    RS PARTNERS VIP SERIES

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RS Investments’ Senior Management Biographies (continued)

 

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Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

RS PARTNERS VIP SERIES   29

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LOGO

 

06   ANNUAL REPORT

RS Variable Products Trust

 

RS Asset Allocation VIP Series

12.31.06   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS Asset Allocation VIP Series   
Portfolio Manager Biographies    3
Letter from Portfolio Managers    3
Fund Performance    5
Understanding Your Fund’s Expenses    7
Financial Information   
Schedule of Investments    8
Statement of Assets and Liabilities    9
Statement of Operations    9
Statement of Changes in Net Assets    10
Financial Highlights    11
Notes to Financial Statements    12
Report of Independent Registered Public Accounting Firm    17
Financial Information for RS S&P 500 Index VIP Series    18
Supplemental Information    33
Administration    39
RS Investments’ Senior Management Biographies    40

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. The views expressed in the portfolio manager letters are those of the Fund’s portfolio manager(s) and are subject to change without notice. They do not necessarily represent the views of RS Investments or Guardian Investor Services LLC. The letters contain some forward-looking statements providing current expectations or forecasts of future events; they do not necessarily relate to historical or current facts. There can be no guarantee that any forward-looking statement will be realized. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

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RS Asset Allocation VIP Series

 

LOGO     

Jonathan C. Jankus (Guardian Investor Services)

has been a co-portfolio manager of RS Asset Allocation VIP Series and RS S&P 500 Index VIP Series since 1999 (includes time co-managing the Guardian VC Asset Allocation Fund and the Guardian VC 500 Index Fund). Mr. Jankus joined Guardian Life in 1995, and has been a managing director of Guardian Life since March 1998. He received a B.A. in mathematics from Queens College, an M.S. in investment management from Pace University, an M.S. in computer science from Polytechnic Institute of New York, and an M.A. in mathematics from Columbia University. Mr. Jankus is a Chartered Financial Analyst.

LOGO     

Stewart M. Johnson (Guardian Investor Services)

has been a co-portfolio manager of RS Asset Allocation VIP Series and RS S&P 500 Index VIP Series since 2004 (includes time co-managing The Guardian VC Asset Allocation Fund and The Guardian VC 500 Index Fund). Mr. Johnson has been a senior director of Guardian Life since January 2002. Mr. Johnson was second vice president, investment information systems at Guardian Life, from December 2000 to January 2002. Mr. Johnson received a B.A. in mathematics from City College of New York.

 

Fund Philosophy

RS Asset Allocation VIP Series seeks long-term total investment return consistent with moderate investment risk.

 

Investment Process

The Fund allocates its assets among three broad asset classes: U.S. common stocks and convertibles; investment grade debt securities; and cash and money market instruments. Guardian Investor Services LLC uses its own theoretical investment models to evaluate information about the economy and the markets to provide “signals” for portfolio allocations. Distribution by asset classes fluctuates from a “neutral position” of 60% allocated to equity and 40% allocated to debt; however, there are no percentage limitations on the amount to be allocated to any asset class.

 

Performance

For the year ending December 31, 2006, the Fund’s return was 13.37%. During this period, the Fund’s return surpassed the 11.11% return experienced by its not-quite-passive composite benchmark1 (60% of the S&P 500 Index and 40% of the Lehman Aggregate Bond Index rebalanced monthly without expenses or trading costs).

 

Portfolio Review

Stock market returns were positive for a fourth straight year, with the S&P 500 Index earning a total return of 15.79% for 2006. Returns from the peak of the price “bubble” are finally positive (albeit at a low 0.5% annualized) once dividends are included, but, at 1418.30, the S&P 500 Index is still below its peak of 1527.46 posted on March 24, 2000.

 

The Federal Reserve tightened monetary conditions, raising the Federal Funds rate four times in the first half

 

RS ASSET ALLOCATION VIP SERIES   3

 

1 The Custom Index total return data is comprised of 60% of the S&P 500 Index and 40% of the Lehman Brothers Aggregate Bond Index to reflect a 60/40 neutral weighting of the Fund. The S&P 500® Index of 500 primarily large-cap U.S. stocks is generally considered to be representative of U.S. stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the Index. The Lehman Brothers Aggregate Bond Index is generally considered to be representative of U.S. bond market activity. There are no expenses of fees associated with these indices, but there are expenses associated with the Fund.

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RS Asset Allocation VIP Series (continued)

 

of the year to a level of 5.25% by the end of June, and then holding steady at that level. Inflation has been a real concern, having reached 2.7% on a year-over-year basis (excluding food and energy) in August before declining thereafter. This pattern coincided neatly with crude oil prices which peaked just below $80 per barrel in August before declining to near $60 by year-end. Once these problematic issues began to subside, the market began a steady climb upward. Indeed, this was a year of two distinct halves. In the first half, the S&P 500 Index returned a mere 2.7%, compared to a 12.7% return in the second half.

 

From a style perspective, value-oriented stocks (as measured by the S&P/Citigroup indexes) performed much better than growth-oriented stocks, having returned 20.9% versus 11.0%, respectively. This differential occurred almost entirely in the first half of the year in a near-flat market. In terms of market capitalization (again as measured by S&P indexes), it was good to be either big or small, but not in the middle. The S&P 500 (large cap), S&P 400 (mid cap) and S&P 600 (small cap) returned 15.8%, 10.3% and 15.1%, respectively.

 

Our good results relative to our benchmark were the result of being overweighted in stocks relative to bonds and cash. We began the year invested 90% in stocks, reducing that weighting to 80% during March. The balance was held in cash equivalents; we held no bonds.

 

Outlook

Our investing will, of course, continue to be guided by our quantitative model which, as of year-end, has us invested 80% in stocks, 0% in bonds and 20% in cash. This compares to our “neutral” position of 60% stocks and 40% bonds.

 

Most signs indicate continuing economic growth, which hopefully will continue to feed a rebound in corporate profits. At the moment, consensus estimates for 2007 GDP growth and corporate profit growth (pre-tax) stand at 2.3% and 5.1%; while positive, these numbers compare to 3.3% and 21.0% respectively for 2006.

 

We believe risk on the horizon is the extent to which interest rates will rise in the near term, especially given such exogenous factors as continued violence in the Middle East and a new political regime in Congress. “Real” interest rates (interest rates after subtracting expected inflation) remain relatively low, albeit not as low as they were two years ago. On balance, we remain optimistic, although a bit more cautiously so.

 

Thank you for your continued support.

 

LOGO

Jonathan C. Jankus

Co-Portfolio Manager

    LOGO
Stewart M. Johnson
Co-Portfolio Manager

 

4    RS ASSET ALLOCATION VIP SERIES

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.

 

Asset Allocation funds may invest in bonds. Bond funds are subject to interest rate 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.

Table of Contents

 

Assets Under Management: $49,958,237

Data as of December 31, 2006

 

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Portfolio Composition by Asset Class

LOGO

 

The investment allocation in the pie chart reflects the true economic impact of the portfolio composition, rather then its accounting treatment, which is shown in the Fund’s Portfolio of investments.

 

LOGO  

Performance Update

As of 12/31/06

   
     Inception
Date		   1-Year
Annualized
Return		   3-Year
Annualized
Return		   5-Year
Annualized
Return		   Annualized
Return Since Fund
Inception

RS Asset Allocation VIP Series

   9/15/1999   13.37%   9.28%   5.95%   4.30%

Custom Index: 60% S&P 500® Index, 40% Lehman Brothers Aggregate Bond Index

       11.11%   7.77%   5.98%   4.38%

 

The Series is the successor to The Guardian VC Asset Allocation Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

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. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

RS ASSET ALLOCATION VIP SERIES   5

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RS Asset Allocation VIP Series (continued)

 

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Growth of a Hypothetical $10,000 Investment

If invested on 9/15/99

 
LOGO

 

The chart above shows the performance of a hypothetical $10,000 investment made in RS Asset Allocation VIP Series, the S&P 500 Index® and the Lehman Brothers Aggregate Bond Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.

 

Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

 

6    RS ASSET ALLOCATION 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. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Fund’s expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

Based on Actual Return

    $1,000.00    $1,103.20    $1.64    0.31%

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,023.64    $1.58    0.31%

 

* Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

 

RS ASSET ALLOCATION VIP SERIES   7

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LOGO  

Schedule of Investments — RS Asset Allocation VIP Series

 

December 31, 2006

 

Shares          Value  
     
  Mutual Fund — 72.4%  
  Equity — 72.4%  
  3,489,950   

RS S&P 500 Index VIP Series* (1)
(Cost $31,660,261)

    $ 36,155,885  
     
     
Principal
Amount		          Value  
  U.S. Government Security — 0.6%  
$ 300,000   

U.S. Treasury Bills
4.99% due 1/25/2007 (2)
(Cost $299,002)

    $ 299,002  
     
Shares         Value  
 
 		 Other Investments - For Trustee Deferred
Compensation Plan (3) — 0.0%		  
 
  2   

RS Emerging Growth Fund, Class A

      58  
  3   

RS Global Natural Resources Fund, Class A

      86  
  2   

RS Growth Fund, Class A

      34  
  6   

RS Investors Fund, Class A

      75  
  1   

RS MidCap Opportunities Fund, Class A

      19  
  1   

RS Partners Fund, Class A

      28  
  1   

RS Smaller Company Growth Fund, Class A

      30  
  1   

RS Value Fund, Class A

      19  
     
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $349)

      349  
     
     
Principal
Amount		          Value  
  Repurchase Agreements — 28.2%  
$   7,000,000    Lehman Brothers
repurchase agreement,
dated 12/29/2006, maturity
value $7,004,006 at
5.15%, due 1/2/2007 (4)		    $ 7,000,000  
  7,116,000    State Street Bank and Trust Co. repurchase agreement,
dated 12/29/2006, maturity
value $7,120,032 at
5.10%, due 1/2/2007 (5)		      7,116,000  
     
  

Total Repurchase Agreements
(Cost $14,116,000)

      14,116,000  
     
 
 		 Total Investments — 101.2%
(Cost $46,075,612)		      50,571,236  
 
 		 Liabilities in Excess of Cash, Receivables and
Other Assets — (1.2)%		      (612,999 )
     
  Net Assets — 100%    $ 49,958,237  
     

 

*   RS S&P 500 Index VIP Series financial statements and financial highlights are included herein.
(1)   Affiliated issuer, as defined under the Investment Company Act of 1940, which includes issuers in which the Fund held 5% or more of the outstanding voting securities. See Note I in Notes to Financial Statements.
(2)   The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts.
(3)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(4)   The repurchase agreement is fully collateralized by $6,785,000 in U.S. Government Agency, 5.50%, due 3/15/2011, with a value of $7,035,000.
(5)   The repurchase agreement is fully collateralized by $7,225,000 in U.S. Government Agency, 4.75%, due 1/19/2016, with a value of $7,261,125.

 

Number of

Contracts

    Description    Expiration   

Face Value

(Thousands)

   

Unrealized

Appreciation

Purchased Futures Contracts
12   

S&P 500 Index

    3/2007    $ 4,281    $ 4,590
 

 

 

See notes to financial statements.

 

8    RS ASSET ALLOCATION VIP SERIES

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Financial Information — RS Asset Allocation VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Unaffiliated issuers, at identified cost*

    $ 14,415,351  

Affiliated issuers, at identified cost

      31,660,261  
        

Total Cost

      46,075,612  
        

Unaffiliated issuers, at market

    $ 299,351  

Affiliated issuers, at market

      36,155,885  

Repurchase agreements

      14,116,000  
        

Total Investments

      50,571,236  

Cash

      598  

Receivable for fund shares sold

      17,598  

Interest receivable

      6,028  

Prepaid insurance

      531  
        

Total Assets

      50,595,991  
        

LIABILITIES

   

Payable for fund shares redeemed

      596,470  

Accrued expenses

      18,668  

Payable for variation margin — Note A

      16,200  

Deferred trustees’ compensation

      349  

Due to Adviser

      6,067  
        

Total Liabilities

      637,754  
        

Net Assets

    $ 49,958,237  
        

COMPONENTS OF NET ASSETS

   

Paid-in capital

      47,997,596  

Undistributed net investment income

      12,683  

Accumulated net realized loss on investments
and futures contracts

      (2,552,256 )

Net unrealized appreciation of investments and
futures contracts

      4,500,214  
        

Net Assets

    $ 49,958,237  
        

Shares of beneficial interest outstanding with no par value

      4,823,335  

Net Asset Value Per Share

      $10.36  

 

*   Includes repurchase agreements.
LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Interest

    $ 685,429  

Dividends (Received from affiliated issuer)

      552,041  
        

Total Income

      1,237,470  
        

Expenses:

   

Investment advisory fees — Note B

      235,581  

Custodian fees

      34,033  

Printing expense

      17,954  

Audit fees

      10,915  

Trustees’ fees — Note B

      6,868  

Insurance expense

      3,185  

Legal fees

      2,144  

Loan commitment fees — Note H

      829  

Registration fees

      237  

Other

      465  
        

Total Expenses before reimbursement and
custody credits

      312,211  

Less: Expenses waived by investment adviser (1)

      (165,753 )

Custody credits — Note A

      (215 )
        

Net Expenses

      146,243  
        

Net Investment Income

      1,091,227  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS

   

Net realized gain on futures contracts — Note A

      491,346  

Net change in unrealized appreciation
of investments from affiliate — Note C

      4,288,818  

Net change in unrealized depreciation
of futures contracts — Note A

      100,386  
        

Net Realized and Unrealized Gain
on Investments

      4,880,550  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 5,971,777  
        

 

(1)   The fund does not impose any advisory fees for the portion of the fund’s assets invested in other RS VIP Series Funds.

 

See notes to financial statements.

 

RS ASSET ALLOCATION VIP SERIES   9

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LOGO  

Financial Information — RS Asset Allocation VIP Series (continued)

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 1,091,227        $ 860,291  

Net realized gain on investments

        491,346          721,115  

Net change in unrealized appreciation/ (depreciation) of investments and futures contracts

        4,389,204          68,362  
                     

Net Increase in Net Assets Resulting from Operations

        5,971,777          1,649,768  
                     

Dividends to Shareholders from:

          

Net investment income

        (1,766,357 )        (329,786 )
                     

From Capital Share Transactions:

          

Net decrease in net assets from capital share transactions — Note G

        (536,034 )        (10,958,548 )
                     

Net Increase/(Decrease) in Net Assets

        3,669,386          (9,638,566 )

NET ASSETS:

          

Beginning of year

        46,288,851          55,927,417  
                     

End of year*

      $ 49,958,237        $ 46,288,851  
                     

*  Includes undistributed net investment income of

      $ 12,683        $ 687,813  

 

See notes to financial statements.

 

10    RS ASSET ALLOCATION VIP SERIES

Table of Contents

 

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 dividends and distributions).

 

 

Financial Highlights

    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $9.49     $9.16     $8.40     $6.78     $8.62  
   

Net investment income

   0.23     0.19     0.13     0.10     0.14  

Net realized and
unrealized gain/(loss)

   1.01     0.21     0.74     1.76     (1.83 )
   

Total from Investment Operations

   1.24     0.40     0.87     1.86     (1.69 )
   

Dividends to Shareholders from:

          

Net Investment Income

   (0.37 )   (0.07 )   (0.11 )   (0.24 )   (0.15 )
   

Net asset value, end of year

   $10.36     $9.49     $9.16     $8.40     $6.78  
   

Total Return*

   13.37 %   4.36 %   10.31 %   27.70 %   (19.88 )%
   

Net assets, end of year (thousands)

   $49,958     $46,289     $55,927     $48,980     $34,572  

Net ratio of expenses to
average net assets

   0.31 %(a)(c)   0.38 %(a)   0.31 %(a)   0.29 %(a)   0.31  %(a)

Gross ratio of expenses to
average net assets

   0.68 %(b)   0.51 %(b)   0.53 %(b)   0.54 %(b)   0.56  %(b)

Net ratio of net investment
income to average net assets

   2.32 %(c)   1.75 %   1.52 %   1.51 %   1.89  %

Portfolio turnover rate

   0 %   2 %   0 %   0 %   0  %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
       Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Amounts do not include expenses of the underlying fund.
(b)   Amounts include expenses of the underlying fund.
(c)   Includes the effect of expenses waived by investment adviser.

 

See notes to financial statements.

 

RS ASSET ALLOCATION VIP SERIES   11

 

LOGO  

Financial Information — RS Asset Allocation VIP Series

Table of Contents
LOGO  

Notes to Financial Statements — RS Asset Allocation VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Asset Allocation VIP Series (the “Fund” or “AAV”) is a series of the Trust. AAV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian VC Asset Allocation Fund (“GVCAAF”), a series (“Predecessor Fund”) of The Guardian Variable Contract Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of AAV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as certain mortgage-backed securities, restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Repurchase agreements are carried at cost which approximates market value (see Note D). Short-term debt securities with maturities of 60 days or less are valued on an amortized cost basis which approximates market value.

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Foreign Currency Translation

 

AAV is permitted to buy international securities that are not U.S. dollar denominated. AAV’s books and records are maintained in U.S. dollars as follows:

 

(1)  The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange.

 

(2)  Security purchases and sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.

 

The resulting gains and losses are included in the Statement of Operations as follows:

 

Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Realized foreign exchange gains and losses, which result from changes in foreign exchange rates between the date on which AAV earns dividends and interest or pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are

 

12    RS ASSET ALLOCATION VIP SERIES

Table of Contents

 

actually received or paid, are included in net realized gains or losses on foreign currency related transactions. Realized foreign exchange gains and losses which result from changes in foreign exchange rates between the trade and settlement dates on security and currency transactions are also included in net realized gains and losses on foreign currency related transactions. Net currency gains and losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies.

 

Forward Foreign Currency Contracts

 

AAV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the value of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by AAV. When forward contracts are closed, AAV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. AAV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.

 

Futures Contracts

 

AAV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, AAV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by AAV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by AAV. The daily changes in the variation margin are recognized as unrealized gains or losses by AAV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, AAV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for AAV. Net realized short-term and long-term capital gains for AAV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of AAV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

    

Ordinary

Income

2006

    $ 1,766,357

2005

      329,786

 

As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Capital Loss Carryforward     Unrealized
Appreciation
$ 13,031   $ (2,547,672 )   $ 4,495,624

 

Taxes

 

AAV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

As of December 31, 2006, for federal income tax purposes, the Fund had a capital loss carryforward as follows:

 

Capital Loss
Carryforward		     Expiration
Date
$ (2,547,672 )   2010

 

RS ASSET ALLOCATION VIP SERIES   13

Table of Contents
LOGO  

Notes to Financial Statements — RS Asset Allocation VIP Series (continued)

 

December 31, 2006

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

Custody Credits

 

AAV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, AAV’s custodian fees were reduced by $215. AAV could have employed the uninvested assets to produce income if AAV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.50% of the average daily net assets of the Fund.

 

RS Investments has agreed to waive the advisory fee with regard to the portion of AAV’s assets that are invested in other RS VIP Series Funds. In addition RS Investments has agreed, through December 31, 2009, that it will not receive, with regard to the portion of AAV’s portfolio that is invested directly in securities, annual advisory fees in excess of 0.50%. There are no duplicative advisory fees charged to AAV on assets invested in other RS Funds.

 

GIS serves as the sub-adviser for AAV. Pursuant to a Sub-Advisory, Sub-Administration and Accounting Services Agreement, GIS provides sub-advisory, administrative and accounting services to AAV, subject to the general oversight of RS Investments and the Board of Trustees of the Trust. As compensation for its services, RS Investments pays GIS at an annual rate of 0.475% of the average daily net assets of AAV that are invested directly in securities. Payment of the sub-investment advisory fees does not represent a separate or additional expense to AAV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with reverse repurchase agreements and securities lending) that exceeds 0.68% of the average daily net assets of AAV. No subsidy of the ordinary operating expenses of AAV was required for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a 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.

 

AAV received $552,041 in dividends from RS S&P 500 Index VIP Series.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $552,391 and $0, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures at December 31, 2006 aggregated $4,495,624 and $0, respectively, resulting in net unrealized appreciation of $4,495,624. The cost of investments owned at December 31, 2006 for federal income tax purposes was $46,075,612.

 

14    RS ASSET ALLOCATION VIP SERIES

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Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, AAV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, AAV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

Note E.   Reverse Repurchase Agreements

 

AAV may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short-term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time AAV enters into a reverse repurchase agreement, AAV segregates on their books cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by AAV may be unable to deliver the securities when AAV seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in AAV’s net asset value and may be viewed as a form of leverage.

 

Note F.   Dollar Roll Transactions

 

AAV may enter into dollar rolls (principally using TBA’s) in which AAV sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an agreed-upon price on a fixed date in the future month. The securities repurchased will bear the same interest 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 interest and principal payments on the securities sold. Dollar roll transactions involve the risk that the buyer of the replacement securities sold by AAV may be unable to deliver the securities when it is required to do so. AAV is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the “drop”), as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls may increase fluctuations in AAV’s net asset value and may be viewed as a form of leverage.

 

Note G.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for AAV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      479,546        494,217        $ 4,771,257        $ 4,531,165  

Shares issued in reinvestment of dividends

      180,790        36,161          1,772,453          329,786  

Shares repurchased

      (716,879 )      (1,752,890 )        (7,079,744 )        (15,819,499 )
   

Net decrease

      (56,543 )      (1,222,512 )      $ (536,034 )      $ (10,958,548 )
   

 

Note H.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

RS ASSET ALLOCATION VIP SERIES   15

Table of Contents
LOGO  

Notes to Financial Statements — RS Asset Allocation VIP Series (continued)

 

December 31, 2006

 

Note I.

  

Investments in Affiliates1

 

A summary of AAV transactions in affiliated issuers during the year ended December 31, 2006 is set forth below:

Name of Issuer

  

Balance of

Shares Held

December 31,

2005

  

Gross

Purchases

and

Additions

  

Gross

Sales and

Reductions

  

Balance of

Shares Held

December 31,

2006

  

Value

December 31,

2006

  

Dividends

Included in

Dividend

Income

  

Net Realized

Gains from

Underlying

Funds

  

Net Realized

Gain/(Loss)

on Sales

Non-Controlled Affiliates

                

RS S&P 500 Index VIP Series

   3,433,665   56,285   —   3,489,950   $ 36,155,885   $ 552,041   $         —   $         —

 

Note J.   Indemnifications

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note K.   Sales Transaction

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note L.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

1

  

Affiliated issuers, as defined in the 1940 Act, includes issuers in which the Fund held 5% or more of the outstanding voting securities.

 

16    RS ASSET ALLOCATION VIP SERIES

Table of Contents
LOGO  

Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders of RS Asset Allocation VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Asset Allocation VIP Series (the "Fund") at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

RS ASSET ALLOCATION VIP SERIES   17

Table of Contents
LOGO  

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.

 

18    RS ASSET ALLOCATION VIP SERIES

Table of Contents
LOGO  

Schedule of Investments — RS S&P 500 Index VIP Series

 

December 31, 2006

 

Shares          Value
     
Common Stocks — 97.7%
Aerospace and Defense — 2.4%
15,941   

Boeing Co.

    $ 1,416,198
8,896   

General Dynamics Corp.

      661,418
2,074   

Goodrich Corp.

      94,471
15,604   

Honeywell Int’l., Inc.

      705,925
2,900   

L-3 Comm. Hldgs., Inc.

      237,162
7,403   

Lockheed Martin Corp.

      681,594
8,930   

Northrop Grumman Corp.

      604,561
10,352   

Raytheon Co.

      546,586
2,736   

Rockwell Collins, Inc.

      173,161
20,200   

United Technologies Corp.

      1,262,904
         
        6,383,980
 
Air Freight and Logistics — 0.9%
6,394   

FedEx Corp.

      694,516
22,059   

United Parcel Svc., Inc. — Class B

      1,653,984
         
        2,348,500
 
Airlines — 0.1%
18,199   

Southwest Airlines Co.

      278,809
 
Auto Components — 0.2%
2,622   

Goodyear Tire & Rubber Co.*

      55,036
4,088   

Johnson Controls, Inc.

      351,241
         
        406,277
 
Automobiles — 0.4%
36,944   

Ford Motor Co.

      277,449
11,434   

General Motors Corp.

      351,253
5,221   

Harley-Davidson, Inc.

      367,924
         
        996,626
 
Beverages — 2.0%
14,362   

Anheuser-Busch Cos., Inc.

      706,611
2,046   

Brown-Forman Corp. — Class B

      135,527
42,764   

Coca-Cola Co.

      2,063,363
8,124   

Coca-Cola Enterprises, Inc.

      165,892
3,500   

Constellation Brands, Inc. — Class A*

      101,570
1,841   

Molson Coors Brewing Co. — Class B

      140,726
4,264   

Pepsi Bottling Group, Inc.

      131,800
32,671   

PepsiCo., Inc.

      2,043,571
         
        5,489,060
 
Biotechnology — 1.3%
23,617   

Amgen, Inc.*

      1,613,278
7,754   

Biogen Idec, Inc.*

      381,419
7,200   

Celgene Corp.*

      414,216
5,005   

Genzyme Corp.*

      308,208
9,200   

Gilead Sciences, Inc.*

      597,356
6,441   

MedImmune, Inc.*

      208,495
         
        3,522,972
 
Building Products — 0.2%
3,957   

American Standard Cos., Inc.

      181,429
7,420   

Masco Corp.

      221,635
         
        403,064
 
Capital Markets — 3.8%
4,567   

Ameriprise Financial, Inc.

      248,902
14,970   

Bank of New York, Inc.

      589,369
2,876   

Bear Stearns Cos., Inc.

      468,155
22,577   

Charles Schwab Corp.

      436,639
10,100   

E*TRADE Financial Corp.*

      226,442
1,739   

Federated Investors, Inc. — Class B

      58,743
3,987   

Franklin Resources, Inc.

      439,248
8,902   

Goldman Sachs Group, Inc.

      1,774,614
Shares          Value
     
6,726   

Janus Capital Group, Inc.

    $ 145,214
2,500   

Legg Mason, Inc.

      237,625
10,848   

Lehman Brothers Hldgs., Inc.

      847,446
7,285   

Mellon Financial Corp.

      307,063
18,064   

Merrill Lynch & Co., Inc.

      1,681,758
21,983   

Morgan Stanley

      1,790,076
3,863   

Northern Trust Corp.

      234,445
6,370   

State Street Corp.

      429,593
4,316   

T. Rowe Price Group, Inc.

      188,911
         
        10,104,243
 
Chemicals — 1.4%
3,869   

Air Products & Chemicals, Inc.

      271,913
1,031   

Ashland, Inc.

      71,325
19,542   

Dow Chemical Co.

      780,507
18,905   

E.I. Du Pont de Nemours & Co.

      920,863
1,156   

Eastman Chemical Co.

      68,562
4,704   

Ecolab, Inc.

      212,621
1,633   

Hercules, Inc.*

      31,533
1,417   

Int’l. Flavors & Fragrances, Inc.

      69,660
11,514   

Monsanto Co.

      604,830
2,995   

PPG Inds., Inc.

      192,309
5,483   

Praxair, Inc.

      325,306
3,888   

Rohm & Haas Co.

      198,755
1,351   

Sigma-Aldrich

      105,000
         
        3,853,184
 
Commercial Banks — 4.0%
10,334   

BB&T Corp.

      453,973
3,064   

Comerica, Inc.

      179,796
3,500   

Commerce Bancorp, Inc.

      123,445
2,100   

Compass Bancshares, Inc.

      125,265
10,354   

Fifth Third Bancorp

      423,789
2,992   

First Horizon Nat’l. Corp.

      125,006
7,298   

Huntington Bancshares, Inc.

      173,327
7,242   

KeyCorp

      275,413
2,000   

M & T Bank Corp.

      244,320
6,396   

Marshall & Ilsley Corp.

      307,712
11,847   

National City Corp.

      433,126
6,005   

PNC Financial Svcs. Group

      444,610
15,927   

Regions Financial Corp.

      595,670
7,523   

SunTrust Banks, Inc.

      635,317
5,299   

Synovus Financial Corp.

      163,368
37,797   

U.S. Bancorp

      1,367,873
39,013   

Wachovia Corp.

      2,221,790
67,910   

Wells Fargo & Co.

      2,414,880
1,672   

Zions Bancorporation

      137,840
         
        10,846,520
 
Commercial Services and Supplies — 0.6%
4,913   

Allied Waste Inds., Inc.*

      60,381
2,079   

Avery Dennison Corp.

      141,227
3,041   

Cintas Corp.

      120,758
2,150   

Equifax, Inc.

      87,290
2,470   

Monster Worldwide, Inc.*

      115,201
8,465   

Pitney Bowes, Inc.

      390,998
4,695   

R.R. Donnelley & Sons Co.

      166,860
2,619   

Robert Half Int’l., Inc.

      97,217
11,422   

Waste Management, Inc.

      419,987
         
        1,599,919
 
Communications Equipment — 2.6%
1,701   

ADC Telecomm., Inc.*

      24,715
10,957   

Avaya, Inc.*

      153,179
2,154   

Ciena Corp.*

      59,687
129,463   

Cisco Systems, Inc.*

      3,538,224

 

See notes to financial statements.

 

RS ASSET ALLOCATION VIP SERIES   19

Table of Contents
LOGO  

Schedule of Investments — RS S&P 500 Index VIP Series (continued)

 

December 31, 2006

 

Shares          Value
     
2,797   

Comverse Technology, Inc.*

    $ 59,044
30,763   

Corning, Inc.*

      575,576
3,432   

JDS Uniphase Corp.*

      57,177
11,000   

Juniper Networks, Inc.*

      208,340
50,705   

Motorola, Inc.

      1,042,495
33,468   

QUALCOMM, Inc.

      1,264,756
8,953   

Tellabs, Inc.*

      91,858
         
        7,075,051
 
Computers and Peripherals — 3.6%
17,533   

Apple Computer, Inc.*

      1,487,500
47,143   

Dell, Inc.*

      1,182,818
45,971   

EMC Corp.*

      606,817
55,301   

Hewlett Packard Co.

      2,277,848
30,422   

Int’l. Business Machines

      2,955,497
2,204   

Lexmark Int’l. Group, Inc. — Class A*

      161,333
2,932   

NCR Corp.*

      125,372
8,633   

Network Appliance, Inc.*

      339,104
2,794   

QLogic Corp.*

      61,245
4,800   

SanDisk Corp.*

      206,544
55,932   

Sun Microsystems, Inc.*

      303,152
         
        9,707,230
 
Construction and Engineering — 0.1%
2,106   

Fluor Corp.

      171,955
 
Construction Materials — 0.1%
1,518   

Vulcan Materials Co.

      136,423
 
Consumer Finance — 1.0%
22,837   

American Express Co.

      1,385,521
11,040   

Capital One Financial Corp.

      848,093
7,586   

SLM Corp.

      369,969
         
        2,603,583
 
Containers and Packaging — 0.2%
1,698   

Ball Corp.

      74,033
2,984   

Bemis Co., Inc.

      101,396
2,370   

Pactiv Corp.*

      84,585
2,355   

Sealed Air Corp.

      152,887
1,604   

Temple-Inland, Inc.

      73,832
         
        486,733
 
Distributors — 0.1%
5,413   

Genuine Parts Co.

      256,739
 
Diversified Consumer Services — 0.1%
2,958   

Apollo Group, Inc. — Class A*

      115,273
6,318   

H & R Block, Inc.

      145,567
         
        260,840
 
Diversified Financial Services — 5.5%
92,081   

Bank of America Corp.

      4,916,204
700   

Chicago Mercantile Exchange
Hldgs., Inc.

      356,825
4,000   

CIT Group, Inc.

      223,080
101,338   

Citigroup, Inc.

      5,644,527
70,708   

J.P. Morgan Chase & Co.

      3,415,196
4,648   

Moody’s Corp.

      320,991
         
        14,876,823
 
Diversified Telecommunication Services — 2.8%
82,113   

AT & T, Inc.

      2,935,540
36,963   

BellSouth Corp.

      1,741,327
2,122   

CenturyTel, Inc.

      92,647
9,221   

Citizens Comm. Co.

      132,506
2,740   

Embarq Corp.

      144,014
32,677   

Qwest Comm. Int’l., Inc.*

      273,506
58,236   

Verizon Comm.

      2,168,709
6,929   

Windstream Corp.

      98,530
         
        7,586,779
 
Shares          Value
     
Electric Utilities — 1.8%
3,880   

Allegheny Energy, Inc.*

    $ 178,131
7,774   

American Electric Power, Inc.

      331,017
23,302   

Duke Energy Corp.

      773,859
6,073   

Edison Int’l.

      276,200
3,852   

Entergy Corp.

      355,617
14,956   

Exelon Corp.

      925,627
7,451   

FirstEnergy Corp.

      449,295
8,412   

FPL Group, Inc.

      457,781
1,550   

Pinnacle West Capital Corp.

      78,570
6,916   

PPL Corp.

      247,869
5,078   

Progress Energy, Inc.

      249,228
13,384   

Southern Co.

      493,334
         
        4,816,528
 
Electrical Equipment — 0.4%
2,932   

American Power Conversion Corp.

      89,690
2,094   

Cooper Inds. Ltd. — Class A

      189,360
15,390   

Emerson Electric Co.

      678,545
3,531   

Rockwell Automation, Inc.

      215,674
         
        1,173,269
 
Electronic Equipment and Instruments — 0.3%
9,869   

Agilent Technologies, Inc.*

      343,935
5,356   

Jabil Circuit, Inc.

      131,490
2,894   

Molex, Inc.

      91,537
9,102   

Sanmina-SCI Corp.*

      31,402
24,921   

Solectron Corp.*

      80,245
3,432   

Symbol Technologies, Inc.

      51,274
1,335   

Tektronix, Inc.

      38,942
         
        768,825
 
Energy Equipment and Services — 1.7%
7,888   

B.J. Svcs. Co.

      231,276
6,815   

Baker Hughes, Inc.

      508,808
20,590   

Halliburton Co.

      639,320
6,320   

Nabors Inds., Inc.*

      188,210
3,900   

National-Oilwell Varco, Inc.*

      238,602
3,207   

Noble Corp.

      244,213
2,114   

Rowan Cos., Inc.

      70,185
24,058   

Schlumberger Ltd.

      1,519,503
4,000   

Smith International, Inc.

      164,280
6,670   

Transocean, Inc.*

      539,536
7,700   

Weatherford Int’l. Ltd.*

      321,783
         
        4,665,716
 
Food and Staples Retailing — 2.1%
8,757   

Costco Wholesale Corp.

      462,983
17,192   

CVS Corp.

      531,405
16,796   

Kroger Co.

      387,484
7,770   

Safeway, Inc.

      268,531
3,107   

Supervalu, Inc.

      111,075
12,894   

Sysco Corp.

      473,983
53,782   

Wal-Mart Stores, Inc.

      2,483,653
19,380   

Walgreen Co.

      889,348
2,600   

Whole Foods Market, Inc.

      122,018
         
        5,730,480
 
Food Products — 1.1%
14,488   

Archer-Daniels-Midland Co.

      463,036
7,064   

Campbell Soup Co.

      274,719
8,985   

ConAgra Foods, Inc.

      242,595
2,600   

Dean Foods Co.*

      109,928
6,325   

General Mills, Inc.

      364,320
5,712   

H.J. Heinz Co.

      257,097
5,575   

Hershey Co.

      277,635

 

See notes to financial statements.

 

20    RS ASSET ALLOCATION VIP SERIES

Table of Contents

December 31, 2006

 

Shares          Value
     
6,792   

Kellogg Co.

    $ 340,008
2,128   

McCormick & Co., Inc.

      82,056
12,896   

Sara Lee Corp.

      219,619
4,500   

Tyson Foods, Inc. — Class A

      74,025
5,402   

W.M. Wrigley Jr. Co.

      279,391
         
        2,984,429
 
Gas Utilities — 0.1%
938   

NICOR, Inc.

      43,898
605   

Peoples Energy Corp.

      26,965
1,700   

Questar Corp.

      141,185
         
        212,048
 
Health Care Equipment and Supplies — 1.6%
806   

Bausch & Lomb, Inc.

      41,960
12,386   

Baxter Int’l., Inc.

      574,587
4,439   

Becton Dickinson & Co., Inc.

      311,396
3,938   

Biomet, Inc.

      162,521
26,319   

Boston Scientific Corp.*

      452,161
1,891   

C.R. Bard, Inc.

      156,896
2,597   

Hospira, Inc.*

      87,207
24,740   

Medtronic, Inc.

      1,323,838
8,090   

St. Jude Medical, Inc.*

      295,770
8,212   

Stryker Corp.

      452,563
5,170   

Zimmer Hldgs., Inc.*

      405,225
         
        4,264,124
 
Health Care Providers and Services — 2.4%
12,292   

Aetna, Inc.

      530,769
4,226   

AmerisourceBergen Corp.

      190,001
8,368   

Cardinal Health, Inc.

      539,150
8,800   

Caremark Rx, Inc.

      502,568
2,296   

Cigna Corp.

      302,085
3,150   

Coventry Health Care, Inc.*

      157,657
3,538   

Express Scripts, Inc.*

      253,321
4,134   

Health Management Assoc.,
Inc. — Class A

      87,269
3,135   

Humana, Inc.*

      173,397
2,400   

Laboratory Corp. of America*

      176,328
1,471   

Manor Care, Inc.

      69,019
5,759   

McKesson Corp.

      291,981
6,534   

Medco Health Solutions, Inc.*

      349,177
2,100   

Patterson Cos., Inc.*

      74,571
3,696   

Quest Diagnostics, Inc.

      195,888
7,310   

Tenet Healthcare Corp.*

      50,951
27,600   

UnitedHealth Group, Inc.

      1,482,948
12,606   

WellPoint, Inc.*

      991,966
         
        6,419,046
 
Health Care Technology — 0.0%
4,244   

IMS Health, Inc.

      116,625
 
Hotels, Restaurants and Leisure — 1.6%
10,827   

Carnival Corp.

      531,064
2,562   

Darden Restaurants, Inc.

      102,916
3,771   

Harrah’s Entertainment, Inc.

      311,937
8,124   

Hilton Hotels Corp.

      283,528
7,684   

Int’l. Game Technology

      355,001
7,232   

Marriott Int’l., Inc. — Class A

      345,111
24,461   

McDonald’s Corp.

      1,084,356
15,064   

Starbucks Corp.*

      533,567
4,298   

Starwood Hotels & Resorts
Worldwide, Inc.

      268,625
2,530   

Wendy’s Int’l., Inc.

      83,718
3,797   

Wyndham Worldwide Corp.*

      121,580
5,173   

Yum! Brands, Inc.

      304,172
         
        4,325,575
 
Shares          Value
     
Household Durables — 0.6%
1,205   

Black & Decker Corp.

    $ 96,364
2,442   

Centex Corp.

      137,411
5,000   

D.R. Horton, Inc.

      132,450
2,245   

Fortune Brands, Inc.

      191,701
1,300   

Harman Int’l. Inds., Inc.

      129,883
1,490   

KB Home

      76,407
2,928   

Leggett & Platt, Inc.

      69,979
3,400   

Lennar Corp. — Class A

      178,364
5,096   

Newell Rubbermaid, Inc.

      147,529
4,860   

Pulte Homes, Inc.

      160,963
873   

Snap-On, Inc.

      41,590
1,281   

Stanley Works

      64,422
1,159   

Whirlpool Corp.

      96,220
         
        1,523,283
 
Household Products — 2.1%
3,445   

Clorox Co.

      220,997
9,818   

Colgate-Palmolive Co.

      640,526
9,529   

Kimberly-Clark Corp.

      647,495
65,562   

Procter & Gamble Co.

      4,213,670
         
        5,722,688
 
Independent Power Producers and Energy Traders — 0.4%
13,081   

AES Corp.*

      288,305
3,844   

Constellation Energy Group, Inc.

      264,736
5,523   

Dynegy, Inc. — Class A*

      39,987
9,960   

TXU Corp.

      539,932
         
        1,132,960
 
Industrial Conglomerates — 3.8%
15,694   

3M Co.

      1,223,033
207,351   

General Electric Co.

      7,715,531
2,366   

Textron, Inc.

      221,860
38,378   

Tyco Int’l. Ltd.

      1,166,691
         
        10,327,115
 
Information Technology Services — 1.0%
2,300   

Affiliated Computer Svcs.,
Inc. — Class A*

      112,332
9,913   

Automatic Data Processing, Inc.

      488,215
2,600   

Cognizant Tech. Solutions
Corp. — Class A*

      200,616
3,266   

Computer Sciences Corp.*

      174,306
2,590   

Convergys Corp.*

      61,590
10,014   

Electronic Data Systems Corp.

      275,886
3,300   

Fidelity Nat’l. Information Svcs., Inc.

      132,297
15,929   

First Data Corp.

      406,508
3,775   

Fiserv, Inc.*

      197,886
7,597   

Paychex, Inc.

      300,385
2,167   

Sabre Hldgs. Corp. — Class A

      69,106
4,833   

Unisys Corp.*

      37,891
15,929   

Western Union Co.

      357,128
         
        2,814,146
 
Insurance — 4.7%
6,224   

ACE Ltd.

      376,988
11,497   

AFLAC, Inc.

      528,862
12,499   

Allstate Corp.

      813,810
2,084   

Ambac Financial Group, Inc.

      185,622
52,703   

American Int’l. Group, Inc.

      3,776,697
5,608   

Aon Corp.

      198,187
7,936   

Chubb Corp.

      419,894
4,875   

Cincinnati Financial Corp.

      220,886
8,000   

Genworth Financial, Inc. — Class A

      273,680
5,690   

Hartford Financial Svcs. Group, Inc.

      530,934
6,446   

Lincoln Nat’l. Corp.

      428,014
9,663   

Loews Corp.

      400,724

 

See notes to financial statements.

 

RS ASSET ALLOCATION VIP SERIES   21

Table of Contents
LOGO  

Schedule of Investments — RS S&P 500 Index VIP Series (continued)

 

December 31, 2006

 

Shares          Value
     
11,451   

Marsh & McLennan Cos., Inc.

    $ 351,088
2,700   

MBIA, Inc.

      197,262
15,772   

MetLife, Inc.

      930,706
5,188   

Principal Financial Group, Inc.

      304,535
14,224   

Progressive Corp.

      344,505
9,477   

Prudential Financial, Inc.

      813,695
2,047   

SAFECO Corp.

      128,040
13,898   

St. Paul Travelers Cos., Inc.

      746,184
1,782   

Torchmark Corp.

      113,620
9,310   

UnumProvident Corp.

      193,462
3,956   

XL Capital Ltd. — Class A

      284,911
         
        12,562,306
 
Internet and Catalog Retail — 0.1%
5,800   

Amazon.com, Inc.*

      228,868
2,000   

IAC/ InterActiveCorp*

      74,320
         
        303,188
 
Internet Software and Services — 1.3%
25,334   

eBay, Inc.*

      761,793
4,300   

Google, Inc. — Class A*

      1,980,064
4,100   

VeriSign, Inc.*

      98,605
25,976   

Yahoo! Inc.*

      663,427
         
        3,503,889
 
Leisure Equipment and Products — 0.2%
1,348   

Brunswick Corp.

      43,001
7,563   

Eastman Kodak Co.

      195,126
2,589   

Hasbro, Inc.

      70,550
6,533   

Mattel, Inc.

      148,038
         
        456,715
 
Life Sciences Tools and Services — 0.2%
3,176   

Applera Corp. — Applied
Biosystems Group

      116,528
723   

Millipore Corp.*

      48,152
1,870   

PerkinElmer, Inc.

      41,570
7,690   

Thermo Electron Corp.*

      348,280
1,962   

Waters Corp.*

      96,079
         
        650,609
 
Machinery — 1.5%
13,694   

Caterpillar, Inc.

      839,853
1,018   

Cummins, Inc.

      120,307
5,066   

Danaher Corp.

      366,981
4,466   

Deere & Co.

      424,583
7,032   

Dover Corp.

      344,709
2,646   

Eaton Corp.

      198,820
11,408   

Illinois Tool Works, Inc.

      526,936
5,794   

Ingersoll-Rand Co. Ltd. — Class A

      226,719
4,742   

ITT Inds., Inc.

      269,440
4,573   

PACCAR, Inc.

      296,788
2,232   

Pall Corp.

      77,116
2,365   

Parker-Hannifin Corp.

      181,821
1,000   

Terex Corp.*

      64,580
         
        3,938,653
 
Media — 3.6%
15,737   

CBS Corp. — Class B

      490,680
9,954   

Clear Channel Comm., Inc.

      353,765
43,088   

Comcast Corp. — Class A*

      1,823,915
6,000   

DIRECTV Group, Inc.*

      149,640
1,257   

Dow Jones & Co., Inc.

      47,766
5,313   

Gannett Co., Inc.

      321,224
2,911   

Idearc Inc*

      83,400
7,803   

Interpublic Group Cos., Inc.*

      95,509
6,524   

McGraw-Hill Cos., Inc.

      443,762
Shares          Value
     
742   

Meredith Corp.

    $ 41,812
3,273   

New York Times Co. — Class A

      79,730
47,300   

News Corp. — Class A

      1,016,004
3,111   

Omnicom Group, Inc.

      325,224
1,600   

Scripps E.W. Co. — Class A

      79,904
86,724   

Time Warner, Inc.

      1,888,849
6,418   

Tribune Co.

      197,546
5,466   

Univision Comm., Inc. — Class A*

      193,606
15,737   

Viacom, Inc. — Class B*

      645,689
42,416   

Walt Disney Co.

      1,453,596
         
        9,731,621
 
Metals and Mining — 1.0%
18,625   

Alcoa, Inc.

      558,936
2,406   

Allegheny Technologies, Inc.

      218,176
4,391   

Freeport-McMoran Copper & Gold,
Inc. — Class B

      244,710
9,604   

Newmont Mining Corp.

      433,621
6,822   

Nucor Corp.

      372,891
4,496   

Phelps Dodge Corp.

      538,261
2,788   

United States Steel Corp.

      203,914
         
        2,570,509
 
Multiline Retail — 1.2%
1,734   

Big Lots, Inc.*

      39,743
1,262   

Dillards, Inc. — Class A

      44,132
6,584   

Dollar General Corp.

      105,739
2,592   

Family Dollar Stores, Inc.

      76,024
11,094   

Federated Department Stores, Inc.

      423,014
5,398   

J.C. Penney Co., Inc.

      417,589
6,913   

Kohl’s Corp.*

      473,057
4,040   

Nordstrom, Inc.

      199,334
1,811   

Sears Hldgs. Corp.*

      304,121
17,546   

Target Corp.

      1,000,999
         
        3,083,752
 
Multi–Utilities — 1.1%
4,315   

Ameren Corp.

      231,845
7,948   

CenterPoint Energy, Inc.

      131,778
7,452   

CMS Energy Corp.*

      124,448
4,764   

Consolidated Edison, Inc.

      229,006
6,657   

Dominion Resources, Inc.

      558,123
4,105   

DTE Energy Co.

      198,723
4,794   

KeySpan Corp.

      197,417
4,793   

NiSource, Inc.

      115,511
6,780   

PG&E Corp.

      320,897
5,184   

Public Svc. Enterprise Group, Inc.

      344,114
5,394   

Sempra Energy

      302,280
2,588   

TECO Energy, Inc.

      44,591
5,953   

Xcel Energy, Inc.

      137,276
         
        2,936,009
 
Office Electronics — 0.1%
20,891   

Xerox Corp.*

      354,102
 
Oil, Gas and Consumable Fuels — 7.9%
9,186   

Anadarko Petroleum Corp.

      399,775
7,096   

Apache Corp.

      471,955
6,700   

Chesapeake Energy Corp.

      194,635
45,419   

Chevron Corp.

      3,339,659
34,735   

ConocoPhillips

      2,499,183
3,600   

CONSOL Energy, Inc

      115,668
8,698   

Devon Energy Corp.

      583,462
13,790   

El Paso Corp.

      210,711
4,845   

EOG Resources, Inc.

      302,570
121,202   

Exxon Mobil Corp.

      9,287,709
5,421   

Hess Corp.

      268,719

 

See notes to financial statements.

 

22    RS ASSET ALLOCATION VIP SERIES

Table of Contents

December 31, 2006

 

Shares          Value
     
2,245   

Kinder Morgan, Inc.

    $ 237,409
7,248   

Marathon Oil Corp.

      670,440
3,000   

Murphy Oil Corp.

      152,550
17,458   

Occidental Petroleum Corp.

      852,474
5,300   

Peabody Energy Corp.

      214,173
2,532   

Sunoco, Inc.

      157,895
12,700   

Valero Energy Corp.

      649,732
10,715   

Williams Cos., Inc.

      279,876
9,233   

XTO Energy, Inc.

      434,413
         
        21,323,008
 
Paper and Forest Products — 0.3%
9,605   

Int’l. Paper Co.

      327,531
2,990   

MeadWestvaco Corp.

      89,879
5,010   

Weyerhaeuser Co.

      353,956
         
        771,366
 
Personal Products — 0.2%
9,396   

Avon Products, Inc.

      310,444
2,300   

Estee Lauder Cos., Inc. — Class A

      93,886
         
        404,330
 
Pharmaceuticals — 6.2%
30,289   

Abbott Laboratories

      1,475,377
2,863   

Allergan, Inc.

      342,816
2,000   

Barr Pharmaceuticals, Inc.*

      100,240
38,537   

Bristol-Myers Squibb Corp.

      1,014,294
22,839   

Eli Lilly & Co.

      1,189,912
7,079   

Forest Laboratories, Inc.*

      358,197
60,954   

Johnson & Johnson

      4,024,183
3,645   

King Pharmaceuticals, Inc.*

      58,028
45,858   

Merck & Co., Inc.

      1,999,409
4,500   

Mylan Laboratories, Inc.

      89,820
150,003   

Pfizer, Inc.

      3,885,078
31,420   

Schering-Plough Corp.

      742,769
1,956   

Watson Pharmaceuticals, Inc.*

      50,915
27,069   

Wyeth

      1,378,353
         
        16,709,391
 
Real Estate Investment Trusts — 1.1%
3,463   

Apartment Investment & Management Co. — Class A

      193,997
4,200   

Archstone-Smith Trust

      244,482
2,200   

Boston Properties, Inc.

      246,136
8,963   

Equity Office Pptys. Trust

      431,748
5,321   

Equity Residential

      270,041
4,200   

Kimco Realty Corp.

      188,790
3,362   

Plum Creek Timber Co., Inc.

      133,976
5,292   

ProLogis

      321,595
2,900   

Public Storage, Inc.

      282,750
4,402   

Simon Ppty. Group, Inc.

      445,878
2,300   

Vornado Realty Trust

      279,450
         
        3,038,843
 
Real Estate Management and Development — 0.1%
3,700   

CB Richard Ellis Group,
Inc. — Class A*

      122,840
4,746   

Realogy Corp.*

      143,899
         
        266,739
 
Road and Rail — 0.7%
7,561   

Burlington Northern Santa Fe

      558,078
8,968   

CSX Corp.

      308,768
8,129   

Norfolk Southern Corp.

      408,807
930   

Ryder System, Inc.

      47,486
5,442   

Union Pacific Corp.

      500,773
         
        1,823,912
 
Shares          Value
     
Semiconductors and Semiconductor Equipment — 2.3%
11,902   

Advanced Micro Devices, Inc.*

    $ 242,206
6,790   

Altera Corp.*

      133,627
6,027   

Analog Devices, Inc.

      198,107
29,509   

Applied Materials, Inc.

      544,441
9,144   

Broadcom Corp. — Class A*

      295,443
118,353   

Intel Corp.

      2,396,648
3,328   

KLA-Tencor Corp.

      165,568
5,347   

Linear Technology Corp.

      162,121
9,161   

LSI Logic Corp.*

      82,449
7,129   

Maxim Integrated Products, Inc.

      218,290
15,228   

Micron Technology, Inc.*

      212,583
6,658   

National Semiconductor Corp.

      151,137
2,370   

Novellus Systems, Inc.*

      81,575
6,574   

NVIDIA Corp.*

      243,304
3,328   

PMC-Sierra, Inc.*

      22,331
3,377   

Teradyne, Inc.*

      50,520
31,480   

Texas Instruments, Inc.

      906,624
5,730   

Xilinx, Inc.

      136,431
         
        6,243,405
 
Software — 3.4%
11,654   

Adobe Systems, Inc.*

      479,213
4,116   

Autodesk, Inc.*

      166,533
3,606   

BMC Software, Inc.*

      116,113
9,555   

CA, Inc.

      216,421
4,616   

Citrix Systems, Inc.*

      124,863
5,622   

Compuware Corp.*

      46,831
6,400   

Electronic Arts, Inc.*

      322,304
6,330   

Intuit, Inc.*

      193,128
186,465   

Microsoft Corp.

      5,567,845
7,029   

Novell, Inc.*

      43,580
83,811   

Oracle Corp.*

      1,436,521
1,562   

Parametric Technology Corp.*

      28,147
21,273   

Symantec Corp.*

      443,542
         
        9,185,041
 
Specialty Retail — 2.0%
4,700   

AutoNation, Inc.*

      100,204
1,474   

AutoZone, Inc.*

      170,335
5,064   

Bed, Bath & Beyond, Inc.*

      192,938
8,740   

Best Buy Co., Inc.

      429,921
3,140   

Circuit City Stores, Inc.

      59,597
14,914   

Gap, Inc.

      290,823
42,730   

Home Depot, Inc.

      1,716,037
9,195   

Limited Brands

      266,103
30,368   

Lowe’s Cos., Inc.

      945,963
6,624   

Office Depot, Inc.*

      252,838
2,141   

OfficeMax, Inc.

      106,301
2,565   

RadioShack Corp.

      43,041
2,251   

Sherwin-Williams Co.

      143,119
11,790   

Staples, Inc.

      314,793
2,179   

Tiffany & Co.

      85,504
8,072   

TJX Cos., Inc.

      230,213
         
        5,347,730
 
Textiles, Apparel and Luxury Goods — 0.4%
6,400   

Coach, Inc.*

      274,944
1,927   

Jones Apparel Group, Inc.

      64,419
1,595   

Liz Claiborne, Inc.

      69,319
4,408   

NIKE, Inc. — Class B

      436,524
1,636   

V.F. Corp.

      134,283
         
        979,489
 

 

See notes to financial statements.

 

RS ASSET ALLOCATION VIP SERIES   23

Table of Contents
LOGO  

Schedule of Investments — RS S&P 500 Index VIP Series (continued)

 

December 31, 2006

 

    
Shares		          Value
     
  Thrifts and Mortgage Finance — 1.4%
  12,410   

Countrywide Financial Corp.

    $ 526,805
  13,787   

Federal Home Loan Mortgage Corp.

      936,137
  19,513   

Federal National Mortgage Assn.

      1,158,877
  1,536   

MGIC Investment Corp.

      96,062
  9,765   

Sovereign Bancorp, Inc.

      247,933
  18,321   

Washington Mutual, Inc.

      833,422
         
        3,799,236
   
  Tobacco — 1.6%
  42,695   

Altria Group, Inc.

      3,664,085
  4,678   

Reynolds American, Inc.

      306,269
  3,831   

UST, Inc.

      222,964
         
        4,193,318
   
  Trading Companies and Distributors — 0.1%
  2,192   

W.W. Grainger, Inc.

      153,308
   
  Wireless Telecommunication Services — 0.6%
  6,702   

ALLTEL Corp.

      405,337
  59,117   

Sprint Nextel Corp.

      1,116,720
         
        1,522,057
   
  

Total Common Stocks
(Cost $201,103,961)

      262,244,693
   
     
Principal
Amount		          Value
  U.S. Government Securities — 0.1%
  U.S. Treasury Bills — 0.1%   
  

U.S. Treasury Bills

   
$ 350,000   

4.838% due 3/22/2007 (1)

    $ 346,237
  15,000   

4.985% due 1/25/2007 (1)

      14,950
         
        361,187
   
  

Total U.S. Government Securities
(Cost $361,187)

      361,187
   
     
Shares          Value
 
 		 Other Investments - For Trustee Deferred
Compensation Plan (2) — 0.0%
  9   

RS Emerging Growth Fund, Class A

    $ 311
  15   

RS Global Natural Resources Fund, Class A

      456
  12   

RS Growth Fund, Class A

      182
  34   

RS Investors Fund, Class A

      396
  7   

RS MidCap Opportunities Fund,
Class A

      100
  4   

RS Partners Fund, Class A

      148
  8   

RS Smaller Company Growth Fund, Class A

      160
  4   

RS Value Fund, Class A

      100
   
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $1,853)

      1,853
   
Principal
Amount		          Value
     
Repurchase Agreement — 2.0%
$  5,360,000   

State Street Bank and Trust Co.
repurchase agreement,
dated 12/29/2006, maturity
value $5,363,037 at
5.10%, due 1/2/2007 (3)
(Cost $5,360,000)

    $ 5,360,000
 
Total Investments — 99.8%
(Cost $206,827,001)		      267,967,733
Cash, Receivables, and Other Assets
Less Liabilities — 0.2%		      423,045
 
Net Assets — 100%    $ 268,390,778
 

 

*   Non-income producing security.
(1)   The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts.
(2)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(3)   The repurchase agreement is fully collateralized by $5,360,000 in U.S. Government Agency, 5.55%, due 10/4/2016, with a value of $5,467,200.

 

Number of
Contracts		    Description    Expiration    Face Value
(Thousands)		    Unrealized
Depreciation
Purchased Futures Contracts
16   

S & P 500 Index

    3/2007    $ 5,707    $              6,120
 

 

 

See notes to financial statements.

 

24    RS ASSET ALLOCATION VIP SERIES

Table of Contents
LOGO  

Financial Information — RS S&P 500 Index VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $206,827,001)

    $ 267,967,733  

Dividends receivable

      357,146  

Receivable for fund shares sold

      175,587  

Interest receivable

      2,278  

Prepaid insurance

      3,110  
        

Total Assets

      268,505,854  
        

LIABILITIES

   

Accrued expenses

      29,123  

Payable for variation margin — Note A

      21,600  

Payable for fund shares redeemed

      3,985  

Deferred trustees’ compensation

      1,853  

Due to custodian

      1,755  

Due to Adviser

      56,760  
        

Total Liabilities

      115,076  
        

Net Assets

    $ 268,390,778  
        

COMPONENTS OF NET ASSETS

   

Paid-in capital

      339,177,077  

Undistributed net investment income

      164,022  

Accumulated net realized loss on investments and futures contracts

      (132,097,173 )

Net unrealized appreciation of investments and futures contracts

      61,146,852  
        

Net Assets

    $ 268,390,778  
        

Shares of beneficial interest outstanding with no
par value

      25,904,976  

Net Asset Value Per Share

      $10.36  

 

LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Dividends

    $ 4,516,446  

Interest

      261,967  
        

Total Income

      4,778,413  
        

Expenses:

   

Investment advisory fees — Note B

      597,787  

Custodian fees

      123,322  

Trustees’ fees — Note B

      35,100  

Audit fees

      29,238  

Printing expense

      28,148  

Registration fees

      24,268  

Insurance expense

      13,718  

Legal fees

      9,800  

Loan commitment fees — Note F

      3,407  

Other

      505  
        

Total Expenses before Waivers and Custody credits

      865,293  

Less: Expenses waived by
sub-adviser — Note B

      (195,294 )

Custody credits — Note A

      (478 )
        

Expenses Net of Waivers and Custody credits

      669,521  
        

Net Investment Income

      4,108,892  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS

   

Net realized loss on investments — Note A

      (315,584 )

Net realized gain on futures contracts — Note A

      517,087  

Net change in unrealized appreciation
of investments — Note C

      30,912,582  

Net change in unrealized depreciation of futures contracts — Note A

      54,018  
        

Net Realized and Unrealized Gain
on Investments

      31,168,103  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 35,276,995  
        

 

See notes to financial statements.

 

RS ASSET ALLOCATION VIP SERIES   25

Table of Contents
LOGO  

Financial Information — RS S&P 500 Index VIP Series (continued)

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 4,108,892        $ 3,311,628  

Net realized gain on investments

        201,503          146,486  

Net change in unrealized appreciation of investments and futures contracts

        30,966,600          6,117,526  
                     

Net Increase in Net Assets Resulting from Operations

        35,276,995          9,575,640  
                     

Dividends to Shareholders from:

          

Net investment income

        (4,039,774 )        (3,289,364 )
                     

From Capital Share Transactions:

          

Net increase in net assets from capital share transactions — Note E

        17,624,878          10,424,376  
                     

Net Increase in Net Assets

        48,862,099          16,710,652  

NET ASSETS:

          

Beginning of year

        219,528,679          202,818,027  
                     

End of year*

      $ 268,390,778        $ 219,528,679  
                     

*  Includes undistributed net investment income of:

      $ 164,022        $ 98,844  

 

See notes to financial statements.

 

26    RS ASSET ALLOCATION VIP SERIES

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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 dividends and distributions).

 

 

Financial Highlights

    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $9.12     $8.86     $8.14     $6.44     $8.47  
   

Net investment income

   0.16     0.14     0.14     0.11     0.14  

Net realized and
unrealized gain/(loss)

   1.24     0.26     0.72     1.70     (2.03 )
   

Total from Investment Operations

   1.40     0.40     0.86     1.81     (1.89 )
   

Dividends to Shareholders from:

          

Net Investment Income

   (0.16 )   (0.14 )   (0.14 )   (0.11 )   (0.14 )
   

Net asset value, end of year

   $10.36     $9.12     $8.86     $8.14     $6.44  
   

Total Return*

   15.46 %   4.54 %   10.59 %   28.25 %   (22.42 )%
   

Net assets, end of year (thousands)

   $268,391     $219,529     $202,818     $170,825     $127,984  

Net ratio of expenses to
average net assets

   0.28 %(a)   0.28 %   0.28 %   0.28 %   0.28  %

Gross ratio of expenses to
average net assets

   0.36 %   0.37 %   0.36 %   0.40 %   0.34  %

Net ratio of net investment
income to average net assets

   1.72 %(a)   1.61 %   1.75 %   1.51 %   1.29  %

Portfolio turnover rate

   2 %   2 %   1 %   12 %   17  %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Includes the effect of expenses waived by GIS.

 

See notes to financial statements.

 

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Notes to Financial Statements — RS S&P 500 Index VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS S&P 500 Index VIP Series (the “Fund” or “SP500IV”) is a series of the Trust. SP500IV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian VC 500 Index Fund (“GVC500F”), a series (“Predecessor Fund”) of The Guardian Variable Contract Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of SP500IV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Repurchase agreements are carried at cost which approximates market value (see Note D). Short-term debt securities with maturities of 60 days or less are valued on an amortized cost basis which approximates market value.

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Futures Contracts

 

SP500IV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, SP500IV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by SP500IV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by SP500IV. The daily changes in the variation margin are recognized as unrealized gains or losses by SP500IV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, SP500IV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for SP500IV. Net realized short-term and long-term capital gains for SP500IV will be distributed at least annually. All such dividends and

 

28    RS ASSET ALLOCATION VIP SERIES

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distributions are credited in the form of additional shares of SP500IV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

    Ordinary
Income
2006   $ 4,039,774
2005     3,289,364

 

As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:

 

Undistributed

Ordinary

Income

   Capital Loss
Carryforward
(Including Post-
October Loss)		     Unrealized
Appreciation
$ 165,876   $ (127,236,087 )   $ 56,285,767

 

Taxes

 

SP500IV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:

 

    Capital Loss
Carryforward		     Expiration
Date
  $ (114,242,796 )   2010
    (11,938,809 )   2011
    (549,960 )   2013
         
Total   $ (126,731,565 )  
         

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

Custody Credits

 

SP500IV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, SP500IV’s custodian fees were reduced by $478. SP500IV could have employed the uninvested assets to produce income if SP500IV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and
    Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.25% of the average daily net assets of the Fund.

 

GIS serves as the sub-adviser for SP500IV. Pursuant to a Sub-Advisory, Sub-Administration and Accounting Services Agreement, GIS provides sub-advisory, administrative and accounting services to SP500IV, subject to the general oversight of RS Investments and the Board of Trustees of the Trust. As compensation for its services, RS Investments pays GIS at an annual rate of 0.2375% of the average daily net assets of SP500IV. Payment of the sub-investment advisory fees does not represent a separate or additional expense to SP500IV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses (including the effect of any expense limitation in effect on September 30, 2006) that was applicable to shares of the Predecessor Fund as of September 30, 2006. In the case of SP500IV this expense limitation corresponds to the expense limitation which was

 

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Notes to Financial Statements — RS S&P 500 Index VIP Series (continued)

 

December 31, 2006

 

previously in effect between GIS and the Predecessor Fund. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 0.28% of the average daily net assets of SP500IV. GIS subsidized 0.08% of the ordinary operating expenses of SP500IV or $195,294 for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $23,170,011 and $4,840,053, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures at December 31, 2006 aggregated $68,948,728 and $12,662,961, respectively, resulting in net unrealized appreciation of $56,285,767. The cost of investments owned at December 31, 2006 for federal income tax purposes was $211,681,966.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, SP500IV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, SP500IV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

Note E.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for SP500IV Class I. Transactions in shares of beneficial interest were as follows:

 

     Year Ended December 31,     Year Ended December 31,  
      2006     2005     2006     2005  
      Shares     Amount  

Shares sold

    3,150,395     2,675,528     $ 30,197,829     $ 23,714,164  

Shares issued in reinvestment of dividends

    411,347     364,352       4,039,774       3,289,364  

Shares repurchased

    (1,722,127 )   (1,878,337 )     (16,612,725 )     (16,579,152 )
   

Net increase

    1,839,615     1,161,543     $ 17,624,878     $ 10,424,376  
   

 

Note F.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed)

 

30    RS ASSET ALLOCATION VIP SERIES

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or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note G.   Indemnification

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note H.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note I.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS S&P 500 Index VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS S&P 500 Index VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian VC Asset Allocation Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Variable Contract Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS Asset Allocation VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
4,303,591.449   41,384.334   393,933.347   4,738,909.123

 

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at

 

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Supplemental Information — Unaudited (continued)

 

improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

36     

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Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

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Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

38     

Table of Contents
LOGO  

Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

    39

Table of Contents
LOGO  

RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

40    RS ASSET ALLOCATION VIP SERIES

Table of Contents
LOGO  

RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

RS ASSET ALLOCATION VIP SERIES   41

Table of Contents

LOGO

 

06   ANNUAL REPORT

RS Variable Products Trust

 

RS S&P 500 Index VIP Series

12.31.06   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS S&P 500 Index VIP Series   
Portfolio Manager Biographies    3
Letter from Portfolio Managers    3
Fund Performance    6
Understanding Your Fund’s Expenses    7
Financial Information   
Schedule of Investments    8
Statement of Assets and Liabilities    14
Statement of Operations    14
Statements of Changes in Net Assets    15
Financial Highlights    16
Notes to Financial Statements    17
Report of Independent Registered Public Accounting Firm    21
Supplemental Information    22
Administration    28
RS Investments’ Senior Management Biographies    29

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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.

 

Table of Contents
LOGO  

RS S&P 500 Index VIP Series

 

LOGO     

Jonathan C. Jankus (Guardian Investor Services)

has been a co-portfolio manager of RS Asset Allocation VIP Series and RS S&P 500 Index VIP Series since 1999 (includes time co-managing The Guardian VC Asset Allocation Fund and The Guardian VC 500 Index Fund). Mr. Jankus joined Guardian Life in 1995, and has been a managing director of Guardian Life since March 1998. He received a B.A. in mathematics from Queens College, an M.S. in investment management from Pace University, an M.S. in computer science from Polytechnic Institute of New York, and an M.A. in mathematics from Columbia University. Mr. Jankus is a Chartered Financial Analyst.

LOGO     

Stewart M. Johnson (Guardian Investor Services)

has been a co-portfolio manager of RS Asset Allocation VIP Series and RS S&P 500 Index VIP Series since 2004 (includes time co-managing The Guardian VC Asset Allocation Fund and The Guardian VC 500 Index Fund). Mr. Johnson has been a senior director of Guardian Life since January 2002. Mr. Johnson was second vice president, investment information systems at Guardian Life, from December 2000 to January 2002. Mr. Johnson received a B.A. in mathematics from City College of New York.

 

 

Fund Philosophy

The RS S&P 500 Index VIP Series seeks to track the investment performance of the S&P 500® Index1, which emphasizes securities issued by large U.S. companies.

 

Investment Process

The Fund normally invests at least 95% of the Fund’s net assets (plus the amount, if any, of borrowings by the Fund for investment purposes) in the stocks of companies included in the S&P 500® Index. The S&P 500 Index is an unmanaged index of 500 common stocks selected by Standard and Poor’s as representative of a broad range of industries within the U.S. economy. It is comprised primarily of stocks issued by large capitalization companies. The Index is often considered to be the performance benchmark for U.S. stock market performance in general. While the Fund seeks to replicate the performance of the Index, there is no assurance that the Fund will track the performance of the Index exactly.

 

Performance

For the year ending December 31, 2006, the Fund’s return was 15.46%. The Fund’s objective is to match the returns of the S&P 500® Index, a theoretical portfolio of 500 blue-chip stocks, which returned 15.79% over the same period. The performance of the S&P 500® Index is theoretical in the sense that it is computed as though shares of each company in the Index were purchased and subsequently rebalanced without any trading costs or fund expenses. It is not possible to invest directly in the Index. For the period from fund inception on August 5, 1999 and ending December 31, 2006, the Fund’s annualized return was 1.76% compared to a total annualized return of 1.98% for the S&P 500® Index.

 

1

The S&P 500® Index of 500 primarily large-cap U.S. stocks is generally considered to be representative of U.S. stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses.

 

RS S&P 500 INDEX VIP SERIES   3

Table of Contents
LOGO  

RS S&P 500 Index VIP Series (continued)

 

Portfolio Review

Stock market returns were positive for a fourth straight year, with the S&P 500® Index earning a total return of 15.79% for 2006. Returns from the peak of the price “bubble” are finally positive (albeit at a low 0.5% annualized) once dividends are included, but, at 1418.30, the S&P 500 Index is still below its peak of 1527.46 posted on March 24, 2000.

 

The Federal Reserve tightened monetary conditions, raising the Federal Funds rate four times in the first half of the year to a level of 5.25% by the end of June, and then holding steady at that level. Inflation has been a real concern, having reached 2.7% on a year-over-year basis (excluding food and energy) in August before declining thereafter. This pattern coincided neatly with crude oil prices which peaked just below $80 per barrel in August before declining to near $60 by year-end. Once these problematic issues began to subside, the market began a steady climb upward. Indeed, this was a year of two distinct halves. In the first half, the S&P 500® Index returned a mere 2.7%, compared to a 12.7% return in the second half.

 

From a style perspective, value-oriented stocks (as measured by the S&P/Citigroup indexes) performed much better than growth-oriented stocks, having returned 20.9% versus 11.0%, respectively. This differential occurred almost entirely in the first half of the year in a near-flat market. In terms of market capitalization (again as measured by S&P indexes), it was good to be either big or small, but not in the middle. The S&P 500 (large cap), S&P 400 (mid cap) and S&P 600 (small cap) returned 15.8%, 10.3% and 15.1% respectively. From a longer-term perspective, the stock market rebound has been a product of the turnaround in the economy in general and corporate profits in particular. In spite of recent increases, interest rates and bond yields remained low in real (after-inflation) terms. Historically, this has been an attractive environment for stocks.

 

Outlook

We will continue to manage the portfolio so as to be fully invested in stocks, attempt to match the S&P 500 Index and keep trading costs to a minimum. If history is any indication, this has proven to be an extremely difficult strategy to surpass.

 

Most signs indicate continuing economic growth, which hopefully will continue to feed a rebound in corporate profits. We believe that a risk on the horizon is the extent to which interest rates will rise in the near term, especially given such exogenous factors as continued violence in the Middle East and a dramatic change in the political constituency of Congress. “Real” interest rates (interest rates after subtracting expected inflation) remain relatively low, albeit not as low as they were two years ago. On balance, we remain optimistic, although a bit more cautiously so.

 

Thank you for your continued support.

 

LOGO   LOGO

Jonathan C. Jankus

Co-Portfolio Manager

  

Stewart M. Johnson

Co-Portfolio Manager

 

4    RS S&P 500 INDEX VIP SERIES

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

As with all mutual funds, the value of an investment in the Fund could decline, so you could lose money. The Fund invests primarily in equity securities and therefore exposes you to the general risks of investing in stock markets.

Table of Contents

 

Assets Under Management: $268,390,778

Data as of December 31, 2006

 

LOGO  

Sector Allocation vs. Index

 
LOGO

 

LOGO  

Top Ten Holdings1

   
Company    Percentage of Total Net Assets

Exxon Mobil Corp.

    3.46%

General Electric Co.

    2.87%

Citigroup, Inc.

    2.10%

Microsoft Corp.

    2.07%

Bank of America Corp.

    1.83%

Procter & Gamble Co.

    1.57%

Johnson & Johnson

    1.50%

Pfizer, Inc.

    1.45%

American Int’l. Group, Inc.

    1.41%

Altria Group, Inc.

    1.37%

 

1

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

RS S&P 500 INDEX VIP SERIES   5

Table of Contents
LOGO  

RS S&P 500 Index VIP Series (continued)

 

LOGO  

Performance Update

As of 12/31/06

   
     Inception
Date		  

1-Year
Total

Return

   3-Year
Annualized
Return		   5-Year
Annualized
Return		   Annualized Return
Since Fund
Inception

RS S&P 500 Index VIP Series

   8/25/99   15.46%   10.10%   5.84%               1.76%

S&P 500® Index

       15.79%   10.44%   6.19%               1.98%

 

The Series is the successor to The Guardian VC 500 Index Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

LOGO  

Growth of a Hypothetical $10,000 Investment

If invested on 8/25/99

 

LOGO

 

The chart above shows the performance of a hypothetical $10,000 investment made in RS S&P 500 Index VIP Series and in the S&P 500® Index. Index returns do not include the fees and expenses of the Fund, but do include the reinvestment of dividends.

 

Performance quoted represents past performance and does not guarantee future results. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

6    RS S&P 500 INDEX VIP SERIES

Table of Contents
LOGO  

Understanding Your Fund’s Expenses — Unaudited

 

By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Fund’s expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

Based on Actual Return

    $1,000.00    $1,124.60    $1.50    0.28%

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,023.79    $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 184/365 (to reflect the one-half year period).

 

RS S&P 500 INDEX VIP SERIES   7

Table of Contents
LOGO  

Schedule of Investments — RS S&P 500 Index VIP Series

 

December 31, 2006

 

Shares          Value
     
Common Stocks — 97.7%
Aerospace and Defense — 2.4%
15,941   

Boeing Co.

    $ 1,416,198
8,896   

General Dynamics Corp.

      661,418
2,074   

Goodrich Corp.

      94,471
15,604   

Honeywell Int’l., Inc.

      705,925
2,900   

L-3 Comm. Hldgs., Inc.

      237,162
7,403   

Lockheed Martin Corp.

      681,594
8,930   

Northrop Grumman Corp.

      604,561
10,352   

Raytheon Co.

      546,586
2,736   

Rockwell Collins, Inc.

      173,161
20,200   

United Technologies Corp.

      1,262,904
         
        6,383,980
 
Air Freight and Logistics — 0.9%
6,394   

FedEx Corp.

      694,516
22,059   

United Parcel Svc., Inc. — Class B

      1,653,984
         
        2,348,500
 
Airlines — 0.1%
18,199   

Southwest Airlines Co.

      278,809
 
Auto Components — 0.2%
2,622   

Goodyear Tire & Rubber Co.*

      55,036
4,088   

Johnson Controls, Inc.

      351,241
         
        406,277
 
Automobiles — 0.4%
36,944   

Ford Motor Co.

      277,449
11,434   

General Motors Corp.

      351,253
5,221   

Harley-Davidson, Inc.

      367,924
         
        996,626
 
Beverages — 2.0%
14,362   

Anheuser-Busch Cos., Inc.

      706,611
2,046   

Brown-Forman Corp. — Class B

      135,527
42,764   

Coca-Cola Co.

      2,063,363
8,124   

Coca-Cola Enterprises, Inc.

      165,892
3,500   

Constellation Brands, Inc. — Class A*

      101,570
1,841   

Molson Coors Brewing Co. — Class B

      140,726
4,264   

Pepsi Bottling Group, Inc.

      131,800
32,671   

PepsiCo., Inc.

      2,043,571
         
        5,489,060
 
Biotechnology — 1.3%
23,617   

Amgen, Inc.*

      1,613,278
7,754   

Biogen Idec, Inc.*

      381,419
7,200   

Celgene Corp.*

      414,216
5,005   

Genzyme Corp.*

      308,208
9,200   

Gilead Sciences, Inc.*

      597,356
6,441   

MedImmune, Inc.*

      208,495
         
        3,522,972
 
Building Products — 0.2%
3,957   

American Standard Cos., Inc.

      181,429
7,420   

Masco Corp.

      221,635
         
        403,064
 
Capital Markets — 3.8%
4,567   

Ameriprise Financial, Inc.

      248,902
14,970   

Bank of New York, Inc.

      589,369
2,876   

Bear Stearns Cos., Inc.

      468,155
22,577   

Charles Schwab Corp.

      436,639
10,100   

E*TRADE Financial Corp.*

      226,442
1,739   

Federated Investors, Inc. — Class B

      58,743
3,987   

Franklin Resources, Inc.

      439,248
8,902   

Goldman Sachs Group, Inc.

      1,774,614
Shares          Value
     
6,726   

Janus Capital Group, Inc.

    $ 145,214
2,500   

Legg Mason, Inc.

      237,625
10,848   

Lehman Brothers Hldgs., Inc.

      847,446
7,285   

Mellon Financial Corp.

      307,063
18,064   

Merrill Lynch & Co., Inc.

      1,681,758
21,983   

Morgan Stanley

      1,790,076
3,863   

Northern Trust Corp.

      234,445
6,370   

State Street Corp.

      429,593
4,316   

T. Rowe Price Group, Inc.

      188,911
         
        10,104,243
 
Chemicals — 1.4%
3,869   

Air Products & Chemicals, Inc.

      271,913
1,031   

Ashland, Inc.

      71,325
19,542   

Dow Chemical Co.

      780,507
18,905   

E.I. Du Pont de Nemours & Co.

      920,863
1,156   

Eastman Chemical Co.

      68,562
4,704   

Ecolab, Inc.

      212,621
1,633   

Hercules, Inc.*

      31,533
1,417   

Int’l. Flavors & Fragrances, Inc.

      69,660
11,514   

Monsanto Co.

      604,830
2,995   

PPG Inds., Inc.

      192,309
5,483   

Praxair, Inc.

      325,306
3,888   

Rohm & Haas Co.

      198,755
1,351   

Sigma-Aldrich

      105,000
         
        3,853,184
 
Commercial Banks — 4.0%
10,334   

BB&T Corp.

      453,973
3,064   

Comerica, Inc.

      179,796
3,500   

Commerce Bancorp, Inc.

      123,445
2,100   

Compass Bancshares, Inc.

      125,265
10,354   

Fifth Third Bancorp

      423,789
2,992   

First Horizon Nat’l. Corp.

      125,006
7,298   

Huntington Bancshares, Inc.

      173,327
7,242   

KeyCorp

      275,413
2,000   

M & T Bank Corp.

      244,320
6,396   

Marshall & Ilsley Corp.

      307,712
11,847   

National City Corp.

      433,126
6,005   

PNC Financial Svcs. Group

      444,610
15,927   

Regions Financial Corp.

      595,670
7,523   

SunTrust Banks, Inc.

      635,317
5,299   

Synovus Financial Corp.

      163,368
37,797   

U.S. Bancorp

      1,367,873
39,013   

Wachovia Corp.

      2,221,790
67,910   

Wells Fargo & Co.

      2,414,880
1,672   

Zions Bancorporation

      137,840
         
        10,846,520
 
Commercial Services and Supplies — 0.6%
4,913   

Allied Waste Inds., Inc.*

      60,381
2,079   

Avery Dennison Corp.

      141,227
3,041   

Cintas Corp.

      120,758
2,150   

Equifax, Inc.

      87,290
2,470   

Monster Worldwide, Inc.*

      115,201
8,465   

Pitney Bowes, Inc.

      390,998
4,695   

R.R. Donnelley & Sons Co.

      166,860
2,619   

Robert Half Int’l., Inc.

      97,217
11,422   

Waste Management, Inc.

      419,987
         
        1,599,919
 
Communications Equipment — 2.6%
1,701   

ADC Telecomm., Inc.*

      24,715
10,957   

Avaya, Inc.*

      153,179
2,154   

Ciena Corp.*

      59,687
129,463   

Cisco Systems, Inc.*

      3,538,224

 

See notes to financial statements.

 

8     

Table of Contents

December 31, 2006

 

Shares          Value
     
2,797   

Comverse Technology, Inc.*

    $ 59,044
30,763   

Corning, Inc.*

      575,576
3,432   

JDS Uniphase Corp.*

      57,177
11,000   

Juniper Networks, Inc.*

      208,340
50,705   

Motorola, Inc.

      1,042,495
33,468   

QUALCOMM, Inc.

      1,264,756
8,953   

Tellabs, Inc.*

      91,858
         
        7,075,051
 
Computers and Peripherals — 3.6%
17,533   

Apple Computer, Inc.*

      1,487,500
47,143   

Dell, Inc.*

      1,182,818
45,971   

EMC Corp.*

      606,817
55,301   

Hewlett Packard Co.

      2,277,848
30,422   

Int’l. Business Machines

      2,955,497
2,204   

Lexmark Int’l. Group, Inc. — Class A*

      161,333
2,932   

NCR Corp.*

      125,372
8,633   

Network Appliance, Inc.*

      339,104
2,794   

QLogic Corp.*

      61,245
4,800   

SanDisk Corp.*

      206,544
55,932   

Sun Microsystems, Inc.*

      303,152
         
        9,707,230
 
Construction and Engineering — 0.1%
2,106   

Fluor Corp.

      171,955
 
Construction Materials — 0.1%
1,518   

Vulcan Materials Co.

      136,423
 
Consumer Finance — 1.0%
22,837   

American Express Co.

      1,385,521
11,040   

Capital One Financial Corp.

      848,093
7,586   

SLM Corp.

      369,969
         
        2,603,583
 
Containers and Packaging — 0.2%
1,698   

Ball Corp.

      74,033
2,984   

Bemis Co., Inc.

      101,396
2,370   

Pactiv Corp.*

      84,585
2,355   

Sealed Air Corp.

      152,887
1,604   

Temple-Inland, Inc.

      73,832
         
        486,733
 
Distributors — 0.1%
5,413   

Genuine Parts Co.

      256,739
 
Diversified Consumer Services — 0.1%
2,958   

Apollo Group, Inc. — Class A*

      115,273
6,318   

H & R Block, Inc.

      145,567
         
        260,840
 
Diversified Financial Services — 5.5%
92,081   

Bank of America Corp.

      4,916,204
700   

Chicago Mercantile Exchange
Hldgs., Inc.

      356,825
4,000   

CIT Group, Inc.

      223,080
101,338   

Citigroup, Inc.

      5,644,527
70,708   

J.P. Morgan Chase & Co.

      3,415,196
4,648   

Moody’s Corp.

      320,991
         
        14,876,823
 
Diversified Telecommunication Services — 2.8%
82,113   

AT & T, Inc.

      2,935,540
36,963   

BellSouth Corp.

      1,741,327
2,122   

CenturyTel, Inc.

      92,647
9,221   

Citizens Comm. Co.

      132,506
2,740   

Embarq Corp.

      144,014
32,677   

Qwest Comm. Int’l., Inc.*

      273,506
58,236   

Verizon Comm.

      2,168,709
6,929   

Windstream Corp.

      98,530
         
        7,586,779
 
Shares          Value
     
Electric Utilities — 1.8%
3,880   

Allegheny Energy, Inc.*

    $ 178,131
7,774   

American Electric Power, Inc.

      331,017
23,302   

Duke Energy Corp.

      773,859
6,073   

Edison Int’l.

      276,200
3,852   

Entergy Corp.

      355,617
14,956   

Exelon Corp.

      925,627
7,451   

FirstEnergy Corp.

      449,295
8,412   

FPL Group, Inc.

      457,781
1,550   

Pinnacle West Capital Corp.

      78,570
6,916   

PPL Corp.

      247,869
5,078   

Progress Energy, Inc.

      249,228
13,384   

Southern Co.

      493,334
         
        4,816,528
 
Electrical Equipment — 0.4%
2,932   

American Power Conversion Corp.

      89,690
2,094   

Cooper Inds. Ltd. — Class A

      189,360
15,390   

Emerson Electric Co.

      678,545
3,531   

Rockwell Automation, Inc.

      215,674
         
        1,173,269
 
Electronic Equipment and Instruments — 0.3%
9,869   

Agilent Technologies, Inc.*

      343,935
5,356   

Jabil Circuit, Inc.

      131,490
2,894   

Molex, Inc.

      91,537
9,102   

Sanmina-SCI Corp.*

      31,402
24,921   

Solectron Corp.*

      80,245
3,432   

Symbol Technologies, Inc.

      51,274
1,335   

Tektronix, Inc.

      38,942
         
        768,825
 
Energy Equipment and Services — 1.7%
7,888   

B.J. Svcs. Co.

      231,276
6,815   

Baker Hughes, Inc.

      508,808
20,590   

Halliburton Co.

      639,320
6,320   

Nabors Inds., Inc.*

      188,210
3,900   

National-Oilwell Varco, Inc.*

      238,602
3,207   

Noble Corp.

      244,213
2,114   

Rowan Cos., Inc.

      70,185
24,058   

Schlumberger Ltd.

      1,519,503
4,000   

Smith International, Inc.

      164,280
6,670   

Transocean, Inc.*

      539,536
7,700   

Weatherford Int’l. Ltd.*

      321,783
         
        4,665,716
 
Food and Staples Retailing — 2.1%
8,757   

Costco Wholesale Corp.

      462,983
17,192   

CVS Corp.

      531,405
16,796   

Kroger Co.

      387,484
7,770   

Safeway, Inc.

      268,531
3,107   

Supervalu, Inc.

      111,075
12,894   

Sysco Corp.

      473,983
53,782   

Wal-Mart Stores, Inc.

      2,483,653
19,380   

Walgreen Co.

      889,348
2,600   

Whole Foods Market, Inc.

      122,018
         
        5,730,480
 
Food Products — 1.1%
14,488   

Archer-Daniels-Midland Co.

      463,036
7,064   

Campbell Soup Co.

      274,719
8,985   

ConAgra Foods, Inc.

      242,595
2,600   

Dean Foods Co.*

      109,928
6,325   

General Mills, Inc.

      364,320
5,712   

H.J. Heinz Co.

      257,097
5,575   

Hershey Co.

      277,635

 

See notes to financial statements.

 

    9

Table of Contents
LOGO  

Schedule of Investments — RS S&P 500 Index VIP Series (continued)

 

December 31, 2006

 

Shares          Value
     
6,792   

Kellogg Co.

    $ 340,008
2,128   

McCormick & Co., Inc.

      82,056
12,896   

Sara Lee Corp.

      219,619
4,500   

Tyson Foods, Inc. — Class A

      74,025
5,402   

W.M. Wrigley Jr. Co.

      279,391
         
        2,984,429
 
Gas Utilities — 0.1%
938   

NICOR, Inc.

      43,898
605   

Peoples Energy Corp.

      26,965
1,700   

Questar Corp.

      141,185
         
        212,048
 
Health Care Equipment and Supplies — 1.6%
806   

Bausch & Lomb, Inc.

      41,960
12,386   

Baxter Int’l., Inc.

      574,587
4,439   

Becton Dickinson & Co., Inc.

      311,396
3,938   

Biomet, Inc.

      162,521
26,319   

Boston Scientific Corp.*

      452,161
1,891   

C.R. Bard, Inc.

      156,896
2,597   

Hospira, Inc.*

      87,207
24,740   

Medtronic, Inc.

      1,323,838
8,090   

St. Jude Medical, Inc.*

      295,770
8,212   

Stryker Corp.

      452,563
5,170   

Zimmer Hldgs., Inc.*

      405,225
         
        4,264,124
 
Health Care Providers and Services — 2.4%
12,292   

Aetna, Inc.

      530,769
4,226   

AmerisourceBergen Corp.

      190,001
8,368   

Cardinal Health, Inc.

      539,150
8,800   

Caremark Rx, Inc.

      502,568
2,296   

Cigna Corp.

      302,085
3,150   

Coventry Health Care, Inc.*

      157,657
3,538   

Express Scripts, Inc.*

      253,321
4,134   

Health Management Assoc.,
Inc. — Class A

      87,269
3,135   

Humana, Inc.*

      173,397
2,400   

Laboratory Corp. of America*

      176,328
1,471   

Manor Care, Inc.

      69,019
5,759   

McKesson Corp.

      291,981
6,534   

Medco Health Solutions, Inc.*

      349,177
2,100   

Patterson Cos., Inc.*

      74,571
3,696   

Quest Diagnostics, Inc.

      195,888
7,310   

Tenet Healthcare Corp.*

      50,951
27,600   

UnitedHealth Group, Inc.

      1,482,948
12,606   

WellPoint, Inc.*

      991,966
         
        6,419,046
 
Health Care Technology — 0.0%
4,244   

IMS Health, Inc.

      116,625
 
Hotels, Restaurants and Leisure — 1.6%
10,827   

Carnival Corp.

      531,064
2,562   

Darden Restaurants, Inc.

      102,916
3,771   

Harrah’s Entertainment, Inc.

      311,937
8,124   

Hilton Hotels Corp.

      283,528
7,684   

Int’l. Game Technology

      355,001
7,232   

Marriott Int’l., Inc. — Class A

      345,111
24,461   

McDonald’s Corp.

      1,084,356
15,064   

Starbucks Corp.*

      533,567
4,298   

Starwood Hotels & Resorts
Worldwide, Inc.

      268,625
2,530   

Wendy’s Int’l., Inc.

      83,718
3,797   

Wyndham Worldwide Corp.*

      121,580
5,173   

Yum! Brands, Inc.

      304,172
         
        4,325,575
 
Shares          Value
     
Household Durables — 0.6%
1,205   

Black & Decker Corp.

    $ 96,364
2,442   

Centex Corp.

      137,411
5,000   

D.R. Horton, Inc.

      132,450
2,245   

Fortune Brands, Inc.

      191,701
1,300   

Harman Int’l. Inds., Inc.

      129,883
1,490   

KB Home

      76,407
2,928   

Leggett & Platt, Inc.

      69,979
3,400   

Lennar Corp. — Class A

      178,364
5,096   

Newell Rubbermaid, Inc.

      147,529
4,860   

Pulte Homes, Inc.

      160,963
873   

Snap-On, Inc.

      41,590
1,281   

Stanley Works

      64,422
1,159   

Whirlpool Corp.

      96,220
         
        1,523,283
 
Household Products — 2.1%
3,445   

Clorox Co.

      220,997
9,818   

Colgate-Palmolive Co.

      640,526
9,529   

Kimberly-Clark Corp.

      647,495
65,562   

Procter & Gamble Co.

      4,213,670
         
        5,722,688
 
Independent Power Producers and Energy Traders — 0.4%
13,081   

AES Corp.*

      288,305
3,844   

Constellation Energy Group, Inc.

      264,736
5,523   

Dynegy, Inc. — Class A*

      39,987
9,960   

TXU Corp.

      539,932
         
        1,132,960
 
Industrial Conglomerates — 3.8%
15,694   

3M Co.

      1,223,033
207,351   

General Electric Co.

      7,715,531
2,366   

Textron, Inc.

      221,860
38,378   

Tyco Int’l. Ltd.

      1,166,691
         
        10,327,115
 
Information Technology Services — 1.0%
2,300   

Affiliated Computer Svcs.,
Inc. — Class A*

      112,332
9,913   

Automatic Data Processing, Inc.

      488,215
2,600   

Cognizant Tech. Solutions
Corp. — Class A*

      200,616
3,266   

Computer Sciences Corp.*

      174,306
2,590   

Convergys Corp.*

      61,590
10,014   

Electronic Data Systems Corp.

      275,886
3,300   

Fidelity Nat’l. Information Svcs., Inc.

      132,297
15,929   

First Data Corp.

      406,508
3,775   

Fiserv, Inc.*

      197,886
7,597   

Paychex, Inc.

      300,385
2,167   

Sabre Hldgs. Corp. — Class A

      69,106
4,833   

Unisys Corp.*

      37,891
15,929   

Western Union Co.

      357,128
         
        2,814,146
 
Insurance — 4.7%
6,224   

ACE Ltd.

      376,988
11,497   

AFLAC, Inc.

      528,862
12,499   

Allstate Corp.

      813,810
2,084   

Ambac Financial Group, Inc.

      185,622
52,703   

American Int’l. Group, Inc.

      3,776,697
5,608   

Aon Corp.

      198,187
7,936   

Chubb Corp.

      419,894
4,875   

Cincinnati Financial Corp.

      220,886
8,000   

Genworth Financial, Inc. — Class A

      273,680
5,690   

Hartford Financial Svcs. Group, Inc.

      530,934
6,446   

Lincoln Nat’l. Corp.

      428,014
9,663   

Loews Corp.

      400,724

 

See notes to financial statements.

 

10     

Table of Contents

December 31, 2006

 

Shares          Value
     
11,451   

Marsh & McLennan Cos., Inc.

    $ 351,088
2,700   

MBIA, Inc.

      197,262
15,772   

MetLife, Inc.

      930,706
5,188   

Principal Financial Group, Inc.

      304,535
14,224   

Progressive Corp.

      344,505
9,477   

Prudential Financial, Inc.

      813,695
2,047   

SAFECO Corp.

      128,040
13,898   

St. Paul Travelers Cos., Inc.

      746,184
1,782   

Torchmark Corp.

      113,620
9,310   

UnumProvident Corp.

      193,462
3,956   

XL Capital Ltd. — Class A

      284,911
         
        12,562,306
 
Internet and Catalog Retail — 0.1%
5,800   

Amazon.com, Inc.*

      228,868
2,000   

IAC/ InterActiveCorp*

      74,320
         
        303,188
 
Internet Software and Services — 1.3%
25,334   

eBay, Inc.*

      761,793
4,300   

Google, Inc. — Class A*

      1,980,064
4,100   

VeriSign, Inc.*

      98,605
25,976   

Yahoo! Inc.*

      663,427
         
        3,503,889
 
Leisure Equipment and Products — 0.2%
1,348   

Brunswick Corp.

      43,001
7,563   

Eastman Kodak Co.

      195,126
2,589   

Hasbro, Inc.

      70,550
6,533   

Mattel, Inc.

      148,038
         
        456,715
 
Life Sciences Tools and Services — 0.2%
3,176   

Applera Corp. — Applied
Biosystems Group

      116,528
723   

Millipore Corp.*

      48,152
1,870   

PerkinElmer, Inc.

      41,570
7,690   

Thermo Electron Corp.*

      348,280
1,962   

Waters Corp.*

      96,079
         
        650,609
 
Machinery — 1.5%
13,694   

Caterpillar, Inc.

      839,853
1,018   

Cummins, Inc.

      120,307
5,066   

Danaher Corp.

      366,981
4,466   

Deere & Co.

      424,583
7,032   

Dover Corp.

      344,709
2,646   

Eaton Corp.

      198,820
11,408   

Illinois Tool Works, Inc.

      526,936
5,794   

Ingersoll-Rand Co. Ltd. — Class A

      226,719
4,742   

ITT Inds., Inc.

      269,440
4,573   

PACCAR, Inc.

      296,788
2,232   

Pall Corp.

      77,116
2,365   

Parker-Hannifin Corp.

      181,821
1,000   

Terex Corp.*

      64,580
         
        3,938,653
 
Media — 3.6%
15,737   

CBS Corp. — Class B

      490,680
9,954   

Clear Channel Comm., Inc.

      353,765
43,088   

Comcast Corp. — Class A*

      1,823,915
6,000   

DIRECTV Group, Inc.*

      149,640
1,257   

Dow Jones & Co., Inc.

      47,766
5,313   

Gannett Co., Inc.

      321,224
2,911   

Idearc Inc*

      83,400
7,803   

Interpublic Group Cos., Inc.*

      95,509
6,524   

McGraw-Hill Cos., Inc.

      443,762
Shares          Value
     
742   

Meredith Corp.

    $ 41,812
3,273   

New York Times Co. — Class A

      79,730
47,300   

News Corp. — Class A

      1,016,004
3,111   

Omnicom Group, Inc.

      325,224
1,600   

Scripps E.W. Co. — Class A

      79,904
86,724   

Time Warner, Inc.

      1,888,849
6,418   

Tribune Co.

      197,546
5,466   

Univision Comm., Inc. — Class A*

      193,606
15,737   

Viacom, Inc. — Class B*

      645,689
42,416   

Walt Disney Co.

      1,453,596
         
        9,731,621
 
Metals and Mining — 1.0%
18,625   

Alcoa, Inc.

      558,936
2,406   

Allegheny Technologies, Inc.

      218,176
4,391   

Freeport-McMoran Copper & Gold,
Inc. — Class B

      244,710
9,604   

Newmont Mining Corp.

      433,621
6,822   

Nucor Corp.

      372,891
4,496   

Phelps Dodge Corp.

      538,261
2,788   

United States Steel Corp.

      203,914
         
        2,570,509
 
Multiline Retail — 1.2%
1,734   

Big Lots, Inc.*

      39,743
1,262   

Dillards, Inc. — Class A

      44,132
6,584   

Dollar General Corp.

      105,739
2,592   

Family Dollar Stores, Inc.

      76,024
11,094   

Federated Department Stores, Inc.

      423,014
5,398   

J.C. Penney Co., Inc.

      417,589
6,913   

Kohl’s Corp.*

      473,057
4,040   

Nordstrom, Inc.

      199,334
1,811   

Sears Hldgs. Corp.*

      304,121
17,546   

Target Corp.

      1,000,999
         
        3,083,752
 
Multi–Utilities — 1.1%
4,315   

Ameren Corp.

      231,845
7,948   

CenterPoint Energy, Inc.

      131,778
7,452   

CMS Energy Corp.*

      124,448
4,764   

Consolidated Edison, Inc.

      229,006
6,657   

Dominion Resources, Inc.

      558,123
4,105   

DTE Energy Co.

      198,723
4,794   

KeySpan Corp.

      197,417
4,793   

NiSource, Inc.

      115,511
6,780   

PG&E Corp.

      320,897
5,184   

Public Svc. Enterprise Group, Inc.

      344,114
5,394   

Sempra Energy

      302,280
2,588   

TECO Energy, Inc.

      44,591
5,953   

Xcel Energy, Inc.

      137,276
         
        2,936,009
 
Office Electronics — 0.1%
20,891   

Xerox Corp.*

      354,102
 
Oil, Gas and Consumable Fuels — 7.9%
9,186   

Anadarko Petroleum Corp.

      399,775
7,096   

Apache Corp.

      471,955
6,700   

Chesapeake Energy Corp.

      194,635
45,419   

Chevron Corp.

      3,339,659
34,735   

ConocoPhillips

      2,499,183
3,600   

CONSOL Energy, Inc

      115,668
8,698   

Devon Energy Corp.

      583,462
13,790   

El Paso Corp.

      210,711
4,845   

EOG Resources, Inc.

      302,570
121,202   

Exxon Mobil Corp.

      9,287,709
5,421   

Hess Corp.

      268,719

 

See notes to financial statements.

 

    11

Table of Contents
LOGO  

Schedule of Investments — RS S&P 500 Index VIP Series (continued)

 

December 31, 2006

 

Shares          Value
     
2,245   

Kinder Morgan, Inc.

    $ 237,409
7,248   

Marathon Oil Corp.

      670,440
3,000   

Murphy Oil Corp.

      152,550
17,458   

Occidental Petroleum Corp.

      852,474
5,300   

Peabody Energy Corp.

      214,173
2,532   

Sunoco, Inc.

      157,895
12,700   

Valero Energy Corp.

      649,732
10,715   

Williams Cos., Inc.

      279,876
9,233   

XTO Energy, Inc.

      434,413
         
        21,323,008
 
Paper and Forest Products — 0.3%
9,605   

Int’l. Paper Co.

      327,531
2,990   

MeadWestvaco Corp.

      89,879
5,010   

Weyerhaeuser Co.

      353,956
         
        771,366
 
Personal Products — 0.2%
9,396   

Avon Products, Inc.

      310,444
2,300   

Estee Lauder Cos., Inc. — Class A

      93,886
         
        404,330
 
Pharmaceuticals — 6.2%
30,289   

Abbott Laboratories

      1,475,377
2,863   

Allergan, Inc.

      342,816
2,000   

Barr Pharmaceuticals, Inc.*

      100,240
38,537   

Bristol-Myers Squibb Corp.

      1,014,294
22,839   

Eli Lilly & Co.

      1,189,912
7,079   

Forest Laboratories, Inc.*

      358,197
60,954   

Johnson & Johnson

      4,024,183
3,645   

King Pharmaceuticals, Inc.*

      58,028
45,858   

Merck & Co., Inc.

      1,999,409
4,500   

Mylan Laboratories, Inc.

      89,820
150,003   

Pfizer, Inc.

      3,885,078
31,420   

Schering-Plough Corp.

      742,769
1,956   

Watson Pharmaceuticals, Inc.*

      50,915
27,069   

Wyeth

      1,378,353
         
        16,709,391
 
Real Estate Investment Trusts — 1.1%
3,463   

Apartment Investment & Management Co. — Class A

      193,997
4,200   

Archstone-Smith Trust

      244,482
2,200   

Boston Properties, Inc.

      246,136
8,963   

Equity Office Pptys. Trust

      431,748
5,321   

Equity Residential

      270,041
4,200   

Kimco Realty Corp.

      188,790
3,362   

Plum Creek Timber Co., Inc.

      133,976
5,292   

ProLogis

      321,595
2,900   

Public Storage, Inc.

      282,750
4,402   

Simon Ppty. Group, Inc.

      445,878
2,300   

Vornado Realty Trust

      279,450
         
        3,038,843
 
Real Estate Management and Development — 0.1%
3,700   

CB Richard Ellis Group,
Inc. — Class A*

      122,840
4,746   

Realogy Corp.*

      143,899
         
        266,739
 
Road and Rail — 0.7%
7,561   

Burlington Northern Santa Fe

      558,078
8,968   

CSX Corp.

      308,768
8,129   

Norfolk Southern Corp.

      408,807
930   

Ryder System, Inc.

      47,486
5,442   

Union Pacific Corp.

      500,773
         
        1,823,912
 
Shares          Value
     
Semiconductors and Semiconductor Equipment — 2.3%
11,902   

Advanced Micro Devices, Inc.*

    $ 242,206
6,790   

Altera Corp.*

      133,627
6,027   

Analog Devices, Inc.

      198,107
29,509   

Applied Materials, Inc.

      544,441
9,144   

Broadcom Corp. — Class A*

      295,443
118,353   

Intel Corp.

      2,396,648
3,328   

KLA-Tencor Corp.

      165,568
5,347   

Linear Technology Corp.

      162,121
9,161   

LSI Logic Corp.*

      82,449
7,129   

Maxim Integrated Products, Inc.

      218,290
15,228   

Micron Technology, Inc.*

      212,583
6,658   

National Semiconductor Corp.

      151,137
2,370   

Novellus Systems, Inc.*

      81,575
6,574   

NVIDIA Corp.*

      243,304
3,328   

PMC-Sierra, Inc.*

      22,331
3,377   

Teradyne, Inc.*

      50,520
31,480   

Texas Instruments, Inc.

      906,624
5,730   

Xilinx, Inc.

      136,431
         
        6,243,405
 
Software — 3.4%
11,654   

Adobe Systems, Inc.*

      479,213
4,116   

Autodesk, Inc.*

      166,533
3,606   

BMC Software, Inc.*

      116,113
9,555   

CA, Inc.

      216,421
4,616   

Citrix Systems, Inc.*

      124,863
5,622   

Compuware Corp.*

      46,831
6,400   

Electronic Arts, Inc.*

      322,304
6,330   

Intuit, Inc.*

      193,128
186,465   

Microsoft Corp.

      5,567,845
7,029   

Novell, Inc.*

      43,580
83,811   

Oracle Corp.*

      1,436,521
1,562   

Parametric Technology Corp.*

      28,147
21,273   

Symantec Corp.*

      443,542
         
        9,185,041
 
Specialty Retail — 2.0%
4,700   

AutoNation, Inc.*

      100,204
1,474   

AutoZone, Inc.*

      170,335
5,064   

Bed, Bath & Beyond, Inc.*

      192,938
8,740   

Best Buy Co., Inc.

      429,921
3,140   

Circuit City Stores, Inc.

      59,597
14,914   

Gap, Inc.

      290,823
42,730   

Home Depot, Inc.

      1,716,037
9,195   

Limited Brands

      266,103
30,368   

Lowe’s Cos., Inc.

      945,963
6,624   

Office Depot, Inc.*

      252,838
2,141   

OfficeMax, Inc.

      106,301
2,565   

RadioShack Corp.

      43,041
2,251   

Sherwin-Williams Co.

      143,119
11,790   

Staples, Inc.

      314,793
2,179   

Tiffany & Co.

      85,504
8,072   

TJX Cos., Inc.

      230,213
         
        5,347,730
 
Textiles, Apparel and Luxury Goods — 0.4%
6,400   

Coach, Inc.*

      274,944
1,927   

Jones Apparel Group, Inc.

      64,419
1,595   

Liz Claiborne, Inc.

      69,319
4,408   

NIKE, Inc. — Class B

      436,524
1,636   

V.F. Corp.

      134,283
         
        979,489
 

 

See notes to financial statements.

 

12     

Table of Contents

December 31, 2006

 

    
Shares		          Value
     
  Thrifts and Mortgage Finance — 1.4%
  12,410   

Countrywide Financial Corp.

    $ 526,805
  13,787   

Federal Home Loan Mortgage Corp.

      936,137
  19,513   

Federal National Mortgage Assn.

      1,158,877
  1,536   

MGIC Investment Corp.

      96,062
  9,765   

Sovereign Bancorp, Inc.

      247,933
  18,321   

Washington Mutual, Inc.

      833,422
         
        3,799,236
   
  Tobacco — 1.6%
  42,695   

Altria Group, Inc.

      3,664,085
  4,678   

Reynolds American, Inc.

      306,269
  3,831   

UST, Inc.

      222,964
         
        4,193,318
   
  Trading Companies and Distributors — 0.1%
  2,192   

W.W. Grainger, Inc.

      153,308
   
  Wireless Telecommunication Services — 0.6%
  6,702   

ALLTEL Corp.

      405,337
  59,117   

Sprint Nextel Corp.

      1,116,720
         
        1,522,057
   
  

Total Common Stocks
(Cost $201,103,961)

      262,244,693
   
     
Principal
Amount		          Value
  U.S. Government Securities — 0.1%
  U.S. Treasury Bills — 0.1%   
  

U.S. Treasury Bills

   
$ 350,000   

4.838% due 3/22/2007 (1)

    $ 346,237
  15,000   

4.985% due 1/25/2007 (1)

      14,950
         
        361,187
   
  

Total U.S. Government Securities
(Cost $361,187)

      361,187
   
     
Shares          Value
 
 		 Other Investments - For Trustee Deferred
Compensation Plan (2) — 0.0%
  9   

RS Emerging Growth Fund, Class A

    $ 311
  15   

RS Global Natural Resources Fund, Class A

      456
  12   

RS Growth Fund, Class A

      182
  34   

RS Investors Fund, Class A

      396
  7   

RS MidCap Opportunities Fund,
Class A

      100
  4   

RS Partners Fund, Class A

      148
  8   

RS Smaller Company Growth Fund, Class A

      160
  4   

RS Value Fund, Class A

      100
   
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $1,853)

      1,853
   
Principal
Amount		          Value
     
Repurchase Agreement — 2.0%
$  5,360,000   

State Street Bank and Trust Co.
repurchase agreement,
dated 12/29/2006, maturity
value $5,363,037 at
5.10%, due 1/2/2007 (3)
(Cost $5,360,000)

    $ 5,360,000
 
Total Investments — 99.8%
(Cost $206,827,001)		      267,967,733
Cash, Receivables, and Other Assets
Less Liabilities — 0.2%		      423,045
 
Net Assets — 100%    $ 268,390,778
 

 

*   Non-income producing security.
(1)   The U.S. Treasury Bill is segregated as collateral to cover margin requirements on open futures contracts.
(2)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(3)   The repurchase agreement is fully collateralized by $5,360,000 in U.S. Government Agency, 5.55%, due 10/4/2016, with a value of $5,467,200.

 

Number of
Contracts		    Description    Expiration    Face Value
(Thousands)		    Unrealized
Depreciation
Purchased Futures Contracts
16   

S & P 500 Index

    3/2007    $ 5,707    $              6,120
 

 

 

See notes to financial statements.

 

    13

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LOGO  

Financial Information — RS S&P 500 Index VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $206,827,001)

    $ 267,967,733  

Dividends receivable

      357,146  

Receivable for fund shares sold

      175,587  

Interest receivable

      2,278  

Prepaid insurance

      3,110  
        

Total Assets

      268,505,854  
        

LIABILITIES

   

Accrued expenses

      29,123  

Payable for variation margin — Note A

      21,600  

Payable for fund shares redeemed

      3,985  

Deferred trustees’ compensation

      1,853  

Due to custodian

      1,755  

Due to Adviser

      56,760  
        

Total Liabilities

      115,076  
        

Net Assets

    $ 268,390,778  
        

COMPONENTS OF NET ASSETS

   

Paid-in capital

      339,177,077  

Undistributed net investment income

      164,022  

Accumulated net realized loss on investments and futures contracts

      (132,097,173 )

Net unrealized appreciation of investments and futures contracts

      61,146,852  
        

Net Assets

    $ 268,390,778  
        

Shares of beneficial interest outstanding with no
par value

      25,904,976  

Net Asset Value Per Share

      $10.36  

 

LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Dividends

    $ 4,516,446  

Interest

      261,967  
        

Total Income

      4,778,413  
        

Expenses:

   

Investment advisory fees — Note B

      597,787  

Custodian fees

      123,322  

Trustees’ fees — Note B

      35,100  

Audit fees

      29,238  

Printing expense

      28,148  

Registration fees

      24,268  

Insurance expense

      13,718  

Legal fees

      9,800  

Loan commitment fees — Note F

      3,407  

Other

      505  
        

Total Expenses before Waivers and Custody credits

      865,293  

Less: Expenses waived by sub-adviser — Note B

      (195,294 )

Custody credits — Note A

      (478 )
        

Expenses Net of Waivers and Custody credits

      669,521  
        

Net Investment Income

      4,108,892  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS

   

Net realized loss on investments — Note A

      (315,584 )

Net realized gain on futures contracts — Note A

      517,087  

Net change in unrealized appreciation
of investments — Note C

      30,912,582  

Net change in unrealized depreciation of futures contracts — Note A

      54,018  
        

Net Realized and Unrealized Gain
on Investments

      31,168,103  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 35,276,995  
        

 

See notes to financial statements.

 

14     

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LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 4,108,892        $ 3,311,628  

Net realized gain on investments

        201,503          146,486  

Net change in unrealized appreciation of investments and futures contracts

        30,966,600          6,117,526  
                     

Net Increase in Net Assets Resulting from Operations

        35,276,995          9,575,640  
                     

Dividends to Shareholders from:

          

Net investment income

        (4,039,774 )        (3,289,364 )
                     

From Capital Share Transactions:

          

Net increase in net assets from capital share transactions — Note E

        17,624,878          10,424,376  
                     

Net Increase in Net Assets

        48,862,099          16,710,652  

NET ASSETS:

          

Beginning of year

        219,528,679          202,818,027  
                     

End of year*

      $ 268,390,778        $ 219,528,679  
                     

*  Includes undistributed net investment income of:

      $ 164,022        $ 98,844  

 

See notes to financial statements.

 

    15

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LOGO  

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 dividends and distributions).

 

 

Financial Highlights

    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $9.12     $8.86     $8.14     $6.44     $8.47  
   

Net investment income

   0.16     0.14     0.14     0.11     0.14  

Net realized and
unrealized gain/(loss)

   1.24     0.26     0.72     1.70     (2.03 )
   

Total from Investment Operations

   1.40     0.40     0.86     1.81     (1.89 )
   

Dividends to Shareholders from:

          

Net Investment Income

   (0.16 )   (0.14 )   (0.14 )   (0.11 )   (0.14 )
   

Net asset value, end of year

   $10.36     $9.12     $8.86     $8.14     $6.44  
   

Total Return*

   15.46 %   4.54 %   10.59 %   28.25 %   (22.42 )%
   

Net assets, end of year (thousands)

   $268,391     $219,529     $202,818     $170,825     $127,984  

Net ratio of expenses to
average net assets

   0.28 %(a)   0.28 %   0.28 %   0.28 %   0.28  %

Gross ratio of expenses to
average net assets

   0.36 %   0.37 %   0.36 %   0.40 %   0.34  %

Net ratio of net investment
income to average net assets

   1.72 %(a)   1.61 %   1.75 %   1.51 %   1.29  %

Portfolio turnover rate

   2 %   2 %   1 %   12 %   17  %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Includes the effect of expenses waived by GIS.

 

See notes to financial statements.

 

16     

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LOGO  

Notes to Financial Statements — RS S&P 500 Index VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS S&P 500 Index VIP Series (the “Fund” or “SP500IV”) is a series of the Trust. SP500IV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian VC 500 Index Fund (“GVC500F”), a series (“Predecessor Fund”) of The Guardian Variable Contract Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of SP500IV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Repurchase agreements are carried at cost which approximates market value (see Note D). Short-term debt securities with maturities of 60 days or less are valued on an amortized cost basis which approximates market value.

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Futures Contracts

 

SP500IV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, SP500IV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by SP500IV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by SP500IV. The daily changes in the variation margin are recognized as unrealized gains or losses by SP500IV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, SP500IV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for SP500IV. Net realized short-term and long-term capital gains for SP500IV will be distributed at least annually. All such dividends and

 

    17

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LOGO  

Notes to Financial Statements — RS S&P 500 Index VIP Series (continued)

 

December 31, 2006

 

distributions are credited in the form of additional shares of SP500IV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

    Ordinary
Income
2006   $ 4,039,774
2005     3,289,364

 

As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:

 

Undistributed

Ordinary

Income

   Capital Loss
Carryforward
(Including Post-
October Loss)		     Unrealized
Appreciation
$ 165,876   $ (127,236,087 )   $ 56,285,767

 

Taxes

 

SP500IV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:

 

    Capital Loss
Carryforward		     Expiration
Date
  $ (114,242,796 )   2010
    (11,938,809 )   2011
    (549,960 )   2013
         
Total   $ (126,731,565 )  
         

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

Custody Credits

 

SP500IV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, SP500IV’s custodian fees were reduced by $478. SP500IV could have employed the uninvested assets to produce income if SP500IV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and
    Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.25% of the average daily net assets of the Fund.

 

GIS serves as the sub-adviser for SP500IV. Pursuant to a Sub-Advisory, Sub-Administration and Accounting Services Agreement, GIS provides sub-advisory, administrative and accounting services to SP500IV, subject to the general oversight of RS Investments and the Board of Trustees of the Trust. As compensation for its services, RS Investments pays GIS at an annual rate of 0.2375% of the average daily net assets of SP500IV. Payment of the sub-investment advisory fees does not represent a separate or additional expense to SP500IV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses (including the effect of any expense limitation in effect on September 30, 2006) that was applicable to shares of the Predecessor Fund as of September 30, 2006. In the case of SP500IV this expense limitation corresponds to the expense limitation which was

 

18     

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previously in effect between GIS and the Predecessor Fund. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 0.28% of the average daily net assets of SP500IV. GIS subsidized 0.08% of the ordinary operating expenses of SP500IV or $195,294 for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $23,170,011 and $4,840,053, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding futures at December 31, 2006 aggregated $68,948,728 and $12,662,961, respectively, resulting in net unrealized appreciation of $56,285,767. The cost of investments owned at December 31, 2006 for federal income tax purposes was $211,681,966.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, SP500IV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, SP500IV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

Note E.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for SP500IV Class I. Transactions in shares of beneficial interest were as follows:

 

     Year Ended December 31,     Year Ended December 31,  
      2006     2005     2006     2005  
      Shares     Amount  

Shares sold

    3,150,395     2,675,528     $ 30,197,829     $ 23,714,164  

Shares issued in reinvestment of dividends

    411,347     364,352       4,039,774       3,289,364  

Shares repurchased

    (1,722,127 )   (1,878,337 )     (16,612,725 )     (16,579,152 )
   

Net increase

    1,839,615     1,161,543     $ 17,624,878     $ 10,424,376  
   

 

Note F.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed)

 

    19

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Notes to Financial Statements — RS S&P 500 Index VIP Series (continued)

 

December 31, 2006

or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note G.   Indemnification

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note H.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note I.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS S&P 500 Index VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS S&P 500 Index VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian VC 500 Index Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Variable Contract Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS S&P 500 Index VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
20,531,645.808   1,475,902.655   2,990,802.738   24,998,351.201

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution

 

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Supplemental Information — Unaudited (continued)

 

capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

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Supplemental Information — Unaudited (continued)

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

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Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

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Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

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RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

RS S&P 500 INDEX VIP SERIES   29

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RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

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06   ANNUAL REPORT

RS Variable Products Trust

 

RS International Growth VIP Series

12.31.06  
As Revised 4.06.07		   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS International Growth VIP Series   
Portfolio Manager Biography    3
Letter from Portfolio Manager    3
Fund Performance    7
Understanding Your Fund’s Expenses    8
Financial Information   
Schedule of Investments    9
Statement of Assets and Liabilities    12
Statement of Operations    12
Statements of Changes in Net Assets    13
Financial Highlights    14
Notes to Financial Statements    15
Report of Independent Registered Public Accounting Firm    20
Supplemental Information    21
Administration    27
RS Investments’ Senior Management Biographies    28

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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

 

 

LOGO     

R. Robin Menzies (Guardian Baillie Gifford Limited)

has managed RS International Growth VIP Series since 1993 (includes time managing Baillie Gifford International Growth Fund). In this role, Mr. Menzies works with the investment management teams and investment policy committee of Baillie Gifford, 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 Baillie Gifford 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.

 

 

Investment Process

The RS International Growth VIP Series seeks long-term capital appreciation. It is anticipated that long-term capital appreciation will be accompanied by dividend income, which may vary depending on factors such as the location of the investments.

 

Investment Strategy

The Fund normally invests at least 80% of the Fund’s net assets (plus the amount, if any, of the Fund’s borrowings for investment purposes) in common stocks and convertible securities issued by companies that are domiciled outside of the U.S. The Fund uses a bottom-up, stock-driven approach, with the objective of selecting stocks the sub-adviser/Portfolio Manager believes that can sustain an above-average growth rate and trade at a reasonable price.

 

Performance

International equity markets ended the year very strongly as investors set aside their concerns regarding economic and corporate profits growth. Our industrial bias fared well and our favored capital goods and commodity-related companies such as Atlas Copco (Sweden) (3.02%) Sandvik (Sweden) (1.3%) and Comp. Vale Do Rio Doce (CVRD) (Brazil) (0.00%) performed strongly.

 

Our reluctance to join the market’s search for income in the highest yielding sectors, such as utilities and telecommunication services, detracted from relative returns. This was largely offset by our continued underweighting of the banking sector, which lagged the broader market on fears that margins may well have peaked.

 

The Fund returned 23.43% in 2006, compared to a benchmark, the Morgan Stanley Capital International (MSCI) Growth Index1 return of 22.69%. Returns were strong across nearly all markets with Europe returning in excess of 30%. Japan was the laggard with a flat market return. Fortunately, our Japanese stocks outstripped the market, with Japan Tobacco, Inc. (1.3%) particularly strong due, we believe to the fruits of the company’s cost cutting plan became increasingly apparent. Stocks in and exposed to Emerging Markets growth added significantly to performance. Swedish compressor firm Atlas Copco (3.02%) had a strong year after disposing of its U.S. rental business. The company’s exposure to mining equipment also helped as commodity prices remained high and capital expenditure by miners continued. Brazilian oil company Petroleo Brasilero (Petrobras) (1.3%) also had a good year in performance terms, shrugging off concerns over political developments in neighboring countries, in particular moves by Bolivia to secure greater control over oil assets.

 

In terms of stocks that detracted from performance, consumer loan company Promise Co. (0.0%) of Japan

 

1 The Morgan Stanley Capital International (MSCI) Growth Index for Europe, Australasia, and Far East (EAFE) is generally considered to be representative of international stock market activity. Index results assume the reinvestment of dividends paid on the stocks constituting the index. Unlike the Fund, the index does not incur fees or expenses.

 

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RS International Growth VIP Series (continued)

 

was negatively affected by a decision to cap interest rates on unsecured loans in the wake of a court case. The business i s unlikely to disappear but we think the returns will not be as attractive and so we sold the holding. Rakuten, Inc. (0.4%), owner of the Ichiba online mall, was peripherally affected by the same issue but here the core attraction is the fast growing mall and we took the opportunity of price weakness to add to the holding.

 

Portfolio Review

2006 was an exceptionally good year — financial markets, economic growth and company profits all did well — but it has also been rather a nervous one. Many investors seemed unwilling to believe that prospects were really as bright as they appeared to be. The strongest sectors globally were those which offered the highest yields — utilities and diversified telephone companies. This search for income means that utilities are now trading at higher valuations compared to their earnings than equities generally: in our view, an unusual situation considering their pedestrian growth prospects.

 

There has been an exceptionally low level of net new issuance in the developed countries’ equity markets. Most companies are well resourced and would rather buy back their shares than issue new ones. At the same time, private equity investors are avidly removing companies from the public markets. As a result, the developed markets are, in most cases, gradually shrinking. The biggest risks are being run elsewhere, in the marbled halls of the hedge fund and private equity managers. However, the emerging equity markets are not shrinking. In fact they are expanding at a rate of about 0.5% every month, mainly as a result of new issuance by the larger countries, Brazil, Russia, India and China. The balance of financial power in the world is continuing to tilt eastwards and southwards.

 

Currency movements were an important feature this year. The U.S. dollar was weak compared to almost every other country’s currency (except those of South Africa and Turkey). It held its own against the yen and fell by over 13% against sterling.

 

The size of these movements compared to the magnitude of share price rises, means that returns were more than usually dependent on where you live: an American investing in the UK can expect to have made a return of about 30% in 2006, while a Briton investing in Wall Street will have to have been satisfied with making about 3%.

 

Outlook

We believe economic growth will probably slow a little next year, but not by much. We think the most important point though is that monetary policy has worked: inflation is under control; a credit crunch is not necessary. Rates may not actually fall in 2007, but we think there is no reason for them to rise much.

 

One of the pessimists’ strongest arguments is that company earnings are a bubble; margins, they say, are unsustainably high. They certainly are high, but we believe this is largely a structural phenomenon reflecting increasing availability of labor (whether in China or from Poland) and economies of scale from globalization. We believe companies in general are not at all highly leveraged at the moment — some surveys indicate that the corporate sector is a net lender to everyone else — so margins should be less volatile than in the past.

 

We think financial sector profits may have peaked too, reflecting an unrepeatable leveraging up of balance sheets and high asset prices; but it does look as though profitability generally is likely to remain high.

 

If earnings are not unsustainably high, then equity valuations look cheap in our opinion. The gap between companies’ earnings yield and their cost of borrowing is very wide (hence their attraction to private equity buyers). Share prices have done little more than keep up with earnings in recent years; they are the only financial asset that looks reasonable value and there is some scope for them to become more expensive. This is particularly so in the case of growth stocks, which we think should benefit if earnings generally do slow down.

 

There has been plenty of liquidity around in financial markets, and that situation looks likely to continue. We believe a weaker dollar puts pressure on other regions to devalue or loosen their monetary reins; and high commodity prices tend to produce an abundance of footloose capital. Most risks seem to be cheaply fundable and that supports asset prices.

 

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So, with this generally benign set of conditions, what should we worry about? Markets tend to generate their own scares from time to time, and it has been a long time since there has been a serious bout of profit taking, so we could suffer one of these in the new year; but we believe it would be a buying opportunity. A sharp fall in the dollar is a more serious threat, but we think it seems unlikely if only because so many rich countries have an interest in preventing it.

 

The main thing to worry about is some kind of accident in credit. Huge amounts have been advanced to hedge funds and private equity funds on very fine terms. The collapsed hedge fund Amaranth was unwound relatively painlessly (except for its investors); but the next one may be more difficult; and there are rising concerns about the possibility of default by companies which have been taken private and loaded with debt. Again, the system will probably cope as the risks are spread so thinly, but credit risk premia could rise and that would be bad for equities too.

 

On balance, however, the general background to investment is favorable and equities look reasonable value.

 

Thank you for your continued support.

 

LOGO

 

R. Robin Menzies

Portfolio Manager

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

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.

 

RS INTERNATIONAL GROWTH VIP SERIES   5

Table of Contents
LOGO  

RS International Growth VIP Series (continued)

 

Assets Under Management: $280,370,589

Data as of December 31, 2006

 

LOGO  

Geographical Location vs. Index

 
LOGO

 

LOGO  

Top Ten Holdings1

Company      Country      Percentage of Total Net Assets

UBS AG

      Switzerland      3.08%

Atlas Copco AB - Class B

      Sweden      3.02%

Essilor Int’l. S.A.

      France      2.37%

Kone OYJ - Class B

      Finland      2.33%

Royal Dutch Shell PLC - Class A

      United Kingdom      2.30%

Danske Bank AS

      Denmark      2.29%

Svenska Handelsbanken AB - Class A

      Sweden      2.28%

Royal Bank of Scotland

      United Kingdom      2.09%

CRH PLC

      Ireland      1.98%

Celesio AG

      Germany      1.96%

 

1 Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

6    RS INTERNATIONAL GROWTH VIP SERIES

Table of Contents

 

LOGO  

Performance Update

As of 12/31/06

   
     Inception
Date		   1-Year
Total
Return		   3-Year
Annualized
Return		   5-Year
Annualized
Return		   10-Year
Annualized
Return		  

Annualized Return
Since Fund

Inception

RS International Growth VIP Series

   2/8/91   23.43%   18.68%   12.33%   7.95%   9.56%

MSCI EAFE Growth Index

       22.69%   17.54%   12.63%   5.35%   5.82%

 

The Series is the successor to Baillie Gifford International Growth Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

LOGO  

Results of a Hypothetical $10,000 Investment

If invested on 12/31/96

 
LOGO

 

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. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

RS INTERNATIONAL GROWTH VIP SERIES   7

Table of Contents
LOGO  

Understanding Your Fund’s Expenses — Unaudited

 

By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Fund’s expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

   

Based on Actual Return

    $ 1,000.00    $ 1,130.30    $5.58    1.04%
   

Based on Hypothetical Return (5% return before expenses)

    $ 1,000.00    $ 1,019.96    $5.30    1.04%

 

* Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

 

8    RS INTERNATIONAL GROWTH VIP SERIES

Table of Contents
LOGO  

Schedule of Investments — RS International Growth VIP Series

 

December 31, 2006

 

Shares          Value  
     

Common Stocks — 96.4%

 

Australia — 5.2%

 

Beverages — 0.5%

 

255,500   

Fosters Group Ltd.

    $ 1,393,673  

Commercial Banks — 1.2%

 

87,754   

Australia and NZ Banking Group Ltd.

      1,951,345  
77,000   

Westpac Banking Corp.

      1,471,253  
           
        3,422,598  

Commercial Services and Supplies — 0.3%

 

89,000   

Brambles Ltd.

      900,079  

Construction Materials — 0.2%

 

78,000   

James Hardie Inds. NV

      590,856  

Food and Staples Retailing — 0.7%

 

107,700   

Woolworths Ltd.

      2,028,979  

Insurance — 0.3%

 

95,000   

AMP Ltd.

      756,326  

Media — 0.2%

 

126,000   

John Fairfax Hldgs. Ltd.

      479,713  

Metals and Mining — 1.1%

 

155,956   

BHP Billiton Ltd.

      3,110,188  

Oil, Gas and Consumable Fuels — 0.3%

 

27,900   

Woodside Petroleum Ltd.

      838,122  

Real Estate Investment Trusts — 0.4%

 

61,000   

Westfield Group

      1,009,268  
           
        14,529,802  
   

Belgium — 1.3%

 

Diversified Financial Services — 1.3%

 

30,000   

Groupe Bruxelles Lambert S.A.

      3,604,489  
   

Denmark — 3.5%

 

Chemicals — 1.2%

 

39,900   

Novozymes AS — Class B

      3,432,136  

Commercial Banks — 2.3%

 

144,320   

Danske Bank AS

      6,411,441  
           
        9,843,577  
   

Finland — 2.3%

 

Construction and Engineering — 2.3%

 

115,400   

Kone OYJ — Class B

      6,538,986  
   

France — 11.6%

 

Beverages — 0.9%

 

11,080   

Pernod-Ricard S.A.

      2,544,085  

Diversified Financial Services — 1.6%

 

31,176   

Eurazeo

      4,451,334  

Food and Staples Retailing — 1.5%

 

71,529   

Carrefour S.A.

      4,336,264  

Health Care Equipment and Supplies — 2.4%

 

61,910   

Essilor Int’l. S.A.

      6,654,178  

Multi–Utilities — 0.9%

 

36,800   

Electricite de France S.A.

      2,680,584  

Oil, Gas and Consumable Fuels — 1.4%

 

52,920   

Total S.A.

      3,816,388  

Personal Products — 1.8%

 

49,406   

L’Oreal S.A.

      4,948,391  

Pharmaceuticals — 1.1%

 

34,620   

Sanofi-Aventis

      3,195,636  
           
        32,626,860  
   

Germany — 4.6%

 

Diversified Financial Services — 1.1%

 

16,400   

Deutsche Boerse AG

      3,017,251  

Health Care Providers and Services — 2.0%

 

102,556   

Celesio AG

      5,499,932  

Software — 1.5%

 

82,392   

SAP AG

      4,377,250  
           
        12,894,433  
   
Shares          Value  
     

Hong Kong — 1.9%

 

Commercial Banks — 0.2%

 

202,000   

BOC Hong Kong Hldgs. Ltd.

    $ 549,308  

Distributors — 0.4%

 

331,000   

Li & Fung Ltd.

      1,032,034  

Diversified Financial Services — 0.4%

 

106,000   

Hong Kong Exchanges & Clearing Ltd.

      1,166,632  

Media — 0.1%

 

66,000   

Television Broadcasts Ltd.

      403,081  

Real Estate Management and Development — 0.8%

 

90,000   

Cheung Kong Hldgs. Ltd.

      1,109,147  
405,000   

Hang Lung Pptys. Ltd.

      1,013,333  
           
        2,122,480  
           
        5,273,535  
   

Ireland — 3.5%

 

Commercial Banks — 1.5%

 

147,110   

Allied Irish Banks PLC

      4,367,845  

Construction Materials — 2.0%

 

133,450   

CRH PLC

      5,554,217  
           
        9,922,062  
   

Japan — 20.2%

 

Automobiles — 1.3%

 

310,200   

Nissan Motor Co. Ltd.

      3,734,649  

Building Products — 1.1%

 

250,000   

Asahi Glass Co.

      3,003,571  

Commercial Banks — 1.7%

 

377   

Mitsubishi UFJ Financial Group, Inc.

      4,656,080  

Electrical Equipment — 0.8%

 

230,000   

Mitsubishi Electric Corp.

      2,098,551  

Electronic Equipment and Instruments — 2.8%

 

12,400   

Keyence Corp.

      3,072,262  
34,000   

Nidec Corp.

      2,628,019  
186,000   

YASKAWA Electric Corp.

      2,151,834  
           
        7,852,115  

Insurance — 0.8%

 

210,000   

Mitsui Sumitomo Insurance Co.

      2,297,164  

Internet Software and Services — 0.4%

 

2,578   

Rakuten, Inc.

      1,202,092  

Machinery — 1.0%

 

83,300   

Daikin Inds. Ltd.

      2,897,391  

Marine — 1.3%

 

369,000   

Mitsui O.S.K. Lines Ltd.

      3,639,622  

Office Electronics — 1.9%

 

96,100   

Canon, Inc.

      5,409,536  

Paper and Forest Products — 0.6%

 

461   

Nippon Paper Group, Inc.

      1,739,038  

Real Estate Management and Development — 0.5%

 

40,000   

Sumitomo Realty & Dev’t. Co. Ltd.

      1,283,764  

Road and Rail — 0.8%

 

351,000   

Tokyu Corp.

      2,247,108  

Specialty Retail — 0.9%

 

31,050   

Yamada Denki Co. Ltd.

      2,634,782  

Tobacco — 1.3%

 

755   

Japan Tobacco, Inc.

      3,647,343  

Trading Companies and Distributors — 2.1%

 

53,600   

Hitachi High-Technologies Corp.

      1,594,153  
282,000   

Mitsui & Co. Ltd.

      4,217,265  
           
        5,811,418  

Wireless Telecommunication Services — 0.9%

 

349   

KDDI Corp.

      2,366,251  
           
        56,520,475  
   

 

See notes to financial statements.

 

    9

Table of Contents
LOGO  

Schedule of Investments — RS International Growth VIP Series (continued)

 

December 31, 2006

 

Shares          Value  
     

Russia — 1.0%

 

Oil, Gas and Consumable Fuels — 0.5%

 

29,500   

OAO Gazprom ADR

    $ 1,357,000  

Wireless Telecommunication Services — 0.5%

 

27,000   

Mobile TeleSystems ADR

      1,355,130  
           
        2,712,130  
   

Singapore — 0.4%

 

Industrial Conglomerates — 0.4%

 

105,000   

Keppel Corp. Ltd.

      1,204,733  
   

South Korea — 0.5%

 

Semiconductors and Semiconductor Equipment — 0.5%

 

3,900   

Samsung Electronics Co. Ltd. GDR†

      1,283,100  
   

Spain — 2.6%

 

Diversified Financial Services — 1.4%

 

52,585   

Corp. Financiera Alba S.A.

      3,924,073  

Tobacco — 1.2%

 

62,720   

Altadis S.A.

      3,281,646  
           
        7,205,719  
   

Sweden — 8.0%

 

Commercial Banks — 2.3%

 

210,987   

Svenska Handelsbanken AB — Class A

      6,387,748  

Health Care Equipment and Supplies — 1.4%

 

170,480   

Getinge AB — Class B

      3,827,397  

Machinery — 4.3%

 

260,610   

Atlas Copco AB — Class B

      8,461,858  
252,720   

Sandvik AB

      3,677,769  
           
        12,139,627  
           
        22,354,772  
   

Switzerland — 9.3%

 

Building Products — 1.3%

 

2,412   

Geberit AG

      3,713,964  

Commercial Banks — 3.1%

 

142,300   

UBS AG

      8,639,622  

Food Products — 1.3%

 

10,670   

Nestle S.A.

      3,788,062  

Health Care Equipment and Supplies — 1.2%

 

13,600   

Straumann Hldg. AG

      3,289,468  

Machinery — 1.0%

 

43,320   

Schindler Hldg. AG

      2,722,484  

Textiles, Apparel and Luxury Goods — 1.4%

 

69,800   

Compagnie Financiere Richemont AG — Class A

      4,063,297  
           
        26,216,897  
   

Taiwan — 0.5%

 

Semiconductors and Semiconductor Equipment — 0.5%

 

125,847   

Taiwan Semiconductor Mfg. Co. Ltd. ADR

      1,375,508  
   

United Kingdom — 20.0%

 

Commercial Banks — 3.1%

 

149,888   

Royal Bank of Scotland

      5,851,009  
96,000   

Standard Chartered PLC

      2,805,412  
           
        8,656,421  

Commercial Services and Supplies — 1.3%

 

187,000   

Capita Group PLC

      2,223,243  
467,000   

Hays PLC

      1,456,642  
           
        3,679,885  

Food Products — 1.1%

 

277,000   

Cadbury Schweppes PLC

      2,965,013  
Shares          Value  
     

Health Care Equipment and Supplies — 0.6%

 

149,000   

Smith & Nephew PLC

    $ 1,555,500  

Hotels, Restaurants and Leisure — 0.8%

 

46,200   

Carnival PLC

      2,341,870  

Media — 1.9%

 

239,000   

Reed Elsevier PLC

      2,623,797  
252,966   

Yell Group PLC

      2,824,188  
           
        5,447,985  

Metals and Mining — 0.8%

 

118,000   

BHP Billiton PLC

      2,159,822  

Oil, Gas and Consumable Fuels — 4.9%

 

210,000   

BG Group PLC

      2,850,422  
67,500   

Cairn Energy PLC*

      2,378,436  
414,018   

John Wood Group PLC

      2,124,600  
184,500   

Royal Dutch Shell PLC — Class A

      6,450,468  
           
        13,803,926  

Pharmaceuticals — 1.7%

 

181,077   

GlaxoSmithKline PLC

      4,766,715  

Specialty Retail — 1.1%

 

661,000   

Kingfisher PLC

      3,087,781  

Tobacco — 1.9%

 

152,000   

Gallaher Group PLC

      3,413,299  
51,900   

Imperial Tobacco Group PLC

      2,043,243  
           
        5,456,542  

Trading Companies and Distributors — 0.8%

 

94,000   

Wolseley PLC

      2,270,113  
           
        56,191,573  
   
  

Total Common Stocks
(Cost $178,765,547)

      270,298,651  
   
     

Preferred Stocks — 1.9%

 

Brazil — 1.9%

 

Commercial Banks — 0.6%

 

43,000   

Banco Itau Hldg. Financeira S.A. ADR

    $ 1,554,450  

Oil, Gas and Consumable Fuels — 1.3%

 

40,600   

Petroleo Brasileiro S.A. ADR

      3,766,056  
   
  

Total Preferred Stocks
(Cost $2,146,340)

      5,320,506  
   
     

Other Investments - For Trustee Deferred Compensation Plan (1) — 0.0%

  

9   

RS Emerging Growth Fund, Class A

    $ 314  
15   

RS Global Natural Resources Fund, Class A

      461  
12   

RS Growth Fund, Class A

      183  
34   

RS Investors Fund, Class A

      400  
7   

RS MidCap Opportunities Fund, Class A

      101  
4   

RS Partners Fund, Class A

      150  
8   

RS Smaller Company Growth Fund, Class A

      162  
4   

RS Value Fund, Class A

      101  
   
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $1,872)

    $ 1,872  
   

 

See notes to financial statements.

 

10     

Table of Contents

 

December 31, 2006

Principal
Amount		          Value
     

Repurchase Agreement — 1.6%

$4,580,000   

State Street Bank and Trust Co.
repurchase agreement,
dated 12/29/2006, maturity
value $4,581,272 at
2.50%, due 1/2/2007 (2)
(Cost $4,580,000)

    $ 4,580,000
 

Total Investments — 99.9%
(Cost $185,493,759)

      280,201,029

Cash, Receivables, and Other Assets
Less Liabilities — 0.1%

      169,560
 

Net Assets — 100%

    $ 280,370,589
 

 

†   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to certain qualified buyers. At 12/31/2006, the aggregate market value of these securities amounted to $1,283,100 representing 0.5% of net assets which have been deemed liquid pursuant to the Fund’s liquidity procedures approved by the Board of Trustees.
*   Non-income producing security.
(1)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(2)   The repurchase agreement is fully collateralized by $3,465,000 in U.S. Treasury Bond, 7.625% due 2/15/2025, with a value of $4,677,750.

 

Glossary of Terms:

ADR — American Depositary Receipt.

GDR — Global Depositary Receipt.

 

See notes to financial statements.

 

    11

Table of Contents
LOGO  

Financial Information — RS International Growth VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $185,493,759)

    $ 280,201,029  

Dividends receivable

      221,727  

Receivable for fund shares sold

      147,059  

Dividend reclaim receivable

      63,872  

Interest receivable

      954  

Prepaid insurance

      3,145  
        

Total Assets

      280,637,786  
        

LIABILITIES

   

Accrued expenses

      69,897  

Payable for fund shares redeemed

      7,266  

Due to custodian

      1,260  

Deferred trustees’ compensation

      1,872  

Due to Adviser

      186,902  
        

Total Liabilities

      267,197  
        

Net Assets

    $ 280,370,589  
        

COMPONENTS OF NET ASSETS

   

Paid-in capital

    $ 214,537,532  

Undistributed net investment income

      1,144,334  

Accumulated net realized loss on investments and foreign currency related transactions

      (30,023,067 )

Net unrealized appreciation of investments and translation of other assets and liabilities denominated in foreign currencies

      94,711,790  
        

Net Assets

    $ 280,370,589  
        

Shares of beneficial interest outstanding with no par value

      12,923,890  

Net Asset Value Per Share

      $21.69  
LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Dividends

    $ 5,407,300  

Interest

      134,257  

Less: Foreign tax withheld

      (450,600 )
        

Total Income

      5,090,957  
        

Expenses:

   

Investment advisory fees — Note B

      1,939,416  

Custodian fees

      427,952  

Printing expense

      63,297  

Trustees’ fees — Note B

      32,951  

Audit fees

      29,757  

Insurance expense

      13,392  

Legal fees

      12,676  

Loan commitment fees — Note F

      3,596  

Registration fees

      1,261  

Other

      969  
        

Total Expenses before Waivers

      2,525,267  

Less: Expenses waived by GIS — Note B

      (11,836 )
        

Expense Net of Waivers

      2,513,431  
        

Net Investment Income

      2,577,526  
        

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES

   

Net realized gain on investments — Note A

      20,619,540  

Net realized loss on foreign currency related transactions — Note A

      (81,849 )

Net change in unrealized appreciation of investments — Note C

      28,218,690  

Net change in unrealized appreciation/(depreciation) from translation of other assets and liabilities denominated in foreign currencies — Note A

      11,014  
        

Net Realized and Unrealized Gain
on Investments and Foreign Currencies

      48,767,395  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 51,344,921  
        

 

See notes to financial statements.

 

12     

Table of Contents

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 2,577,526        $ 2,484,539  

Net realized gain on investments and foreign currency related transactions

        20,537,691          17,154,284  

Net change in unrealized appreciation/(depreciation) of investments and foreign currency related transactions

        28,229,704          9,553,265  
                     

Net Increase in Net Assets Resulting from Operations

        51,344,921          29,192,088  
                     

Dividends to Shareholders from:

          

Net investment income

        (2,754,132 )        (3,029,344 )
                     

From Capital Share Transactions:

          

Net increase/(decrease) in net assets from capital share transactions — Note E

        20,920,900          (5,162,124 )
                     

Net Increase in Net Assets

        69,511,689          21,000,620  

NET ASSETS:

          

Beginning of year

        210,858,900          189,858,280  
                     

End of year*

      $ 280,370,589        $ 210,858,900  
                     

*  Includes undistributed net investment income of:

      $ 1,144,334        $ 1,402,789  

 

See notes to financial statements.

 

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Financial Information — RS International Growth VIP Series

 

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 dividends and distributions).

 

  Financial Highlights
    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $17.80     $15.60     $13.40     $10.46     $12.72  
   

Net investment income

   0.20     0.22     0.16     0.14     0.11  

Net realized and
unrealized gain/(loss)

   3.92     2.24     2.08     2.99     (2.36 )
   

Total from Investment Operations

   4.12     2.46     2.24     3.13     (2.25 )
   

Dividends to Shareholders from:

          

Net Investment Income

   (0.23 )   (0.26 )   (0.04 )   (0.19 )   (0.01 )
   

Net asset value, end of year

   $21.69     $17.80     $15.60     $13.40     $10.46  
   

Total Return*

   23.43  %   16.02  %   16.72  %   30.03  %   (17.70 )%
   

Net assets, end of year (thousands)

   $280,371     $210,859     $189,858     $194,159     $163,815  

Net ratio of expenses to
average net assets

   1.04 %(a)   1.05  %   1.01  %   1.05  %   1.02  %

Net ratio of net investment income to
average net assets

   1.06 %(a)   1.30  %   1.03  %   1.17  %   0.89  %

Portfolio turnover rate

   22 %   28  %   24  %   41  %   39  %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
    Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Includes the effect of expenses waived by GIS

 

See notes to financial statements.

 

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Notes to Financial Statements — RS International Growth VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS International Growth VIP Series (the “Fund” or “IGV”) is a series of the Trust. IGV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

Baillie Gifford International Growth Fund (“BGIF”), a series (“Predecessor Fund”) of GIAC Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of IGV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Repurchase agreements are carried at cost which approximates market value (see Note D).

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Foreign Currency Translation

 

The books and records of IGV are maintained in U.S. dollars as follows:

 

(1)  The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange.

 

(2)  Security purchases and sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.

 

The resulting gains and losses are included in the Statement of Operations as follows:

 

Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Realized foreign exchange gains and losses, which result from changes in foreign exchange rates between the date on which IGV earns dividends and interest or pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are actually received or paid, are included in net realized gains or losses on foreign currency related transactions. Realized foreign

 

    15

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Notes to Financial Statements — RS International Growth VIP Series (continued)

 

December 31, 2006

 

exchange gains and losses which result from changes in foreign exchange rates between the trade and settlement dates on security and currency transactions are also included in net realized gains and losses on foreign currency related transactions. Net currency gains and losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies.

 

Forward Foreign Currency Contracts

 

IGV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the value of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by IGV. When forward contracts are closed, IGV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. IGV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.

 

Futures Contracts

 

IGV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, IGV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by IGV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by IGV. The daily changes in the variation margin are recognized as unrealized gains or losses by IGV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, IGV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for IGV. Net realized short-term and long-term capital gains for IGV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of IGV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

     Ordinary
Income

2006

    $ 2,754,132

2005

      3,029,344

 

As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Capital Loss
Carryforward		     Unrealized
Appreciation
$ 5,314,117   $ (29,815,072 )   $ 90,335,889

 

Taxes

 

IGV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

Withholding taxes on foreign interest, dividends and capital gains in IGV have been provided for in accordance with the applicable country’s tax rules and rates.

 

As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:

 

     Capital Loss
Carryforward		     Expiration
Date
  $ (9,327,153 )   2010
    (20,487,919 )   2011
         
Total   $ (29,815,072 )  
         

 

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Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

During the year ended December 31, 2006, the Fund reclassified amounts to paid-in capital from undistributed net investment income and accumulated net realized loss on investments and foreign currency related transactions. Increases/(decreases) to the various capital accounts were as follows:

 

Paid-In
Capital		   Undistributed
Net Investment
Income		     Accumulated Net
Realized Loss on
Investments and
Foreign Currency
Related Transactions
$—   $ (81,849 )   $ 81,849

 

Note B.   Investment Advisory Agreements and
     Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.80% of the average daily net assets of the Fund.

 

RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Baillie Gifford Limited (“GBG”), a Scottish corporation owned by GIAC and Baillie Gifford Overseas Limited (“BG Overseas”). As compensation for GBG’s services, RS Investments pays GBG at an annual rate of 0.76% of the average daily net assets of IGV. Payment of the sub-advisory fees does not represent a separate or additional expense to IGV. GBG has entered into a Sub-Sub-Investment Advisory Agreement with BG Overseas pursuant to which BG Overseas is responsible for the day-to-day investment advisory services of IGV. A sub-sub-advisory fee of 0.40% of the average daily net assets of IGV is payable by GBG to BG Overseas for its services. Payment of the sub-sub-investment advisory fee does not represent a separate or additional expense to IGV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 1.04% of the average daily net assets of IGV. GIS subsidized $11,836 or less than 0.01% of the ordinary operating expenses of IGV for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $73,048,451 and $52,677,759, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding foreign currency, forward contracts and futures at December 31, 2006 aggregated $91,674,320 and $1,342,951, respectively, resulting in net unrealized appreciation of $90,331,369. The cost of investments owned at December 31, 2006 for federal income tax purposes was $189,869,660.

 

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Notes to Financial Statements — RS International Growth VIP Series (continued)

 

December 31, 2006

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, IGV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, IGV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

Note E.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for IGV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      3,124,358        2,030,951        $ 60,921,815        $ 32,756,726  

Shares issued in reinvestment of dividends

      157,289        198,776          2,754,132          3,029,344  

Shares repurchased

      (2,201,444 )      (2,554,129 )        (42,755,047 )        (40,948,194 )
   

Net increase/(decrease)

      1,080,203        (324,402 )      $ 20,920,900        $ (5,162,124 )
   

 

18     

 

Note F.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note G.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note H.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note I.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement report -

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ing period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS International Growth VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS International Growth VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for Baillie Gifford International Growth Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between GIAC Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS International Growth VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
11,074,622.902   552,574.608   931,068.770   12,558,266.280

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution

 

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capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Supplemental Information — Unaudited (continued)

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

    25

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LOGO  

Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

26     

Table of Contents
LOGO  

Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

    27

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LOGO  

RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

28    RS INTERNATIONAL GROWTH VIP SERIES

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LOGO  

RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

RS INTERNATIONAL GROWTH VIP SERIES   29

Table of Contents

LOGO

 

06   ANNUAL REPORT

RS Variable Products Trust

 

RS Emerging Markets VIP Series

12.31.06
As Revised 4.06.07		   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS Emerging Markets VIP Series   
Portfolio Manager Biography    3
Letter from Portfolio Manager    3
Fund Performance    7
Understanding Your Fund’s Expenses    8
Financial Information   
Schedule of Investments    9
Statement of Assets and Liabilities    12
Statement of Operations    12
Statements of Changes in Net Assets    13
Financial Highlights    14
Notes to Financial Statements    15
Report of Independent Registered Public Accounting Firm    20
Supplemental Information    21
Administration    27
RS Investments’ Senior Management Biographies    28

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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.

Table of Contents
LOGO  

RS Emerging Markets VIP Series

LOGO     

Edward H. Hocknell (Guardian Baillie Gifford Limited)

has managed RS Emerging Markets VIP Series since 1997 (includes time managing the Baillie Gifford Emerging Markets Fund). In this role, Mr. Hocknell works with the investment management teams at Baillie Gifford, who make the securities selections for the Fund, and an investment policy committee of the firm, which reviews geographical allocations. Mr. Hocknell, as coordinator, has responsibility for reviewing the overall composition of the Fund’s portfolio to ensure its compliance with its stated investment objective and strategies. Mr. Hocknell is a director of BG Overseas and a partner of Baillie Gifford & Co., where he has worked since 1984. He holds a B.A. from Oxford University.

 

 

Fund Objective

The RS Emerging Markets VIP Series seeks long-term capital appreciation. It is anticipated that long-term capital appreciation will be accompanied by dividend income, which may vary depending on factors such as the location of the investment.

 

Investment Process

The Fund normally invests at least 80% of the Fund’s net assets (plus the amount, if any, of the Fund’s borrowing for investment purposes) in securities of emerging market companies. The Fund uses a bottom-up, stock-driven approach to country and asset allocation, with the objective of selecting stocks that the subadviser/portfolio manager believes can sustain an above-average growth rate and trade at a reasonable price.

 

Performance

The Fund returned 36.19% in 2006, compared to a benchmark return of 32.59%. The returns from global emerging markets (GEM) in 2006 were very positive in absolute terms as well as generally being good in relation to their developed peers.

 

It really was a year of two halves. Up to the middle of May, the Morgan Stanley Capital International (MSCI) EMF Index1 was thirteen percentage points ahead of the MSCI World Index2. It then fell 25% in the space of four weeks, underperforming its developed peers by 13%. The second half recovery was equally spectacular, as the EMF Index rose over 33%, enjoying a double-digit gain over developed markets. As we said last year, a quantitative perspective may support the case that emerging markets are becoming less risky; however, the reality of share price volatility reminds of both the upside and downside potential of these investments.

 

Within emerging markets a similar pattern unfolded, with Latin America leading the way and improving second half returns from Asia. The relative performance of the latter is encouraging after three consecutive years of underperformance. After a strong 2005, Europe and the Middle East brought up the rear, dragged down by the Middle East and African weakness. The BRIC countries (Brazil, Russia, India and China) were very much to the fore this year. China, at last, would appear to be reflecting its economic potential through its financial markets and equity issuance has been a notable feature.

 

Primary and secondary issuance in emerging markets is running at an average of $11.4 billion per month, 24% of the total issuance in developed and emerging markets combined (bearing in mind that the MSCI EMF

 

1

The Morgan Stanley Capital International (MSCI) Emerging Markets Free (EMF) Index is generally considered to be representative of the stock market activity of emerging markets. Index results assume the reinvestment of dividends paid on the stocks consulting the index. Unlike the Fund, the index does not incur fees.

2

MSCI World Index is a capitalization-weighted index in U.S. dollars which adds the U.S., Canada, Mexico, and South African mines to the MSCI EAFE Index. The index includes dividends.

 

RS EMERGING MARKETS VIP SERIES   3

Table of Contents
LOGO  

RS Emerging Markets VIP Series (continued)

 

Index is about 8% of the MSCI World Index). This compares to an average of $2.9 billion per month since 1990 and an average share of the global total of 11.3%. The very large issuance by Chinese companies stands out as does the share of the four ‘BRICs’ countries – 71% (or 80% if the Hong Kong issues are included) and should be seen as a strong factor in the equity market performance although it may not be clear if it is the ‘cause’ or the ‘effect’. Excess liquidity is another feature behind the continuing success of emerging markets.

 

Liquidity flows have been particularly notable in Asia, with almost $6 billion of flows finding its way into China funds, almost ten times more than that invested in 2005. That said, after a setback in the middle of the year positive flows are now finding their way into other country funds throughout the global emerging markets. The source is not obvious but we have seen the effect that petrodollars2 have had on their local markets and more recently, a wave of inexpensive credit is seeking a home in high-return markets. Middle Eastern markets have come off the boil after a few years of excessive returns (leading to very expensive valuations), and we think they are now trading at more reasonable valuations and the ‘oil revenue effect’ is still prevalent in buoyant economic activity. The expansion in credit may be the main thing to worry about in our opinion, but this is a global financial market phenomenon rather than an emerging markets issue. Indeed, emerging market companies, like their country of domicile tend to be lenders rather than borrowers and we believe the level of debt in general, is not a concern. While there remains a risk of a credit accident, we think there is no reason to believe that emerging markets are any worse off. However, whether credit spreads can narrow further is uncertain in our opinion.

 

Portfolio Review

The principal contribution to positive performance came from stock selection, particularly in South Korea, Taiwan, Mexico, and South Africa. In South Korea, the Fund’s holding in Samsung Corp. at the expense of not owning Samsung Electronics proved to be the most significant contributor. South African commodity plays were also major contributors, notably, Lonmin PLC (0.0%) and Anglo American Platinum Corp. (0.5%). OAO Gazprom (4.0%), the Russian oil giant and largest stock in the MSCI EMF Index, was also a strong contributor.

 

On the downside, two of the top five negative contributors were a direct result of not being held in the portfolio: China Life share price rose almost 300% and Norilsk increased over 150% during the year. Turkiye Garanti Bankasi (0.8%) in Turkey, another detractor to Fund performance, suffered from the general malaise in the country’s stockmarket.

 

The shape of the portfolio has changed during the year. Asia has increased as a proportion of the overall portfolio, partly at the expense of a reduction in Brazil, Russia and South Africa. Within Asia, we have increased the weighting in China and Taiwan and reduced South Korea. At the sector level, the energy component has risen due to price appreciation and we have reduced the positions in the industrial and materials sectors. After a number years of price weakness we have started to add to the Information Technology sector, although the portfolio is still underweight relative to the Index.

 

Gazprom is now the largest stock in the portfolio, reflecting its recently adjusted weighting in the Index, closely followed by Samsung Corp. (3.5%) our preferred route of playing Korean chaebols3, and Samsung Electronics (0.0%). The majority of new additions have an Asian bias, including stocks such as China Unicom Ltd. (1.7%), China Shenhua Energy Co., Ltd. (1.2%) Industrial Bank of Korea (1.3%) and Hana Financial Group, Inc. (1.0%). We also added to the Middle East exposure through the purchase of Orascom Construction Inds. (0.9%) and participated in OAO Rosneft Oil Co. (2.1%), a Russian IPO.

 

Outlook

We believe cautious optimism is, once again, the message for the medium outlook for emerging markets. In our opinion, superior growth (both economic and corporate) remains the key argument in support of

 

2

Money that oil exporters receive from selling oil and then deposit it into Western banks.

3

A conglomerate of businesses, usually owned by a single family, especially in Korea.

 

4    RS EMERGING MARKETS VIP SERIES

Table of Contents

 

emerging markets, both in absolute terms and in relation to their developed peers. However, economic growth is forecasted to slow slightly and external surpluses are expected to fall, albeit from high levels.

 

We think the same can be said for emerging market companies where top line growth is also expected to slow and corporate earnings growth likewise, albeit mid to high teens. It is also worth noting that we do not believe can rely on energy and commodity price appreciation to boost earnings in the coming years, although we think the same can be said for developed markets. The perennial attraction of emerging markets is faster growth at cheaper prices. While emerging market equities have enjoyed a significant re-rating over the last 4 years, we believe the paradigm still holds. We would estimate that emerging market stocks are around 20% cheaper than their developed peers, with better growth prospects.

 

The figures below are the latest UBS estimates:

 

     
      MSCI EMF
INDEX		    MSCI WORLD
INDEX

Price/Earnings (P/E)

    11.1    14.2

Yield

    3.0    2.3

Historic Earnings Growth

    25.3    15.9

Forecast Earnings Growth

    16.6    11.3

 

Source: UBS

 

As usual the real argument is in the detail. On a stock by stock basis we continue to seek stocks with attractive and sustainable earnings growth prospects. In addition, we seek market inefficiencies which fail to properly price stock’s potential and present regular buying (and selling) opportunities. The beauty is in the choice: not only can we select from emerging market stocks who are beneficiaries of global trends but, also stocks that benefit from domestic trends, more than often, enhanced by oligopolistic markets.

 

Thank you for your continued support.

 

LOGO

 

Edward H. Hocknell

Portfolio Manager

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

International investing involves special risks, which include changes in currency rates, foreign taxation and differences in auditing standards and securities regulations, political uncertainty and greater volatility. These risks are even greater when investing in emerging markets.

 

RS EMERGING MARKETS VIP SERIES   5

Table of Contents
LOGO  

RS Emerging Markets VIP Series (continued)

 

Assets Under Management: $176,661,247

Data as of December 31, 2006

 

LOGO  

Geographical Location vs. Index

 
LOGO

 

LOGO  

Top Ten Holdings1

Company

    Country      Percentage of Total Net Assets

OAO Gazprom ADR

    Russia      4.02%

Samsung Corp.

    South Korea      3.39%

Itausa-Investimentos Itau S.A.

    Brazil      3.27%

Petroleo Brasileiro S.A. ADR

    Brazil      3.26%

Taiwan Semiconductor Mfg.

    Taiwan      3.22%

Infosys Technologies Ltd.

    India      3.11%

Hon Hai Precision Inds. Co. Ltd.

    Taiwan      2.72%

Samsung Fire & Marine Ins. Co. Ltd.

    South Korea      2.16%

OAO Rosneft Oil Co. GDR

    Russia      2.11%

Reliance Inds. Ltd.

    India      1.92%

 

1

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

6    RS EMERGING MARKETS VIP SERIES

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LOGO  

Performance Update

As of 12/31/06

   
     Inception
Date		  

1-Year
Total

Return

   3-Year
Annualized
Return		   5-Year
Annualized
Return		   10-Year
Annualized
Return		   Annualized
Return
Since Fund
Inception

RS Emerging Markets VIP Series

   10/17/1994   36.19%   33.22%   27.79%   12.90%   11.24%

MSCI EMF Index

       32.59%   30.97%   26.97%   9.40%   6.40%

 

The Series is the successor to Baillie Gifford Emerging Markets Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures show do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

LOGO  

Growth of a Hypothetical $10,000 Investment

If invested on 12/31/96

 
LOGO

 

The chart above shows the performance of a hypothetical $10,000 investment made 10 years ago in the RS Emerging Markets VIP Series and in 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. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

RS EMERGING MARKETS VIP SERIES   7

Table of Contents
LOGO  

Understanding Your Fund’s Expenses — Unaudited

 

By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Fund’s expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

   

Based on Actual Return

    $1,000.00    $1,232.30    $8.05    1.43%
   

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,018.00    $7.27    1.43%

 

* Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

 

8    RS EMERGING MARKETS VIP SERIES

Table of Contents
LOGO  

Schedule of Investments — RS Emerging Markets VIP Series

 

December 31, 2006

 

Shares          Value
     

Common Stocks — 94.6%

Bolivia — 0.5%

   

Metals and Mining — 0.5%

   
60,232   

Apex Silver Mines Ltd.*

    $ 957,086
 

Brazil — 6.1%

   

Airlines — 0.6%

   
39,600   

Gol-Linhas Aereas Inteligentes S.A. ADR

      1,135,332

Commercial Banks — 0.6%

   
10,400   

Unibanco-Uniao de Bancos Brasileiros S.A. GDR

      966,784

Metals and Mining — 1.0%

   
61,100   

Comp. Vale Do Rio Doce ADR

      1,817,114

Oil, Gas and Consumable Fuels — 3.3%

   
55,931   

Petroleo Brasileiro S.A. ADR

      5,760,334

Textiles, Apparel and Luxury Goods — 0.6%

   
75,000   

Lojas Renner S.A.

      1,078,454
         
        10,758,018
 

Chile — 0.4%

   

Commercial Banks — 0.4%

   
14,600   

Banco Santander Chile ADR

      703,136
 

Colombia — 0.4%

   

Diversified Financial Services — 0.4%

   
71,748   

Suramericana de Inversiones S.A.

      656,055
 

Egypt — 1.9%

   

Construction Materials — 0.9%

   
17,000   

Orascom Construction Inds. GDR

      1,637,100

Wireless Telecommunication Services — 1.0%

   
26,742   

Orascom Telecom Hldg. SAE GDR

      1,764,972
         
        3,402,072
 

Hong Kong — 4.8%

   

Automobiles — 0.7%

   
3,010,000   

Denway Motors Ltd.

      1,219,078

Diversified Telecommunication Services — 1.1%

   
787,000   

Hutchison Telecom. Int’l. Ltd.*

      1,989,356

Electronic Equipment and Instruments — 0.8%

   
357,500   

Kingboard Chemical Hldgs. Ltd.

      1,404,241

Specialty Retail — 0.4%

   
984,000   

GOME Electrical Appliance Hldgs. Ltd.

      771,755

Wireless Telecommunication Services — 1.8%

360,000   

China Mobile (Hong Kong) Ltd.

      3,117,414
         
        8,501,844
 

India — 5.0%

   

Information Technology Services — 3.1%

   
107,900   

Infosys Technologies Ltd.

      5,486,109

Oil, Gas and Consumable Fuels — 1.9%

   
117,700   

Reliance Inds. Ltd.

      3,390,929
         
        8,877,038
 

Indonesia — 4.5%

   

Commercial Banks — 2.0%

   
4,249,000   

PT Bank Mandiri

      1,370,112
3,596,000   

PT Bank Rakyat Indonesia

      2,059,198
         
        3,429,310

Diversified Telecommunication Services — 2.5%

2,970,500   

PT Indosat Tbk

      2,229,485
1,959,000   

PT Telekomunikasi Indonesia

      2,200,022
         
        4,429,507
         
        7,858,817
 
Shares          Value
     

Israel — 1.1%

   

Pharmaceuticals — 1.1%

   
61,500   

Teva Pharmaceutical Inds. Ltd. ADR

    $ 1,911,420
 

Luxembourg — 1.5%

   

Energy Equipment and Services — 0.1%

   
3,112   

Tenaris S.A. ADR

      155,258

Wireless Telecommunication Services — 1.4%

40,000   

Millicom Int’l. Cellular S.A.*

      2,465,600
         
        2,620,858
 

Malaysia — 3.8%

   

Commercial Banks — 1.1%

   
873,000   

Bumiputra-Commerce Hldgs. Berhad

      1,916,643

Electric Utilities — 0.9%

   
500,000   

Tenaga Nasional Berhad

      1,543,909

Food Products — 1.0%

   
348,500   

IOI Corp. Berhad

      1,816,544

Industrial Conglomerates — 0.8%

   
690,000   

Sime Darby Berhad

      1,407,366
         
        6,684,462
 

Mexico — 7.0%

   

Commercial Banks — 1.7%

   
766,500   

Grupo Fin. Banorte S.A. de C.V.

      2,997,728

Construction and Engineering — 0.6%

   
275,634   

Empresas ICA S.A. de C.V.*

      1,041,236

Food and Staples Retailing — 1.1%

   
463,842   

Wal-Mart de Mexico S.A. de C.V.

      2,041,240

Household Durables — 0.6%

   
153,600   

Consorcio Ara S.A. de C.V.

      1,045,285

Wireless Telecommunication Services — 3.0%

68,100   

America Movil S.A. de C.V. ADR

      3,079,482
246,000   

America Telecom S.A. de C.V.*

      2,243,507
         
        5,322,989
         
        12,448,478
 

Mozambique — 0.4%

   

Metals and Mining — 0.4%

   
800,000   

Kenmare Resources PLC*

      689,444
 

People’s Republic of China — 8.8%

   

Commercial Banks — 0.7%

   
1,991,000   

Industrial & Comm’l Bank of China*

      1,241,559

Electric Utilities — 2.1%

   
1,716,000   

Datang Int’l. Power Generation Co. Ltd.

      1,787,132
2,174,000   

Huaneng Power Int’l., Inc.

      1,939,874
         
        3,727,006

Energy Equipment and Services — 1.1%

   
844,500   

China Shenhua Energy Co., Ltd.

      2,032,637

Oil, Gas and Consumable Fuels — 2.8%

   
2,519,000   

CNOOC Ltd.

      2,390,226
1,796,000   

PetroChina Co. Ltd.

      2,544,733
         
        4,934,959

Transportation Infrastructure — 0.4%

   
387,000   

China Comms. Construction Co. Ltd.*

      382,144
426,000   

Jiangsu Expressway Co. Ltd.

      268,386
         
        650,530

Wireless Telecommunication Services — 1.7%

   
2,008,000   

China Unicom Ltd.

      2,943,222
         
        15,529,913
 

Russia — 7.8%

   

Diversified Consumer Services — 0.9%

   
47,000   

AFK Sistema GDR

      1,504,000

 

See notes to financial statements.

 

    9

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LOGO  

Schedule of Investments — RS Emerging Markets VIP Series (continued)

 

December 31, 2006

 

Shares          Value
     

Oil, Gas and Consumable Fuels — 6.1%

   
154,450   

OAO Gazprom ADR

    $ 7,104,700
396,300   

OAO Rosneft Oil Co. GDR*†

      3,725,220
         
        10,829,920

Wireless Telecommunication Services — 0.8%

   
18,800   

VimpelCom ADR*

      1,484,260
         
        13,818,180
 

South Africa — 5.8%

   

Commercial Banks — 1.0%

   
39,500   

ABSA Group Ltd.

      701,034
340,000   

FirstRand Ltd.

      1,070,821
         
        1,771,855

Food and Staples Retailing — 0.4%

   
71,932   

Massmart Hldgs. Ltd.

      716,381

Industrial Conglomerates — 0.5%

   
34,862   

Imperial Hldgs. Ltd.*

      811,063

Media — 0.7%

   
50,600   

Naspers Ltd.

      1,191,635

Metals and Mining — 2.3%

   
7,120   

Anglo American Platinum Corp.

      864,677
49,700   

Anglo American PLC

      2,411,389
34,000   

Impala Platinum Hldgs. Ltd.

      887,527
         
        4,163,593

Oil, Gas and Consumable Fuels — 0.9%

   
43,900   

Sasol Ltd.

      1,611,747
         
        10,266,274
 

South Korea — 17.6%

   

Beverages — 0.6%

   
7,600   

Hite Brewery Co. Ltd.

      976,559

Commercial Banks — 1.7%

   
49,500   

Daegu Bank

      846,290
121,600   

Industrial Bank of Korea

      2,242,409
         
        3,088,699

Commercial Services and Supplies — 0.4%

   
14,150   

S1 Corp.

      659,573

Construction and Engineering — 1.3%

   
38,210   

Hyundai Development Co.

      2,333,686

Diversified Financial Services — 1.0%

   
33,700   

Hana Financial Group, Inc.

      1,771,968

Food and Staples Retailing — 1.0%

   
2,800   

Orion Corp.

      820,430
1,500   

Shinsegae Co. Ltd.

      935,484
         
        1,755,914

Household Durables — 0.7%

   
42,400   

Woongjin Coway Co. Ltd.

      1,176,258

Industrial Conglomerates — 0.9%

   
43,170   

Hanwha Corp.

      1,624,677

Insurance — 2.6%

   
62,600   

Hyundai Marine & Fire Ins. Co. Ltd.

      794,280
22,000   

Samsung Fire & Marine Ins. Co. Ltd.

      3,820,430
         
        4,614,710

Marine — 2.3%

   
48,500   

Daewoo Shipbuilding & Marine Engineering Co. Ltd.

      1,522,796
105,290   

Samsung Heavy Inds. Co. Ltd.

      2,524,695
         
        4,047,491

Oil, Gas and Consumable Fuels — 0.4%

   
23,300   

GS Hldgs. Corp.

      754,118

Pharmaceuticals — 1.3%

   
12,460   

Yuhan Corp.

      2,384,817

Trading Companies and Distributors — 3.4%

   
181,500   

Samsung Corp.

      5,981,694
         
        31,170,164
 
Shares          Value
     

Taiwan — 12.6%

   

Chemicals — 0.5%

   
450,000   

Taiwan Fertilizer Co. Ltd.

    $ 860,101

Commercial Banks — 1.8%

   
2,511,000   

Chang Hwa Commercial Bank*

      1,752,577
961,000   

Far Eastern Int’l. Bank

      459,935
1,601,000   

Taishin Financial Hldgs. Co. Ltd.*

      938,153
         
        3,150,665

Computers and Peripherals — 1.1%

   
98,400   

High Tech Computer Corp.

      1,947,170

Diversified Financial Services — 2.1%

   
1,757,819   

Shin Kong Financial Hldg. Co. Ltd.

      1,892,911
3,249,263   

SinoPac Hldgs.

      1,739,520
         
        3,632,431

Electronic Equipment and Instruments — 2.7%

   
674,329   

Hon Hai Precision Inds. Co. Ltd.

      4,809,986

Insurance — 0.4%

   
1,277,000   

China Life Insurance Co. Ltd.*

      689,529

Multiline Retail — 0.8%

   
2,199,600   

Far Eastern Dept. Stores Ltd.

      1,403,641

Semiconductors and Semiconductor Equipment — 3.2%

2,745,427   

Taiwan Semiconductor Mfg.

      5,685,422
         
        22,178,945
 

Thailand — 2.9%

   

Beverages — 0.6%

   
6,355,000   

Thai Beverage Pub. Co. Ltd.

      1,118,583

Commercial Banks — 0.9%

   
496,500   

Bangkok Bank Pub. Co. Ltd.

      1,510,788

Diversified Financial Services — 0.3%

   
810,000   

TISCO Finance Pub. Co. Ltd.

      492,946

Oil, Gas and Consumable Fuels — 1.1%

   
737,200   

PTT Exploration & Production Pub. Co., Ltd.

      1,967,906
         
        5,090,223
 

Turkey — 1.7%

   

Commercial Banks — 0.8%

   
447,100   

Turkiye Garanti Bankasi A.S.

      1,475,619

Wireless Telecommunication Services — 0.9%

   
294,745   

Turkcell Iletisim Hizmetleri A.S.

      1,486,197
         
        2,961,816
 
  

Total Common Stocks
(Cost $110,749,457)

      167,084,243
 

Preferred Stock — 3.3%

   

Brazil — 3.3%

   

Commercial Banks — 3.3%

   
1,129,709   

Itausa-Investimentos Itau S.A.
(Cost $2,036,285)

    $ 5,778,184
 
     

Other Investments — For Trustee Deferred Compensation Plan (1) — 0.0%

   
5   

RS Emerging Growth Fund, Class A

    $ 194
9   

RS Global Natural Resources Fund, Class A

      285
7   

RS Growth Fund, Class A

      114
21   

RS Investors Fund, Class A

      247
4   

RS MidCap Opportunities Fund, Class A

      63
3   

RS Partners Fund, Class A

      93
5   

RS Smaller Company Growth Fund, Class A

      100
2   

RS Value Fund, Class A

      63
 
  

Total Other Investments —For Trustee Deferred Compensation Plan
(Cost $1,159)

      1,159
 

 

See notes to financial statements.

 

10     

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December 31, 2006

 

Principal
Amount		          Value  

Repurchase Agreement — 2.2%

   
$3,890,000   

State Street Bank and Trust Co. repurchase agreement
dated 12/29/2006, maturity
value $3,891,081 at
2.50%, due 1/2/2007 (2)
(Cost $3,890,000)

    $ 3,890,000  
   

Total Investments — 100.1%
(Cost $116,676,901)

      176,753,586  

Liabilities in Excess of Cash, Receivables and
Other Assets — (0.1)%

      (92,339 )
   

Net Assets — 100%

    $   176,661,247  
   

 

*   Non-income producing security.
†   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to certain qualified buyers. At 12/31/2006, the aggregate market value of these securities amounted to $3,725,220 representing 2.1% of net assets of which have been deemed liquid pursuant to the Fund’s liquidity procedures approved by the Board of Trustees.
(1)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(2)   The repurchase agreement is fully collateralized by $2,940,000 in U.S. Treasury Bond, 7.625%, due 2/15/2025, with a value of $3,969,000.

 

Glossary of Terms:

ADR — American Depositary Receipt.

GDR — Global Depositary Receipt .

 

 

 

See notes to financial statements.

 

    11

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LOGO  

Financial Information — RS Emerging Markets VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $116,676,901)

    $ 176,753,586

Foreign currency (cost, $49,632)

      49,624

Dividends receivable

      239,289

Receivable for fund shares sold

      48,212

Interest receivable

      810

Prepaid insurance

      1,963
      

Total Assets

      177,093,484
      

LIABILITIES

   

Accrued foreign capital gains tax

      188,657

Accrued expenses

      58,113

Due to custodian

      326

Payable for fund shares redeemed

      39,164

Deferred trustees’ compensation

      1,159

Due to Adviser

      144,818
      

Total Liabilities

      432,237
      

Net Assets

    $ 176,661,247
      

COMPONENTS OF NET ASSETS

   

Paid-in capital

      111,678,903

Undistributed net investment income

      411,822

Accumulated net realized gain on investments and foreign currency related transactions

      4,681,670

Net unrealized appreciation of investments and translation of other assets and liabilities denominated in foreign currencies

      59,888,852
      

Net Assets

    $ 176,661,247
      

Shares of beneficial interest outstanding with no par value

      7,197,125

Net Asset Value Per Share

      $24.55

 

LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Dividends

    $ 3,306,371  

Interest

      69,176  

Less: Foreign tax withheld

      (332,665 )
        

Total Income

      3,042,882  
        

Expenses:

   

Investment advisory fees — Note B

      1,508,820  

Custodian fees

      579,638  

Printing expense

      36,124  

Audit fees

      20,458  

Trustees’ fees — Note B

      20,369  

Legal fees

      8,765  

Insurance expense

      7,782  

Loan commitment fees — Note F

      2,236  

Registration fees

      749  

Other

      4,877  
        

Total Expenses before Waivers

      2,189,818  
        

Less: Expenses waived by GIS — Note B

      (25,002 )
        

Expenses Net of Waivers

      2,164,816  
        

Net Investment Income

      878,066  
        

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS AND FOREIGN CURRENCIES

   

Net realized gain on investments — Note A

      29,154,803  

Realized foreign capital gains tax

      (62,339 )

Net realized loss on foreign currency related transactions — Note A

      (44,504 )

Net change in unrealized appreciation
of investments — Note C

      15,385,745  

Net change in accrued foreign capital gains tax

      69,615  

Net change in unrealized appreciation from translation of other assets and liabilities denominated in foreign currencies — Note A

      (1,599 )
        

Net Realized and Unrealized Gain
on Investments and Foreign Currencies

      44,501,721  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 45,379,787  
        

 

See notes to financial statements.

 

12     

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LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 878,066        $ 995,665  

Net realized gain on investments and foreign currency related transactions

        29,047,960          7,898,205  

Net change in unrealized appreciation/(depreciation) of investments and foreign currency related transactions

        15,453,761          24,532,868  
                     

Net Increase in Net Assets Resulting from Operations

        45,379,787          33,426,738  
                     

Dividends and Distributions to Shareholders from:

          

Net investment income

        (1,007,567 )        (987,820 )

Net realized gain on investments and foreign currency related transactions

        (25,878,121 )        (7,055,990 )
                     

Total Dividends and Distributions to Shareholders

        (26,885,688 )        (8,043,810 )
                     

From Capital Share Transactions:

          

Net increase in net assets from capital share transactions — Note E

        34,689,183          24,014,386  
                     

Net Increase in Net Assets

        53,183,282          49,397,314  

NET ASSETS:

          

Beginning of year

        123,477,965          74,080,651  
                     

End of year*

      $ 176,661,247        $ 123,477,965  
                     

*  Includes undistributed net investment income/(accumulated net investment loss):

      $ 411,822        $ (278,060 )

 

See notes to financial statements.

 

    13

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LOGO  

Financial Information — RS Emerging Markets VIP Series

 

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 dividends and distributions).

 

Financial Highlights

 

    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $21.46     $16.43     $13.60     $8.91     $9.57  
   

Net investment income

   0.16     0.19     0.11     0.10     0.05  

Net realized and
unrealized gain/(loss)

   7.33     6.35     3.09     4.69     (0.66 )
   

Total from Investment Operations

   7.49     6.54     3.20     4.79     (0.61 )
   

Dividends from net investment income

   (0.17 )   (0.18 )   (0.03 )   (0.10 )   (0.05 )

Distributions from net realized capital gains

   (4.23 )   (1.33 )   (0.34 )   —     —  
   

Total Dividends and Distributions

   (4.40 )   (1.51 )   (0.37 )   (0.10 )   (0.05 )
   

Net asset value, end of year

   $24.55     $21.46     $16.43     $13.60     $8.91  
   

Total Return*

   36.19 %   40.51 %   23.56 %   53.92 %   (6.34 )%
   

Net assets, end of year (thousands)

   $176,661     $123,478     $74,081     $55,252     $33,211  

Net ratio of expenses to
average net assets

   1.43 %(a)   1.51 %   1.57 %   1.82 %   1.54  %

Net ratio of net investment
income to average net assets

   0.58 %(a)   1.08 %   0.76 %   0.99 %   0.42  %

Portfolio turnover rate

   62 %   41 %   75 %   71 %   101  %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Includes the effect of expenses waived by GIS.

 

See notes to financial statements.

 

14     

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LOGO  

Notes to Financial Statements — RS Emerging Markets VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Emerging Markets VIP Series (the “Fund” or “EMV”) is a series of the Trust. EMV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

Baillie Gifford Emerging Markets Fund (“BGEMF”), a series (“Predecessor Fund”) of GIAC Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of EMV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Securities listed on domestic or foreign securities exchanges are valued at the last sale price on such exchanges, or if no sale occurred, at the mean of the closing bid and asked prices. Securities that are traded on the NASDAQ National Securities Market are valued at the NASDAQ Official Closing Price. Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Other securities, including securities for which market quotations are not readily available (such as restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Repurchase agreements are carried at cost which approximates market value (see Note D).

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily. Dividend income is recorded on the ex-dividend date.

 

Foreign Currency Translation

 

The books and records of EMV are maintained in U.S. dollars as follows:

 

(1)  The foreign currency market value of investment securities and other assets and liabilities stated in foreign currencies are translated into U.S. dollars at the current rate of exchange.

 

(2)  Security purchases and sales, income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.

 

The resulting gains and losses are included in the Statement of Operations as follows:

 

Gains and losses attributable to foreign currency exchange rates on sales of securities are recorded for financial statement purposes as net realized gains and losses on investments. Realized foreign exchange gains and losses, which result from changes in foreign exchange rates between the date on which EMV earns dividends and interest or pays foreign withholding taxes or other expenses and the date on which U.S. dollar equivalent amounts are actually received or paid, are included in net realized gains or losses on foreign currency related transactions. Realized foreign exchange gains and losses which result from changes in foreign exchange rates between the trade and settlement dates on security and currency transactions are also included in net realized gains and losses on foreign

 

    15

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LOGO  

Notes to Financial Statements — RS Emerging Markets VIP Series (continued)

 

December 31, 2006

 

currency related transactions. Net currency gains and losses from valuing other assets and liabilities denominated in foreign currency at the period end exchange rate are reflected in net change in unrealized appreciation or depreciation from translation of other assets and liabilities denominated in foreign currencies.

 

Forward Foreign Currency Contracts

 

EMV may enter into forward foreign currency contracts. A forward foreign currency contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward exchange rate. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar. Fluctuations in the value of forward foreign currency contracts are recorded for book purposes as unrealized gains or losses from translation of other assets and liabilities denominated in foreign currencies by EMV. When forward contracts are closed, EMV will record realized gains or losses equal to the difference between the values of such forward contracts at the time each was opened and the values at the time each was closed. Such amounts are recorded in net realized gains or losses on foreign currency related transactions. EMV will not enter into a forward foreign currency contract if such contract would obligate it to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency.

 

Futures Contracts

 

EMV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, EMV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by EMV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by EMV. The daily changes in the variation margin are recognized as unrealized gains or losses by EMV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, EMV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for EMV. Net realized short-term and long-term capital gains for EMV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of EMV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends and distributions paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

     Ordinary
Income		    Long-Term
Capital Gain		    Total

2006

    $ 1,545,089    $ 25,340,599    $ 26,885,688

2005

      1,578,517      6,465,293      8,043,810

 

As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Long-Term
Capital Gain		   Unrealized
Appreciation
$ 452,004   $ 4,972,363   $ 59,559,138

 

Taxes

 

EMV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

Withholding taxes on foreign interest, dividends and capital gains in EMV have been provided for in accordance with the applicable country’s tax rules and rates.

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital

 

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gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

During the year ended December 31, 2006, the Fund reclassified amounts to paid-in capital from undistributed net investment income and accumulated net realized gain on investments and foreign currency related transactions. Increases/(decreases) to the various capital accounts were as follows:

 

Paid-in
Capital		  

Undistributed

Net
Investment
Income

   Accumulated
Net Realized
Gain on
Investments
and Foreign
Currency
Related
Transactions		  
$  —   $ 819,383   $ (819,383 )

 

Note B.   Investment Advisory Agreements and Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 1.00% of the average daily net assets of the Fund.

 

RS Investments has entered into a Sub-Advisory, Sub-Administration and Accounting Services Agreement with Guardian Baillie Gifford Limited (“GBG”), a Scottish corporation owned by GIAC and Baillie Gifford Overseas Limited (“BG Overseas”). As compensation for GBG’s services, RS Investments pays GBG at an annual rate of 0.95% of the average daily net assets of EMV. Payment of the sub-advisory fees does not represent a separate or additional expense to EMV. GBG has entered into a Sub-Sub-Investment Advisory Agreement with BG Overseas pursuant to which BG Overseas is responsible for the day-to-day investment advisory services of EMV. A sub-sub-advisory fee of 0.50% of the average daily net assets of EMV is payable by GBG to BG Overseas for its services. Payment of the sub-sub-investment advisory fee does not represent a separate or additional expense to EMV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 1.43% of the average daily net assets of EMV. GIS subsidized $25,002 or 0.02% of the ordinary operating expenses of EMV for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $98,443,894 and $91,756,865, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, excluding foreign currency, forward contracts and futures at December 31, 2006 aggregated $60,182,313 and $435,342, respectively, resulting in net unrealized appreciation of $59,746,971. The cost of investments owned at December 31, 2006 for federal income tax purposes was $117,006,615.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of

 

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Notes to Financial Statements — RS Emerging Markets VIP Series (continued)

 

December 31, 2006

 

the collateral falls below the value of the repurchase price plus accrued interest, EMV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, EMV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

Note E.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for EMV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      2,526,725        2,202,867        $ 61,773,358        $ 40,867,945  

Shares issued in reinvestment of dividends and distributions

      1,141,633        396,568          26,885,689          8,043,810  

Shares repurchased

      (2,225,790 )      (1,353,953 )        (53,969,864 )        (24,897,369 )
   

Net increase

      1,442,568        1,245,482        $ 34,689,183        $ 24,014,386  
   

 

Note F.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note G.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note H.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note I.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring

 

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fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS Emerging Markets VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Emerging Markets VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for Baillie Gifford Emerging Markets Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between GIAC Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS Emerging Markets VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
5,425,868.435   221,865.800   498,519.515   6,146,253.750

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their

 

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Supplemental Information — Unaudited (continued)

 

clients at improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

24     

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Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

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Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

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Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

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RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

28    RS EMERGING MARKETS VIP SERIES

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RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

RS EMERGING MARKETS VIP SERIES   29

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06   ANNUAL REPORT

RS Variable Products Trust

 

RS Investment Quality Bond VIP Series

12.31.06
As Revised 4.06.07		   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS Investment Quality Bond VIP Series   
Portfolio Manager Biographies    3
Letter from Portfolio Managers    3
Fund Performance    8
Understanding Your Fund’s Expenses    9
Financial Information   
Schedule of Investments    10
Statement of Assets and Liabilities    15
Statement of Operations    15
Statements of Changes in Net Assets    16
Financial Highlights    17
Notes to Financial Statements    18
Report of Independent Registered Public Accounting Firm    22
Supplemental Information    23
Administration    29
RS Investments’ Senior Management Biographies    30

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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

 

LOGO     

Howard W. Chin (Guardian Investor Services)

has been a co-portfolio manager of RS Investment Quality Bond VIP Series since 1998 and of RS Low Duration Bond VIP Series since 2003 (includes time co-managing The Guardian Low Duration Bond Fund and The Guardian Investment Quality Bond Fund). Mr. Chin has been a managing director of Guardian Life since 1997. He also manages part of the fixed-income assets of Guardian Life and fixed-income assets for other GIS subsidiaries. Prior to joining Guardian Life, Mr. Chin spent four years as a strategist at Goldman Sachs & Company. Mr. Chin earned a B.S. in engineering from Polytechnic Institute of New York and an M.B.A. from the University of California at Berkeley.

LOGO     

Robert J. Crimmins, Jr. (Guardian Investor Services)

has been a co-portfolio manager of RS Investment Quality Bond VIP Series and of RS Low Duration VIP Series since 2004 (includes time co-managing The Guardian VC Low Duration Bond Fund and The Guardian Bond Fund). Mr. Crimmins has been a managing director of Guardian Life since March 2004. Prior to that, Mr. Crimmins was an assistant vice president of fixed-income investments of Guardian Life. Mr. Crimmins holds a B.A. in finance from St. John’s University and an M.B.A. from Fordham University.

 

 

Fund Philosophy

The RS Investment Quality Bond VIP Series seeks a high level of current income and capital appreciation without undue risk to principal. The Fund normally diversifies its asset allocations broadly among the debt securities markets but may emphasize some sectors over others based on their attractiveness relative to one another.

 

Fund Philosophy

The Fund normally invests at least 80% of the Fund’s net assets (plus the amount, if any, of the Fund’s borrowings for investment purposes) in different kinds of investment grade debt obligations, such as corporate bonds, mortgage-backed and asset-backed securities, and obligations of the U.S. government and its agencies. The Fund’s investments are allocated among the various sectors of the debt markets by analyzing overall economic conditions within and among these sectors.

 

Performance

The Fund had a total return of 4.19% for the year ended December 31, 2006 as compared to the average fund in the Lipper1 Intermediate Investment Grade peer group, which returned 4.14% for the same period. (The peer group consisted of 58 other variable product sub-accounts that invest primarily in investment grade debt with average maturities of 5-10 years.) In contrast, the Fund’s benchmark, the Lehman Brothers Aggregate Bond Index2, which measures the taxable fixed income market, returned 4.33%. The corresponding results for the fourth quarter were 1.23%, 1.17% and 1.24%, respectively.

 

RS INVESTMENT QUALITY BOND VIP SERIES   3

 

1

Lipper, Inc. is an independent mutual fund monitoring and rating service. Its database of performance information is based on historical returns, which assume the reinvestment of dividends and distributions and the deduction of all fund expenses. Lipper return figures do not reflect the deduction of any sales charges that an investor may pay when purchasing or redeeming shares of the Fund.

2

The Lehman Brothers Aggregate Bond Index is generally considered to be representative of U.S. bond market activity. Unlike the Fund, the index does not incur fees or expenses.

Table of Contents
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RS Investment Quality Bond VIP Series (continued)

 

Portfolio Review

2006 may have marked a turning point in Federal Reserve policy regarding interest rate hikes. After increasing interest rates eight times in 2005, the Federal Reserve (“the Fed”) did so four more times in 2006 at their first four meetings of the year. However, the tightening pattern was broken in August when they declined to raise rates again. The Fed has held to a wait-and-see posture in the three meetings since then. The Fed Funds rate remains at 5.25% and may stay there for a while as the Fed ponders the course of the economy and inflation in upcoming economic data releases.

 

As a result of this apparent policy shift, all investment grade segments of the taxable fixed income market performed well in 2006, posting positive nominal returns while the “spread” sectors (corporate bonds, Agency debentures, residential and commercial mortgage-related securities) handily beat their comparable duration Treasury benchmarks across the board. However, it was not a smooth one-way path to strong outperformance in 2006 as the first half of the year was very different from the second half. Most yields increased in the first half as the Fed raised rates in four 0.25% increments even as investors became concerned that the new Fed under Ben Bernanke would over-tighten monetary policy in an effort to bolster its inflation fighting credibility. However, once the Fed paused at its August meeting and took no action in September, the market became more convinced the Fed would stay in this mode for an extended period. (In fact, some investors believed the Fed would cut rates as early as the first quarter of 2007.) The market rallied sharply as a result, but not to the extent where it completely offset the yield increases experienced in the first half.

 

Specifically, the yield on 2-year Treasuries increased by 0.41 % in 2006 to finish the year at 4.81% while the yield on the 10-year Treasuries increased by 0.31%, ending at 4.71% for a further 0.1% inversion of the yield curve (to –0.11%) between these two benchmark maturities.

 

The yield curve was slightly inverted (-0.01%) at the start of 2006. The 2-year’s yield was influenced by the higher Fed Funds rate while continued strong buying by overseas investors dampened the relative upward pressure on longer maturity yields. Despite these yield increases, it is important to note that 10-year and shorter maturity Treasuries posted positive returns in 2006. For example, the returns for 2- and 10-year Treasuries were 3.71% and 1.34% while the 30-year Treasury bond returned –1.10% as the positive contribution of the bonds’ coupon payments partially offset the effects of rising yields.

 

As mentioned earlier, each of the “spread” sectors fared very well in 2006 and outperformed their Treasury benchmarks. Unlike more typical years where some sectors outperform while others underperform, 2006 was unusual in that all taxable fixed income sectors outperformed during the year. It was just a matter of how much each sector outperformed Treasuries.

 

Overall, the Lehman Brothers Aggregate Bond Index returned 4.33% on a nominal basis and had 0.85% of excess return with strong contributions from Mortgage-Backed Securities (MBS), corporate bonds and Commercial Mortgage-Backed Securities (CMBS). These sectors had nominal returns of 5.22%, 4.26%, and 4.73% and excess returns of 1.22%, 1.19%, and 1.37%, respectively. Within the corporate bond sector, the BBB-rated segment was the best performing with 1.54% of excess return while single-As and double-AAs had 1.14% and 1.08%, respectively. The REIT and insurance sectors were the leaders within the corporate sector, posting 2.18% and 1.97% of excess returns respectively. Even the worst performing sector (agency debentures) provided 0.75% of excess return and a 4.37% return on a nominal basis. In contrast, the Treasury sector returned just 3.08% in 2006.

 

Fixed income also did well in the fourth quarter. With the exception of Treasuries, each sector returned 1.1%-1.6% on a nominal basis, but more importantly, each outperformed Treasuries by a wide margin. In many cases, the lion’s share of a given sector’s 2006 performance came in the fourth quarter. For example,

 

4    RS INVESTMENT QUALITY BOND VIP SERIES

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the two best performing sectors in the fourth quarter (corporate bonds and MBS) provided 0.61% and 0.59% of excess return, respectively, relative to their full year results of 1.19% and 1.22%. Similarly, Agency debentures added 0.24% of the year’s 0.75% during the fourth quarter. In contrast, CMBS continued to exhibit consistent excess returns, eking out another 0.42% in the fourth quarter versus a 2006 result of 1.37%.

 

The Fund underperformed its benchmark by 0.14% in 2006 as our underweights in the corporate bonds (18% market value vs. 23% in the Index) and MBS (19% vs. 35% in the Index) caused the Fund to lag.

 

At the beginning of 2006, we believed the corporate bond sector was fully valued, leaving very little room for any further spread tightening, but this fundamental outlook was offset by strong demand for corporate bonds from investors (both domestic and overseas) who had been underweighted earlier in the year. (Investor concerns about the sector were also eased by continued reports of strong corporate profitability.) We were also concerned about the prospects for corporate merger and acquisition activity and leveraged buyouts (LBO). We thought such activity would have a substantial negative impact on a firm’s outstanding debt. As a result, we believed a close-to-shore and widely diversified approach to credit exposure would be the most prudent. That said, the Fund was not able to totally avoid LBO risk in 2006. We owned Harrah’s’ (HET) bonds, which widened by 2.00% after the company agreed to be taken over by two private equity firms. However, our holdings in HET only made up 0.10% of the Fund.

 

The effect of our underweight in MBS was partially mitigated by our intra-sector asset allocation decisions. We decided to invest the majority of our MBS exposure in the 30-year conventional sector while underweighting 30-year GNMAs and the entire 15-year sector. This proved to be a good decision as the 30-year conventional sector posted 1.51% of excess returns in 2006 while GNMAs and 15-year MBS outperformed by only 0.42% and 0.74%, respectively.

 

The largest overweight in the Fund for 2006 was in CMBS where we held a substantial overweight for the entire year. We believed the very strong credit fundamentals were undervalued (especially relative to competing sectors) and entered the year with an overweighted position. We increased our holdings during the year and by year’s end, the sector made up about 14% of the Fund versus the 5% allocation in the Index. This overweighted exposure contributed significantly to the Fund’s performance and mitigated the effects of our underweights in corporate bonds and MBS.

 

Outlook

Following the 2.0% growth rate for real GDP in the third quarter after readings of 5.6% and 2.6% earlier in the year, we believe the economy is poised to continue to grow at a modest pace, most likely in the range of 2.5- 2.75% in the first half of 2007. This level is a bit below the potential for the economy but clearly robust enough to ease any concerns the economy might tip over into a recession or experience very slow growth.

 

The U.S. economy still relies on the consumer and the factors affecting consumer spending are all leaning in the consumer’s favor. Employment appears to be on a solid footing. Jobs increased by over 170,000 per month in the fourth quarter of 2006 while the unemployment rate is down to 4.5%. We are also beginning to see signs of a rebound in the housing market. Inventories are shrinking and while sales are still well below the torrid levels seen in 2005, we saw a pickup in sales of new and existing homes at the end of 2006. The recent drop in rates is supportive of housing values and perhaps more importantly, homeowners will be able to access their homes’ equity to finance their spending. Mortgage equity withdrawal was a key contributor to consumer spending in 2006 and is likely to continue (albeit at a more modest pace) in 2007. Finally, the strong performance of the equity markets in 2006 led to increased consumer wealth, stronger personal balance sheets and a more positive outlook on the future, all key factors in determining consumer behavior.

 

Recent inflation data have become more encouraging, but core inflation (excluding the more volatile food and energy components) is likely to stay above the Fed’s comfort zone in the near term. We believe the U.S. and

 

RS INVESTMENT QUALITY BOND VIP SERIES   5

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RS Investment Quality Bond VIP Series (continued)

 

global economy will continue to grow, placing a greater demand on both labor and energy resources, so we expect inflation to be sticky, but unlikely to increase such that it becomes a general concern.

 

Thank you for your continued support.

 

LOGO

 

 

Howard W. Chin

Co-Portfolio Manager

  

LOGO

Robert J. Crimmins

Co-Portfolio Manager

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

An investment in a bond fund exposes you to the general risk of investing in debt markets. These risks include interest rate, risk, credit risk and prepayment risk. Bond funds are subject to interest rate risk. When interest rates rise, bond prices generally fall, and when interest rates fall, bond prices generally rise. Currently, interest rates are still at fairly 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.

 

6    RS INVESTMENT QUALITY BOND VIP SERIES

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Assets Under Management: $386,035,216

Data as of December 31, 2006

 

LOGO  

Sector Allocation

 
LOGO

 

LOGO  

Top Ten Holdings1

Company

    Coupon    Maturity Date    Percentage of Total Net Assets

U.S. Treasury Notes

    4.625%    11/15/2009    6.07%

FNMA

    6.500%    8/1/2036    2.57%

FNMA

    5.000%    2/1/2036    2.26%

Banc of America Alternative Loan Tr.

    6.000%    2/25/2034    2.20%

FHLMC

    5.500%    9/15/2035    2.15%

FHLB

    5.125%    7/17/2018    1.81%

FNMA

    5.500%    1/1/2037    1.69%

GNMA

    6.500%    12/20/2027    1.56%

FNMA

    5.000%    4/1/2034    1.55%

J.P. Morgan Mtg. Tr.

    6.000%    9/25/2035    1.51%

 

1

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

RS INVESTMENT QUALITY BOND VIP SERIES   7

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LOGO  

RS Investment Quality Bond VIP Series (continued)

 

LOGO  

Performance Update

As of 12/31/06

   
     Inception
Date		   1-Year
Total
Return		   3-Year
Annualized
Return		   5-Year
Annualized
Return		   10-Year
Annualized
Return		   Annualized Return
Since Fund
Inception

RS Investment Quality Bond VIP Series

   5/1/83   4.19%   3.58%   4.96%   5.95%   7.92%

Lehman Brothers Aggregate Bond Index

       4.33%   3.70%   5.06%   6.24%   8.46%

 

The Series is the successor to The Guardian Bond Fund, a mutual fund with substantially similar investment objective, strategies, and policies. The performance of the Fund provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results.     To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

LOGO  

Growth of a Hypothetical $10,000 Investment

If invested on 12/31/96

 
LOGO

 

To give you a comparison, 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. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

8    RS INVESTMENT QUALITY BOND VIP SERIES

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LOGO  

Understanding Your Fund’s Expenses — Unaudited

 

By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Funds’ expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

   

Based on Actual Return

    $1,000.00    $1,050.10    $3.10    0.60%
   

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,022.18    $3.06    0.60%

 

* Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

 

RS INVESTMENT QUALITY BOND VIP SERIES   9

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Schedule of Investments — RS Investment Quality Bond VIP Series

 

December 31, 2006

 

Principal
Amount		          Value
     
  Asset Backed Securities — 8.1%   
$ 2,803,975   

Ameriquest Mtg. Secs., Inc.
2003-5 A6
4.541% due 4/25/2033(1)

    $ 2,738,305
  187,203   

Amresco
1997-1 MIF
7.42% due 3/25/2027

      186,434
  5,200,000   

Capital Auto Receivables Asset Tr.
2006-SN1A A3
5.31% due 10/20/2009†

      5,200,499
  3,136,000   

Carmax Auto Owner Tr.
2005-1 A4
4.35% due 3/15/2010

      3,095,675
  215,915   

Caterpillar Financial Asset Tr.
2004-A A3
3.13% due 1/26/2009

      214,199
  465,000   

Chase Funding Mtg. Loan
2004-1 1A6
4.266% due 6/25/2015

      444,223
  1,403,000   

CitiFinancial Mtg. Sec., Inc.
2003-3 AF5
4.553% due 8/25/2033

      1,367,387
  

Countrywide Asset-Backed Certificates

   
  107,304   

2004-10 AF3
3.842% due 10/25/2030

      106,782
  475,624   

2004-S1 A2
3.872% due 3/25/2020

      468,619
  3,500,000   

New Century Home Equity Loan Tr.
2005-A A4
5.114% due 8/25/2035(1)

      3,446,962
  3,200,000   

Renaissance Home Equity Loan Tr.
2005-2 AF3
4.499% due 8/25/2035(1)

      3,165,119
  

Residential Asset Mtg. Prods., Inc.

   
  860,000   

2003-RZ4 A5
4.66% due 2/25/2032

      848,074
  2,500,000   

2003-RS3 AI4
5.67% due 4/25/2033

      2,499,853
  1,154,209   

2004-RS9 AII2
5.69% due 5/25/2034(1)

      1,155,456
  1,163,943   

Residential Funding Mtg. Secs.
2003-HS3 AI2
3.15% due 7/25/2018

      1,149,442
  2,331,203   

Vanderbilt Acquisition Loan Tr.
2002-1 A3
5.70% due 9/7/2023

      2,335,329
  2,899,010   

Volkswagen Auto Lease Tr.
2004-A A4A
3.09% due 8/20/2010

      2,882,083
   
  

Total Asset Backed Securities
(Cost $31,514,438)

      31,304,441
   
     
  Collateralized Mortgage Obligations — 21.7%
$ 8,484,554   

Banc of America Alternative Loan Tr.
2004-1 2A1
6.00% due 2/25/2034

    $ 8,493,120
  

Banc of America Funding Corp.

   
  5,496,046   

2006-1 3A1
5.50% due 1/25/2036

      5,370,873
  3,510,271   

2006-3 5A5
5.50% due 3/25/2036

      3,474,209
Principal
Amount		          Value
     
$ 1,577,763   

Citigroup Mtg. Loan Tr.
2005-8 2A5
5.50% due 9/25/2035

    $ 1,575,698
  

Countrywide Home Loans

   
  5,414,484   

2005-21 A2
5.50% due 10/25/2035

      5,311,270
  2,159,238   

2002-19 1A1
6.25% due 11/25/2032

      2,159,692
  

FHLMC

   
  1,650,000   

2626 KA
3.00% due 3/15/2030

      1,536,338
  1,410,036   

1534 Z
5.00% due 6/15/2023

      1,383,445
  4,000,000   

2580 JK
5.00% due 3/15/2018

      3,894,876
  2,800,000   

2663 VQ
5.00% due 6/15/2022

      2,673,487
  443,502   

2500 TD
5.50% due 2/15/2016

      442,978
  8,458,331   

3227 PR
5.50% due 9/15/2035

      8,312,479
  2,729,816   

2367 ME
6.50% due 10/15/2031

      2,784,580
  3,611,528   

FNMA
2006-45 AC
5.50% due 6/25/2036

      3,582,668
  5,850,233   

GNMA
1997-19 PG
6.50% due 12/20/2027

      6,005,219
  5,818,042   

J.P. Morgan Mtg. Tr.
2005-S2 2A15
6.00% due 9/25/2035

      5,812,591
  2,142,000   

Mastr Asset Securitization Tr.
2003-10 3A7
5.50% due 11/25/2033

      2,081,997
  4,563,021   

Residential Funding Mtg. Secs.
2006-S3 A7
5.50% due 3/25/2036

      4,517,270
  

Wells Fargo Mtg.-Backed Secs. Tr.

   
  3,180,000   

2005-AR10 2A15
4.109% due 6/25/2035(1)

      3,106,373
  3,500,000   

2003-11 1A3
4.75% due 10/25/2018

      3,441,829
  5,027,503   

2005-5 1A1
5.00% due 5/25/2020

      4,904,958
  2,832,099   

2006-1 A3
5.00% due 3/25/2021

      2,765,721
   
  

Total Collateralized Mortgage Obligations
(Cost $84,319,935)

      83,631,671
   
     
  Commercial Mortgage Backed Securities — 14.3%
$ 4,250,000   

Banc of America Comm’l. Mtg. Tr.
2006-3 A4
5.889% due 7/10/2044

    $ 4,417,964
  657,333   

Chase Comm’l. Mtg. Secs. Corp.
1998-2 A2
6.39% due 11/18/2030

      666,626
  5,100,000   

Comm’l. Mtg. Pass-Though Certificates
2006-C7 AM
5.794% due 6/10/2046

      5,280,770
  3,600,000   

Credit Suisse Mtg. Capital Certificates
2006-C4 AM
5.509% due 9/15/2039

      3,628,368

 

See notes to financial statements.

 

10     

Table of Contents

 

December 31, 2006

 

Principal
Amount		          Value
     
$ 3,500,000   

Crown Castle Towers LLC
2005-1A AFX
4.643% due 6/15/2035†(1)

    $ 3,429,514
  212,648   

First Union National Bank Comm’l. Mtg. Tr.
2000-C2 A1
6.94% due 10/15/2032

      212,237
  3,380,000   

Four Times Square Tr.
2000-4TS A2
7.795% due 4/15/2015†

      3,660,610
  3,500,000   

GE Comm’l. Mtg. Corp.
2005-C1 A5
4.772% due 6/10/2048

      3,376,202
  724,375   

GMAC Comm’l. Mtg. Secs., Inc.
1997-C1 A3
6.869% due 7/15/2029

      726,700
  3,850,000   

J.P. Morgan Chase Comm’l.
Mtg. Secs. Corp.
2006-CB17 A4
5.429% due 12/12/2043

      3,869,526
  3,300,000   

2006-RR1A A1
5.456% due 10/18/2052†(1)

      3,316,500
  3,600,000   

LB UBS Comm’l. Mtg. Tr.
2006-C6 AM
5.413% due 9/15/2039

      3,608,481
  510,000   

Merrill Lynch Mtg. Tr.
2004-BPC1 A5
4.855% due 10/12/2041(1)

      494,397
  5,100,000   

2006-C1 AM
5.66% due 5/12/2039(1)

      5,234,927
  3,500,000   

Morgan Stanley Capital I
2006-HQ9 AM
5.773% due 7/12/2044

      3,599,896
  2,495,000   

1999-RM1 E
7.002% due 12/15/2031(1)

      2,572,817
  3,700,000   

SBA CMBS Tr.
2006-1A A
5.314% due 11/15/2036†

      3,706,361
  3,300,000   

Wachovia Bank Comm’l. Mtg. Tr.
2006-C23 A4
5.418% due 1/15/2045

      3,315,162
   
  

Total Commercial Mortgage Backed Securities
(Cost $54,822,996)

      55,117,058
   
     
  Corporate Bonds — 17.8%   
  Aerospace and Defense — 0.8%
$ 500,000   

General Dynamics Corp.
4.50% due 8/15/2010

    $ 489,381
  600,000   

L-3 Communications Corp.
6.125% due 1/15/2014

      586,500
  200,000   

Lockheed Martin Corp.
6.15% due 9/1/2036

      210,128
  500,000   

TRW, Inc.
7.75% due 6/1/2029

      611,188
  

United Technologies Corp.

   
  500,000   

4.375% due 5/1/2010

      488,422
  800,000   

4.875% due 5/1/2015

      771,212
         
        3,156,831
   
  Automotive — 0.3%
  

DaimlerChrysler NA Hldg.

   
  375,000   

4.05% due 6/4/2008

      366,989
  175,000   

6.50% due 11/15/2013

      179,673

Principal

Amount

          Value
     
$ 600,000   

Ford Motor Credit Co.
6.50% due 1/25/2007

    $ 600,100
         
        1,146,762
   
  Building Materials — 0.2%
  650,000   

CRH America, Inc.
6.00% due 9/30/2016

      656,107
   
  Chemicals — 0.1%
  350,000   

Lubrizol Corp.
5.50% due 10/1/2014

      341,204
   
  Diversified Manufacturing — 0.2%
  650,000   

Siemens Financieringsmat
6.125% due 8/17/2026†

      664,150
   
  Electric — 0.2%
  450,000   

Nevada Power Co.
6.65% due 4/1/2036

      467,477
  330,000   

TAQA Abu Dhabi Nat’l.
6.50% due 10/27/2036†

      340,372
         
        807,849
   
  Energy — 0.4%
  741,000   

RAS Laffan Liquefied Natural Gas
3.437% due 9/15/2009†

      721,979
  650,000   

Western Oil Sands, Inc.
8.375% due 5/1/2012

      721,500
         
        1,443,479
   
  Energy—Refining — 0.3%
  1,000,000   

Tosco Corp.
8.125% due 2/15/2030

      1,278,661
   
  Entertainment — 0.2%
  750,000   

Time Warner, Inc.
7.57% due 2/1/2024

      824,199
   
  Finance Companies — 1.1%
  450,000   

American Express
6.80% due 9/1/2066

      479,852
  500,000   

Capital One Bank
5.75% due 9/15/2010

      508,048
  1,000,000   

CIT Group, Inc.
5.595% due 5/18/2007(1)

      1,001,026
  600,000   

General Electric Capital Corp.
6.75% due 3/15/2032

      687,167
  1,000,000   

Household Finance Corp.
6.375% due 11/27/2012

      1,052,979
  500,000   

Residential Capital Corp.
6.125% due 11/21/2008

      502,477
         
        4,231,549
   
  Financial — 1.3%
  450,000   

Bear Stearns Co., Inc.
5.55% due 1/22/2017

      449,616
  1,600,000   

Goldman Sachs Group, Inc.
5.125% due 1/15/2015

      1,563,323
  

Lehman Brothers Hldgs., Inc.

   
  800,000   

4.25% due 1/27/2010

      778,739
  550,000   

6.625% due 1/18/2012

      581,124
  800,000   

Merrill Lynch & Co.
5.00% due 1/15/2015

      779,355
  

Morgan Stanley

   
  400,000   

4.00% due 1/15/2010

      387,043
  450,000   

4.75% due 4/1/2014

      430,257
         
        4,969,457
   

 

See notes to financial statements.

 

    11

Table of Contents
LOGO  

Schedule of Investments — RS Investment Quality Bond VIP Series (continued)

 

December 31, 2006

 

Principal

Amount

          Value
     
  Financial–Banks — 3.2%
$ 1,300,000   

Bank of America Corp.
4.875% due 9/15/2012

    $ 1,274,020
  600,000   

Bank One Corp.
5.25% due 1/30/2013

      595,007
  1,000,000   

BB&T Corp.
4.90% due 6/30/2017

      945,780
  

Citigroup, Inc.

   
  1,300,000   

4.625% due 8/3/2010

      1,276,721
  1,600,000   

5.00% due 9/15/2014

      1,562,235
  700,000   

City Nat’l. Corp.
5.125% due 2/15/2013

      685,518
  650,000   

Credit Suisse First Boston
6.50% due 1/15/2012

      683,105
  700,000   

HSBC USA, Inc.
4.625% due 4/1/2014

      667,226
  1,000,000   

J.P. Morgan Chase & Co.
5.75% due 1/2/2013

      1,017,705
  750,000   

MBNA America Bank Nat’l.
7.125% due 11/15/2012

      817,129
  900,000   

Sovereign Bank
5.125% due 3/15/2013

      879,276
  1,000,000   

Wachovia Capital Tr. III
5.80% due 3/15/2042(1)

      1,008,255
  600,000   

Wachovia Corp.
5.25% due 8/1/2014

      592,691
  350,000   

Washington Mutual Bank
5.65% due 8/15/2014

      350,484
         
        12,355,152
   
  Food and Beverage — 0.6%
  375,000   

Diageo Capital PLC
5.50% due 9/30/2016

      370,236
  1,050,000   

Kellogg Co.
2.875% due 6/1/2008

      1,013,458
  850,000   

Kraft Foods, Inc.
5.25% due 10/1/2013

      839,257
         
        2,222,951
   
  Gaming — 0.1%
  450,000   

Harrahs Operating Co., Inc.
5.625% due 6/1/2015

      385,942
   
  Health Care — 0.3%
  1,000,000   

Aetna Inc.
6.00% due 6/15/2016

      1,030,361
   
  Home Construction — 0.2%
  700,000   

Ryland Group, Inc.
5.375% due 6/1/2008

      695,311
   
  Insurance — 1.0%
  650,000   

Genworth Financial, Inc.
4.95% due 10/1/2015

      626,464
  750,000   

MetLife, Inc.
6.40% due 12/15/2036(1)

      753,455
  800,000   

Symetra Financial Corp.
6.125% due 4/1/2016†

      809,187
  900,000   

UnumProvident Finance Co.
6.85% due 11/15/2015†

      935,727
  900,000   

Willis Group NA
5.625% due 7/15/2015

      861,500
         
        3,986,333
   

Principal

Amount

          Value
     
  Media–Cable — 0.5%
$ 1,800,000   

Comcast Cable Comm., Inc.
6.875% due 6/15/2009

    $ 1,862,001
  300,000   

Comcast Corp.
6.45% due 3/15/2037

      300,162
         
        2,162,163
   
  Media–NonCable — 0.9%
  500,000   

News America Hldgs.
8.00% due 10/17/2016

      574,255
  2,850,000   

Scholastic Corp.
5.75% due 1/15/2007

      2,854,144
         
        3,428,399
   
  Metals and Mining — 0.2%
  650,000   

Noranda, Inc.
6.00% due 10/15/2015

      662,895
   
  Natural Gas–Pipelines — 0.2%
  400,000   

Enterprise Prods. Operating
8.375% due 8/1/2066(1)

      433,282
  350,000   

Kinder Morgan, Inc.
6.50% due 9/1/2012

      351,659
         
        784,941
   
  Paper and Forest Products — 0.0%
  175,000   

Weyerhaeuser Co.
6.75% due 3/15/2012

      183,533
   
  Pharmaceuticals — 0.4%
  

Genentech, Inc.

   
  400,000   

4.75% due 7/15/2015

      382,933
  750,000   

5.25% due 7/15/2035

      697,707
  400,000   

Schering-Plough Corp.
5.55% due 12/1/2013

      401,159
  300,000   

Wyeth
6.00% due 2/15/2036

      307,083
         
        1,788,882
   
  Railroads — 0.4%
  550,000   

Canadian Nat’l. Railway
6.20% due 6/1/2036

      582,851
  400,000   

CSX Corp.
4.875% due 11/1/2009

      395,613
  750,000   

Norfolk Southern Corp.
6.75% due 2/15/2011

      788,748
         
        1,767,212
   
  Real Estate Investment Trusts — 1.0%
  600,000   

ERP Operating LP
5.375% due 8/1/2016

      593,730
  450,000   

Federal Realty Investment Tr.
6.20% due 1/15/2017

      464,158
  550,000   

Liberty Ppty. LP
7.25% due 3/15/2011

      585,576
  275,000   

Regency Centers LP
6.75% due 1/15/2012

      289,691
  400,000   

Simon Ppty. Group LP
5.25% due 12/1/2016

      389,752
  750,000   

USB Realty Corp.
6.091% due 12/22/2049†(1)

      747,450
  750,000   

Westfield Group
5.40% due 10/1/2012†

      747,084
         
        3,817,441
   

 

See notes to financial statements.

 

12     

Table of Contents

 

December 31, 2006

 

Principal

Amount

          Value
     
  Retailers — 0.5%
$ 500,000   

Federated Retail Hldgs.
5.90% due 12/1/2016

    $ 499,222
  500,000   

Home Depot, Inc.
5.25% due 12/16/2013

      496,282
  500,000   

J.C. Penny Co., Inc.
7.40% due 4/1/2037

      545,043
  350,000   

Wal-Mart Stores, Inc.
4.50% due 7/1/2015

      329,787
         
        1,870,334
   
  Supermarkets — 0.1%
  250,000   

Kroger Co.
7.50% due 4/1/2031

      280,597
   
  Technology — 0.2%
  850,000   

Cisco Systems, Inc.
5.50% due 2/22/2016

      850,542
   
  Utilities-Electric — 1.3%
  750,000   

Alabama Power Co.
5.65% due 3/15/2035

      703,329
  450,000   

Exelon Corp.
4.45% due 6/15/2010

      435,288
  750,000   

Florida Power & Light Co.
4.95% due 6/1/2035

      666,942
  850,000   

Nevada Power Co.
5.875% due 1/15/2015

      846,065
  250,000   

Pacific Gas & Electric Co.
6.05% due 3/1/2034

      252,144
  700,000   

Potomac Edison Co.
5.35% due 11/15/2014

      689,465
  1,000,000   

Public Service Co. of New Mexico
4.40% due 9/15/2008

      981,678
  500,000   

Public Service Electric Gas Co.
5.125% due 9/1/2012

      493,243
         
        5,068,154
   
  Wireless Communications — 0.4%
  500,000   

America Movil S.A. de C.V.
6.375% due 3/1/2035

      487,822
  900,000   

New Cingular Wireless Svcs.
8.125% due 5/1/2012

      1,012,741
  375,000   

Sprint Capital Corp.
6.90% due 5/1/2019

      386,639
         
        1,887,202
   
  Wireline Communications — 1.2%
  650,000   

Deutsche Telekom Int’l. Finance BV
8.25% due 6/15/2030(1)

      799,071
  300,000   

Embarq Corp.
7.082% due 6/1/2016

      305,406
  

France Telecom S.A.

   
  800,000   

7.75% due 3/1/2011(1)

      871,418
  335,000   

8.50% due 3/1/2031(1)

      439,764
  400,000   

Telecom Italia Capital
5.25% due 10/1/2015

      373,644
  600,000   

Verizon Communications
5.55% due 2/15/2016

      597,926
  750,000   

Verizon Global Funding Corp.
5.85% due 9/15/2035

      718,310
         
        4,105,539
   
  

Total Corporate Bonds
(Cost $68,681,759)

      68,854,132
   
     

Principal

Amount

          Value
     
  Mortgage Pass-Through Securities — 19.5%
  

FHLMC

   
$ 12,167,215   

5.50% due 9/1/2034 - 12/1/2036

    $ 12,037,387
  18,458   

7.00% due 8/1/2008

      18,608
  

FNMA

   
  31,543,161   

5.00% due 8/1/2021 - 6/1/2036

      30,550,395
  16,162,151   

5.50% due 8/1/2019 - 1/1/2037

      16,028,066
  1,638,327   

6.00% due 8/1/2021

      1,661,400
  10,932,263   

6.50% due 8/1/2010 - 8/1/2036

      11,141,673
  688,939   

7.00% due 9/1/2014 - 6/1/2032

      708,844
  532,358   

7.50% due 12/1/2029

      555,605
  179,613   

8.00% due 6/1/2008 - 9/1/2030

      188,763
  22   

8.25% due 1/1/2009

      22
  

GNMA

   
  1,265,349   

6.00% due 10/15/2032 - 12/15/2033

      1,284,575
  1,138,517   

6.50% due 2/15/2032 - 4/15/2033

      1,169,904
   
  

Total Mortgage Pass-Through Securities
(Cost $74,967,468)

      75,345,242
   
     
  Sovereign Debt Securities — 0.6%   
  

Pemex Project Funding Master Tr.

   
$ 550,000   

6.625% due 6/15/2035

    $ 562,650
  900,000   

7.875% due 2/1/2009(1)

      943,200
  700,000   

Quebec Province
4.60% due 5/26/2015

      673,169
  150,000   

United Mexican States
4.625% due 10/8/2008

      148,125
   
  

Total Sovereign Debt Securities
(Cost $2,294,454)

      2,327,144
   
     
  Taxable Municipal Security — 0.1%   
$ 450,000   

Oregon Sch. Brds. Association
4.759% due 6/30/2028
(Cost $450,000)

    $ 408,578
     
  U.S. Government Securities — 15.5%   
  U.S. Government Agency Securities — 4.4%
$ 7,300,000   

FHLB
5.125% due 7/17/2018

    $ 6,993,802
  

FHLMC

   
  4,500,000   

2.875% due 5/15/2007

      4,463,055
  910,000   

3.15% due 12/16/2008

      876,201
  4,255,000   

5.00% due 7/2/2018

      4,034,693
  760,000   

FNMA
4.50% due 12/1/2009

      746,284
         
        17,114,035
   
  U.S. Treasury Bonds and Notes — 11.1%
  

U.S. Treasury Bonds

   
  4,259,000   

4.50% due 2/15/2036

      4,050,045
  1,380,000   

6.25% due 8/15/2023

      1,588,402
  3,700,000   

8.125% due 8/15/2019

      4,833,991
  1,900,000   

8.50% due 2/15/2020

      2,566,039
  

U.S. Treasury Notes

   
  503,000   

4.50% due 11/30/2011

      498,520
  196,000   

4.625% due 11/30/2008

      195,288
  4,635,000   

4.625% due 11/15/2016

      4,604,585
  23,500,000   

4.625% due 11/15/2009

      23,430,235
  1,085,000   

4.875% due 8/15/2016

      1,097,969
         
        42,865,074
   
  

Total U.S. Government Securities
(Cost $59,832,972)

      59,979,109
   

 

See notes to financial statements.

 

    13

Table of Contents
LOGO  

Schedule of Investments — RS Investment Quality Bond VIP Series (continued)

 

December 31, 2006

 

Principal

Amount

          Value  
     
  Commercial Paper — 3.1%   
  Food Products — 1.5%  
$ 6,000,000   

Nestle Capital Corp.
5.22% due 1/2/2007

    $ 5,999,130  
  Industrial–Other — 1.6%  
  6,000,000   

American Transmission
5.26% due 1/2/2007

      5,999,123  
     
  

Total Commercial Paper
(Cost $11,998,253)

      11,998,253  
     
     
Shares          Value  
 
 		 Other Investments - For Trustee Deferred
Compensation Plan (2) — 0.0%		   
  12   

RS Emerging Growth Fund, Class A

    $ 444  
  21   

RS Global Natural Resources Fund, Class A

      650  
  17   

RS Growth Fund, Class A

      259  
  48   

RS Investors Fund, Class A

      565  
  10   

RS MidCap Opportunities Fund, Class A

      143  
  6   

RS Partners Fund, Class A

      212  
  11   

RS Smaller Company Growth Fund, Class A

      229  
  5   

RS Value Fund, Class A

      143  
     
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $2,645)

      2,645  
     
     

Principal

Amount

          Value  
  Repurchase Agreement — 2.4%   
$ 9,177,000   

State Street Bank and Trust Co.
repurchase agreement,
dated 12/29/2006, maturity
value $9,182,200 at
5.10%, due 1/2/2007(3)
(Cost $9,177,000)

    $ 9,177,000  
     
 
 		 Total Investments — 103.1%
(Cost $398,061,920)		      398,145,273  
 
 		 Liabilities in Excess of Cash, Receivables and
Other Assets — (3.1)%		      (12,110,057 )
     
  Net Assets — 100%    $ 386,035,216  
     

 

†   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to certain qualified buyers. At 12/31/2006, the aggregate market value of these securities amounted to $24,279,433 representing 6.3% of net asset of which have been deemed liquid by investment adviser pursuant to the Fund’s liquidity procedures approved by the Board of Trustees.
(1)   Interest accrual can change due to structural features. The rate shown is the rate in effect at 12/31/2006.
(2)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(3)   The repurchase agreement is fully collateralized by $9,180,000 in U.S. Government Agency, 5.55%, due 10/4/2016, with a value of $9,363,600.

 

See notes to financial statements.

 

14     

Table of Contents
LOGO  

Financial Information — RS Investment Quality Bond VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $398,061,920)

    $ 398,145,273  

Receivable for securities sold

      8,393,311  

Interest receivable

      2,980,302  

Receivable for fund shares sold

      547,395  

Prepaid insurance

      4,495  
        

Total Assets

      410,070,776  
        

LIABILITIES

   

Payable for securities purchased

      23,574,350  

Payable for fund shares redeemed

      230,064  

Accrued expenses

      63,542  

Deferred trustees’ compensation

      2,645  

Due to custodian

      1,872  

Due to Adviser

      163,087  
        

Total Liabilities

      24,035,560  
        

Net Assets

    $ 386,035,216  
        

COMPONENTS OF NET ASSETS

   

Paid-in capital

      389,518,974  

Undistributed net investment income

      547,890  

Accumulated net realized loss on investments

      (4,115,001 )

Net unrealized appreciation of investments

      83,353  
        

Net Assets

    $ 386,035,216  
        

Shares of beneficial interest outstanding with no par value

      32,768,559  

Net Asset Value Per Share

      $11.78  

 

 

LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Interest

    $ 17,996,852  
        

Expenses:

   

Investment advisory fees — Note B

      1,727,612  

Custodian fees

      119,735  

Printing expense

      70,838  

Trustees’ fees — Note B

      48,457  

Audit fees

      40,228  

Interest expense on reverse repurchase
agreements

      34,901  

Insurance expense

      21,015  

Legal fees

      18,289  

Loan commitment fees — Note H

      5,223  

Registration fees

      2,546  

Other

      507  
        

Total Expenses before Waivers and Custody
credits

      2,089,351  

Less: Expenses waived by sub-adviser — Note B

      (7,067 )

Custody credits — Note A

      (3,674 )
        

Expenses Net of Waivers and Custody credits

      2,078,610  
        

Net Investment Income

      15,918,242  
        

REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS

   

Net realized loss on investments — Note A

      (2,851,915 )

Net change in unrealized depreciation
of investments — Note A

      1,593,037  
        

Net Realized and Unrealized Loss
on Investments

      (1,258,878 )
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 14,659,364  
        

 

See notes to financial statements.

 

    15

Table of Contents
LOGO  

Financial Information — RS Investment Quality Bond VIP Series

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 15,918,242        $ 13,424,289  

Net realized gain/(loss) on investments

        (2,851,915 )        597,998  

Net change in unrealized appreciation/ (depreciation) of investments

        1,593,037          (6,304,882 )
                     

Net Increase in Net Assets Resulting from Operations

        14,659,364          7,717,405  
                     

Dividends and Distributions to Shareholders from:

          

Net investment income

        (16,013,548 )        (13,044,030 )

Net realized gain on investments

        (17,102 )        (2,350,408 )
                     

Total Dividends and Distributions to Shareholders

        (16,030,650 )        (15,394,438 )
                     

From Capital Share Transactions:

          

Net increase/(decrease) in net assets from capital share transactions – Note G

        58,698,926          (9,608,868 )
                     

Net Increase/(Decrease) in Net Assets

        57,327,640          (17,285,901 )

NET ASSETS:

          

Beginning of year

        328,707,576          345,993,477  
                     

End of year*

      $ 386,035,216        $ 328,707,576  
                     

*  Includes undistributed net investment income of:

      $ 547,890        $ 643,295  

 

See notes to financial statements.

 

16     

Table of Contents
LOGO  

Financial Information — RS Investment Quality Bond VIP Series

 

The financial highlights table is intended to help you understand the Fund’s financial performance for the past 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 dividends and distributions).

 

  Financial Highlights
    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $11.82     $12.11     $12.25     $12.52     $11.99  
   

Net investment income

   0.52     0.50     0.51     0.50     0.57  

Net realized and
unrealized gain/(loss)

   (0.03 )   (0.21 )   0.00 (a)   0.09     0.55  
   

Total from Investment Operations

   0.49     0.29     0.51     0.59     1.12  
   

Dividends from net investment income

   (0.53 )   (0.49 )   (0.52 )   (0.48 )   (0.55 )

Distributions from net realized capital gains

   (0.00 )(a)   (0.09 )   (0.13 )   (0.38 )   (0.04 )
   

Total Dividends and Distributions

   (0.53 )   (0.58 )   (0.65 )   (0.86 )   (0.59 )
   

Net asset value, end of year

   $11.78     $11.82     $12.11     $12.25     $12.52  
   

Total Return*

   4.19 %   2.35 %   4.21 %   4.73 %   9.47 %
   

Net assets, end of year (thousands)

   $386,035     $328,708     $345,993     $384,642     $435,089  

Net ratio of expenses to
average net assets

   0.60 %(b)(c)   0.59 %(b)   0.57 %   0.56 %   0.56 %

Net ratio of net investment
income to average net assets

   4.61 %(c)   4.06 %   4.02 %   3.75 %   4.55 %

Portfolio turnover rate

   130 %   169 %   217 %   215 %   249 %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
    Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Rounds to less than $0.01.
(b)   Expense ratio includes interest expense associated with reverse repurchase agreements. Excluding the interest expense, the expense ratio is 0.59% in 2006 and 0.58% in 2005.
(c)   Includes the effect of expenses waived by GIS.

 

See notes to financial statements.

 

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Notes to Financial Statements — RS Investment Quality Bond VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Investment Quality Bond VIP Series (the “Fund” or “IQBV”) is a series of the Trust. IQBV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian Bond Fund, Inc. (“GBF”) (“Predecessor Fund”) was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of IQBV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Pursuant to valuation procedures approved by the Board of Trustees, certain debt securities may be valued each business day by an independent pricing service (“Service”). Debt securities for which quoted bid prices are readily available and representative of the bid side of the market, in the judgment of the Service, are valued at the bid price. Other debt securities that are valued by the Service are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions.

 

Other securities, including securities for which market quotations are not readily available (such as certain mortgage-backed securities, restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund's NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

The Fund may invest in below investment grade securities (i.e. lower-quality debt), which are subject to certain risks. Lower-quality debt is considered to be speculative because it is less certain that the issuer will be able to pay interest or repay the principal. These securities are generally more volatile and less liquid than investment grade debt. Lower quality debt securities can also be more sensitive to adverse economic conditions, including the issuer's financial condition or stresses in its industry.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Repurchase agreements are carried at cost which approximates market value (see Note D). Short-term debt securities with maturities of 60 days or less are valued on an amortized cost basis which approximates market value.

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily.

 

Futures Contracts

 

IQBV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, IQBV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments

 

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are made or received by IQBV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by IQBV. The daily changes in the variation margin are recognized as unrealized gains or losses by IQBV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, IQBV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for IQBV. Net realized short-term and long-term capital gains for IQBV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of IQBV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends and distributions paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

     Ordinary
Income		    Long-Term
Capital Gain		    Total

2006

    $ 16,013,647    $ 17,003    $ 16,030,650

2005

      13,680,657      1,713,781      15,394,438

 

As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Capital Loss Carryforward
(Including Post-October Loss)		     Unrealized
Depreciation		  
$ 550,534   $ (3,915,624 )   $ (116,023 )

 

Taxes

 

IQBV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

As of December 31, 2006, for federal income tax purposes, the Fund had a capital loss carryforward as follows:

 

Capital Loss
Carryforward		     Expiration
Date
$ (3,858,020 )   2014

 

As of December 31, 2006, for federal income tax purposes, the Fund had a post-October capital loss of $57,604.

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

During the year ended December 31, 2006, the Fund reclassified amounts to paid-in capital from undistributed net investment income and accumulated net realized loss on investments. Increases/(decreases) to the various capital accounts were as follows:

 

Paid-In
Capital		   Undistributed
Net Investment
Income		     Accumulated
Net Realized
Loss on
Investments
$  —   $ (99 )   $ 99

 

Custody Credits

 

IQBV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, IQBV’s custodian fees were reduced by $3,674. IQBV could have employed the uninvested assets to produce income if IQBV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and
     Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser

 

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Notes to Financial Statements — RS Investment Quality Bond VIP Series (continued)

 

December 31, 2006

 

and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.50% of the average daily net assets of the Fund.

 

GIS serves as the sub-adviser for IQBV. Pursuant to a Sub-Advisory, Sub-Administration and Accounting Services Agreement, GIS provides sub-advisory, administrative and accounting services to IQBV, subject to the general oversight of RS Investments and the Board of Trustees of the Trust. As compensation for its services, RS Investments pays GIS at an annual rate of 0.475% of the average daily net assets of IQBV. Payment of the sub-investment advisory fees does not represent a separate or additional expense to IQBV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund's total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with reverse repurchase agreements and securities lending) that exceeds 0.59% of the average daily net assets of IQBV. GIS subsidized $7,067 or less than 0.01% of the ordinary operating expenses of IQBV for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $518,293,083 and $435,643,876, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, at December 31, 2006 aggregated $2,682,524 and $2,798,547, respectively, resulting in net unrealized depreciation of $116,023. The cost of investments owned at December 31, 2006 for federal income tax purposes was $398,261,296.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, IQBV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, IQBV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

Note E.   Reverse Repurchase Agreements

 

IQBV may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short-term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time IQBV enters into a reverse repurchase agreement, IQBV segregates on its books cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by IQBV may be unable to deliver the securities when IQBV seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in IQBV’s net asset value and may be viewed as a form of leverage.

 

Note F.   Dollar Roll Transactions

 

IQBV may enter into dollar rolls (principally using TBA’s) in which IQBV sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an agreed-upon price on a fixed date in a future month. The securities repurchased will bear the same interest as those sold, but generally will be collateralized at the time of delivery by different pools of mortgages with different prepayment histories than those securities sold. During the period between the sale and

 

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repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Dollar roll transactions involve the risk that the buyer of the securities sold by IQBV may be unable to deliver the replacement securities when it is required to do so. IQBV is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the “drop”), as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls may increase fluctuations in IQBV’s net asset value and may be viewed as a form of leverage.

 

Note G.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for IQBV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      8,489,459        4,135,398        $ 100,333,502        $ 50,084,960  

Shares issued in reinvestment of dividends and distributions

      1,366,931        1,290,355          16,030,649          15,394,438  

Shares repurchased

      (4,891,514 )      (6,193,346 )        (57,665,225 )        (75,088,266 )
   

Net increase/(decrease)

      4,964,876        (767,593 )      $ 58,698,926        $ (9,608,868 )
   

 

Note H.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note I.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note J.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note K.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS Investment Quality Bond VIP Series:

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Investment Quality Bond VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian Bond Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Bond Fund, Inc. and RS Variable Products Trust, on behalf of RS Investment Quality Bond VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
26,360,545.964   909,176.605   2,242,343.971   29,512,066.540

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution

 

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Supplemental Information — Unaudited (continued)

 

capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

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Supplemental Information — Unaudited (continued)

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

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Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

28     

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Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

    29

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RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

30    RS INVESTMENT QUALITY BOND VIP SERIES

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RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

RS INVESTMENT QUALITY BOND VIP SERIES   31

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06   ANNUAL REPORT

RS Variable Products Trust

 

RS Low Duration Bond VIP Series

12.31.06
As Revised 4.06.07		   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS Low Duration Bond VIP Series   
Portfolio Manager Biographies    3
Letter from Portfolio Managers    3
Fund Performance    8
Understanding Your Fund’s Expenses    9
Financial Information   
Schedule of Investments    10
Statement of Assets and Liabilities    13
Statement of Operations    13
Statements of Changes in Net Assets    14
Financial Highlights    15
Notes to Financial Statements    16
Report of Independent Registered Public Accounting Firm    20
Supplemental Information    21
Administration    27
RS Investments’ Senior Management Biographies    28

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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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LOGO  

RS Low Duration Bond VIP Series

 

LOGO     

Howard W. Chin (Guardian Investor Services)

has been a co-portfolio manager of RS Investment Quality Bond VIP Series since 1998 and of RS Low Duration Bond VIP Series since 2003 (includes time co-managing The Guardian Low Duration Bond Fund and The Guardian Investment Quality Bond Fund). Mr. Chin has been a managing director of Guardian Life since 1997. He also manages part of the fixed-income assets of Guardian Life and fixed-income assets for other GIS subsidiaries. Prior to joining Guardian Life, Mr. Chin spent four years as a strategist at Goldman Sachs & Company. Mr. Chin earned a B.S. in engineering from Polytechnic Institute of New York and an M.B.A. from the University of California at Berkeley.

LOGO     

Robert J. Crimmins, Jr. (Guardian Investor Services)

has been a co-portfolio manager of RS Investment Quality Bond VIP Series and of RS Low Duration VIP Series since 2004 (includes time co-managing The Guardian VC Low Duration Bond Fund and The Guardian Bond Fund). Mr. Crimmins has been a managing director of Guardian Life since March 2004. Prior to that, Mr. Crimmins was an assistant vice president of fixed-income investments of Guardian Life. Mr. Crimmins holds a B.A. in finance from St. John’s University and an M.B.A. from Fordham University.

 

 

Fund Philosophy

RS Low Duration Bond VIP Series seeks high level of current income consistent with a preservation of capital. The Fund seeks to maintain a low duration but may lengthen or shorten its duration within its range to reflect changes in the overall composition of the investment grade debt markets.

 

Investment Process

The Fund normally invests at least 80% of the Fund’s net assets (plus the amount, if any, of the Fund’s borrowings for investment purposes) in different kinds of debt obligations, such as corporate bonds, mortgage-backed and asset-backed securities, and obligations of the U.S. government and its agencies. The Fund tends to have an average maturity within a range of one and three years, with a typical duration of between one and three years. The Fund’s investments are allocated among the various sectors of the debt markets by analyzing overall economic conditions within and among these sectors. The Fund usually diversifies its asset allocations broadly among the debt securities market, but may emphasize some sectors over others based on what GIS believes to be their attractiveness relative to each other.

 

Performance

The Fund had a total return of 4.07% for the year ended December 31, 2006 as compared to the average fund in the Lipper Short Investment Grade peer group, which returned 4.29% for the same period. (The peer group consisted of 37 other subaccount funds that invest primarily in 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 Index1, returned 4.12%. The corresponding results for the fourth quarter were 1.09%, 1.14% and 0.98%, respectively.

 

1

The Lehman Brothers U.S. Government 1-3 Year Bond Index is an unmanaged index that is generally considered to be representative of the average yield on U.S. government obligations having maturities between one and three years. Unlike the Fund, the index does not incur fees or expenses.

 

RS LOW DURATION BOND VIP SERIES   3

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RS Low Duration Bond VIP Series (continued)

 

Portfolio Review

2006 may have marked a turning point in Federal Reserve policy regarding interest rate hikes. After

increasing interest rates eight times in 2005, the Federal Reserve (the “Fed”) did so four more times in 2006 at their first four meetings of the year. However, the tightening pattern was broken in August when they declined to raise rates again. The Fed has held to a wait-and-see posture in the three meetings since then. The Fed Funds rate remains at 5.25% and may stay there for a while as the Fed ponders the course of the economy and inflation in upcoming economic data releases.

 

As a result of this apparent policy shift, all investment grade segments of the taxable fixed income market performed well in 2006, posting positive nominal returns while the “spread” sectors (corporate bonds, agency debentures, residential and commercial mortgage-related securities) handily beat their comparable duration Treasury benchmarks across the board. However, it was not a smooth one-way path to strong outperformance in 2006 as the first half of the year was very different from the second half. Most yields increased in the first half as the Fed raised rates in four 0.25% increments even as investors became concerned that the new Fed under Ben Bernanke would over-tighten monetary policy in an effort to bolster its inflation fighting credibility. However, once the Fed paused at their August meeting and took no action in September, the market became more convinced the Fed would stay in this mode for an extended period. (In fact, some investors believed the Fed would cut rates as early as the first quarter of 2007.) The market rallied sharply as a result, but not to the extent where it completely offset the yield increases experienced in the first half.

 

Specifically, the yield on 2-year Treasuries increased by 0.41% in 2006 to finish the year at 4.81% while the yield on the 10-year Treasuries increased by 0.31%, ending at 4.71% for a further 0.10% inversion of the yield curve (to -0.11%) between these two benchmark maturities. The yield curve was slightly inverted (-.01%) at the start of 2006. The 2-year’s yield was influenced by the higher Fed Funds rate while continued strong buying by overseas investors dampened the relative upward pressure on longer maturity yields. Despite these yield increases, it is important to note that 10-year and shorter maturity Treasuries posted positive returns in 2006. For example, the returns for 2- and 10-year Treasuries were 3.71% and 1.34% while the 30-year Treasury bond returned -1.10% as the positive contribution of the bonds’ coupon payments partially offset the effects of rising yields.

 

As mentioned earlier, each of the “spread” sectors fared very well in 2006 and outperformed their Treasury benchmarks. Unlike more typical years where some sectors outperform while others underperform, 2006 was unusual in that all taxable fixed income sectors outperformed during the year. It was just a matter of how much each sector outperformed Treasuries.

 

Mortgage-Backed Securities (MBS), corporate bonds and Commercial Mortgage-Backed Securities (CMBS) — the three best performing sectors in 2006 — had nominal returns of 5.22%, 4.26%, and 4.73% and excess returns of 1.22%, 1.19%, and 1.37%, respectively. Within the corporate bond sector, the BBB-rated segment was the best performing with 1.54% of excess return while single-As and double-AAs had 1.14% and 1.08% respectively. The REIT and insurance sectors were the leaders within the corporate sector, posting 2.18% and 1.97% of excess returns respectively. Asset-Backed Securities (ABS) provided 4.70% in nominal returns while outperforming comparable Treasuries by 0.87%. Even the worst performing sector (agency debentures) provided 0.75% of excess return and a 4.37% return on a nominal basis. On the other hand, the Treasury sector overall returned just 3.08% in 2006, which stands in sharp contrast to the 4.12% posted by our benchmark, the Lehman Brothers U.S. Government 1-3 Year Bond Index.

 

Fixed income also did well in the fourth quarter. With the exception of Treasuries, each sector returned 1.1%-1.6% on a nominal basis, but more importantly, each outperformed Treasuries by a wide margin. In many cases, the lion’s share of a given sector’s 2006 performance came in the fourth quarter. For example,

 

4    RS LOW DURATION BOND VIP SERIES

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the two best performing sectors in the fourth quarter (corporate bonds and MBS) provided 0.61% and 0.59% of excess return, respectively, relative to their full year results of 1.19% and 1.22%. Similarly, agency debentures added 0.24% of the year’s 0.75% during the fourth quarter. In contrast, CMBS continued to exhibit consistent excess returns, eking out another 0.42% in the fourth quarter versus a 2006 result of 1.37%.

 

Thirty-five percent of the Fund is invested in corporate bonds and we focused our attention on short maturity (one to two years) securities with attractive breakeven spreads. The one to three year corporate sub-sector provided 0.70% of excess return in 2006. One of the primary concerns in the corporate bond market in 2006 was leveraged buyout (LBO) risk, where the purchase of a given company would adversely affect the firm’s outstanding debt. The wide spreads of short maturity corporates provided a cushion in the event of an LBO event.

 

About 18% of the Fund is invested in ABS with over half of it devoted to home equity loan securities. This sub-sector was the second-best performing within the ABS sector in 2006 with 1.45% of excess returns and compared quite favorably with the 0.87% the ABS sector returned as a whole.

 

Our third largest sector allocation was the CMBS sector, which made up 13% of the Fund. As noted earlier, the CMBS sector as a whole returned 1.37% of excess return in 2006 while the shorter-duration 1-3.5 year AAA-rated sub-sector contributed 0.76%.

 

Outlook

Following the 2.0% growth rate for real GDP in the third quarter after readings of 5.6% and 2.6% earlier in the year, we believe the economy is poised to continue to grow at a modest pace, most likely in the range of 2.5%-2.75% in the first half of 2007. This level is a bit below the potential for the economy but clearly robust enough to ease any concerns the economy might tip over into a recession or experience very slow growth.

 

The U.S. economy still relies on the consumer and the factors affecting consumer spending are all leaning in the consumer’s favor. Employment appears to be on a solid footing. Jobs increased by over 170,000 per month in the fourth quarter of 2006 while the unemployment rate is down to 4.5%. We are also beginning to see signs of a rebound in the housing market. Inventories are shrinking and while sales are still well below the torrid levels seen in 2005, we saw a pickup in sales of new and existing homes at the end of 2006. The recent drop in rates is supportive of housing values and perhaps more importantly, homeowners will be able to access their homes’ equity to finance their spending. Mortgage equity withdrawal was a key contributor to consumer spending in 2006 and is likely to continue (albeit at a more modest pace) in 2007. Finally, the strong performance of the equity markets in 2006 led to increased consumer wealth, stronger personal balance sheets and a more positive outlook on the future, all key factors in determining consumer behavior.

 

RS LOW DURATION BOND VIP SERIES   5

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RS Low Duration Bond VIP Series (continued)

 

Recent inflation data have become more encouraging, but core inflation (excluding the more volatile food and energy components) is likely to stay above the Fed’s comfort zone in the near term. We believe the U.S. and global economy will continue to grow, placing a greater demand on both labor and energy resources, so we expect inflation to be sticky, but unlikely to increase such that it becomes a general concern.

 

Thank you for your continued support.

 

LOGO

 

    LOGO

Howard W. Chin

Co-Portfolio Manager

   

Robert J. Crimmins

Co-Portfolio Manager

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

Bond funds are subject to interest rate 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.

 

6    RS LOW DURATION BOND VIP SERIES

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Assets Under Management: $27,968,890

Data as of December 31, 2006

 

LOGO  

Sector Allocation

 
LOGO

 

LOGO  

Top Ten Holdings1

Company

    Coupon    Maturity Date    Percentage of Total Net Assets

FHLMC

    4.000%    12/15/2009    5.09%

FNMA

    5.125%      4/15/2011    3.89%

U.S. Treasury Notes

    4.500%    11/30/2011    2.48%

Morgan Stanley Capital I

    7.002%    12/15/2031    2.06%

FNMA

    5.000%    10/15/2011    1.97%

Residential Asset Mtg. Prods., Inc.

    5.670%      4/25/2033    1.61%

Ford Credit Auto Owner Tr.

    4.380%      1/15/2010    1.54%

Chase Comm’l. Mtg. Secs. Corp.

    6.390%    11/18/2030    1.52%

Capital Auto Receivables Asset Tr.

    5.310%    10/20/2009    1.50%

Carmax Auto Owner Tr.

    4.350%      3/15/2010    1.45%

 

1

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

RS LOW DURATION BOND VIP SERIES   7

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RS Low Duration Bond VIP Series (continued)

 

LOGO  

Performance Update

As of 12/31/06

   
     Inception
Date		   1-Year
Total
Return		   3-Year
Annualized
Return		  

Annualized Return

Since Fund
Inception

RS Low Duration Bond VIP Series

   8/28/03   4.07%   2.07%   2.15%

Lehman Brothers U.S. Government 1-3 Year Bond Index

       4.12%   2.30%   2.41%

 

The Series is the successor to The Guardian VC Low Duration Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

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Growth of a Hypothetical $10,000 Investment

If invested on 8/28/03

 
LOGO

 

The chart above shows the performance of a hypothetical $10,000 investment made in RS Low Duration Bond VIP Series and in 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. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

8    RS LOW DURATION BOND 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. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying 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” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

Based on Actual Return

    $1,000.00    $1,030.50    $3.58    0.70%

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,021.68    $3.57    0.70%

 

* Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

 

RS LOW DURATION BOND VIP SERIES   9

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Schedule of Investments — RS Low Duration Bond VIP Series

 

December 31, 2006

 

Principal
Amount		          Value
     
  Asset Backed Securities — 18.1%   
$ 257,112   

Ameriquest Mtg. Secs., Inc.
2003-5 A6
4.541% due 4/25/2033

    $ 251,090
  280,000   

Bank One Issuance Tr.
2003-A7 A7
3.35% due 3/15/2011

      273,012
  420,000   

Capital Auto Receivables Asset Tr.
2006-SN1A A3
5.31% due 10/20/2009†

      420,040
  410,000   

Carmax Auto Owner Tr.
2005-1 A4
4.35% due 3/15/2010

      404,728
  67,242   

Caterpillar Financial Asset Tr.
2004-A A3
3.13% due 1/26/2009

      66,708
  360,000   

Chase Funding Mtg. Loan
2004-1 1A6
4.266% due 6/25/2015

      343,915
  221,891   

Chase Manhattan Auto Owner Tr.
2003-A A4
2.06% due 12/15/2009

      220,030
  280,000   

CitiFinancial Mtg. Sec., Inc.
2003-3 AF5
4.553% due 8/25/2033

      272,893
  

Countrywide Asset-Backed Certificates

   
  112,469   

2004-10 AF3
3.842% due 10/25/2030

      111,922
  217,813   

2004-S1 A2
3.872% due 3/25/2020

      214,605
  435,000   

Ford Credit Auto Owner Tr.
2005-B A4
4.38% due 1/15/2010

      429,995
  34,264   

Navistar Financial Corp. Owner Tr.
2004-A A3
2.01% due 8/15/2008

      34,082
  390,000   

Renaissance Home Equity Loan Tr.
2005-2 AF3
4.499% due 8/25/2035 (1)

      385,749
  

Residential Asset Mtg. Prods., Inc.

   
  390,000   

2003-RZ4 A5
4.66% due 2/25/2032

      384,592
  96,968   

2002-RS4 AI5
5.663% due 8/25/2032 (1)

      96,576
  450,000   

2003-RS3 AI4
5.67% due 4/25/2033 (1)

      449,973
  59,814   

Residential Funding Mtg. Secs.
2003-HS3 AI2
3.15% due 7/25/2018

      59,068
  247,175   

Volkswagen Auto Lease Tr.
2004-A A4A
3.09% due 8/20/2010

      245,732
  413,000   

World Omni Auto Receivables Tr.
2005-A A4
3.82% due 11/12/2011

      404,627
   
  

Total Asset Backed Securities
(Cost $5,094,355)

      5,069,337
   
     
  Collateralized Mortgage Obligations — 10.4%
$ 128,910   

Countrywide Home Loans
2002-19 1A1
6.25% due 11/25/2032

    $ 128,937
Principal
Amount		          Value
     
  

FHLMC

   
$ 303,986   

2598 QC
4.50% due 6/15/2027

    $ 299,841
  192,524   

1534 Z
5.00% due 6/15/2023

      188,893
  126,022   

2500 TD
5.50% due 2/15/2016

      125,874
  88,106   

20 H
5.50% due 10/25/2023

      87,918
  250,000   

2470 VB
6.00% due 8/15/2018

      250,996
  86,398   

1650 J
6.50% due 6/15/2023

      87,100
  

FNMA

   
  219,978   

2003-24 PU
3.50% due 11/25/2015

      212,138
  252,647   

2003-63 GU
4.00% due 7/25/2033

      248,511
  260,000   

2005-39 CL
5.00% due 12/25/2021

      257,264
  270,155   

2003-13 ME
5.00% due 2/25/2026

      268,408
  20,682   

2002-55 PC
5.50% due 4/25/2026

      20,597
  258,868   

2006-45 AC
5.50% due 6/25/2036

      256,799
  17,219   

GNMA
2002-93 NV
4.75% due 2/20/2032

      16,871
  163,081   

J.P. Morgan Mtg. Tr.
2005-S2 2A15
6.00% due 9/25/2035

      162,929
  

Wells Fargo Mtg.-Backed Secs. Tr.

   
  270,000   

2005-AR10 2A15
4.109% due 6/25/2035 (1)

      263,749
  48,149   

2005-14 2A1
5.50% due 12/25/2035

      47,141
   
  

Total Collateralized Mortgage Obligations
(Cost $2,957,679)

      2,923,966
   
     
  Commercial Mortgage Backed Securities — 13.4%
$ 418,303   

Chase Comm’l. Mtg. Secs. Corp.
1998-2 A2
6.39% due 11/18/2030

    $ 424,217
  315,000   

Comm’l. Mtg. Asset Tr.
1999-C1 A3
6.64% due 1/17/2032

      322,775
  185,000   

Crown Castle Towers LLC
2005-1A AFX
4.643% due 6/15/2035†

      181,274
  250,000   

Four Times Square Tr.
2000-4TS A2
7.795% due 4/15/2015†

      270,755
  

GMAC Comm’l. Mtg. Secs., Inc.

   
  53,864   

1997-C1 A3
6.869% due 7/15/2029

      54,037
  229,278   

1999-C2 A2
6.945% due 9/15/2033

      236,354

 

See notes to financial statements.

 

10     

Table of Contents

 

December 31, 2006

 

Principal
Amount		          Value
     
  

Greenwich Capital Comm’l. Funding Corp.

   
$ 38,299   

2004-GG1 A2
3.835% due 6/10/2036

    $ 38,004
  274,000   

2005-GG3 A2
4.305% due 8/10/2042

      266,741
  372,241   

J.P. Morgan Chase Comm’l. Mtg.
2004-C1 A1
3.053% due 1/15/2038

      358,284
  124,223   

J.P. Morgan Comm’l. Mtg. Fin. Corp.
1997-C5 B
7.159% due 9/15/2029

      124,182
  

LB UBS Comm’l. Mtg. Tr.

   
  250,000   

2003-C1 A2
3.323% due 3/15/2027

      244,164
  101,025   

2001-C3 A1
6.058% due 6/15/2020

      102,555
  225,338   

2000-C5 A1
6.41% due 12/15/2019

      227,067
  560,000   

Morgan Stanley Capital I
1999-RM1 E
7.002% due 12/15/2031 (1)

      577,466
  311,230   

Salomon Brothers Mtg. Secs. VII, Inc.
2001-C2 A2
6.168% due 2/13/2010

      313,714
   
  

Total Commercial Mortgage Backed Securities
(Cost $3,787,944)

      3,741,589
   
     
  Corporate Bonds — 34.8%   
  Aerospace and Defense — 0.3%   
$ 96,000   

Raytheon Co.
4.50% due 11/15/2007

    $ 95,240
   
  Automotive — 2.5%   
  300,000   

Daimler Chrysler NA Hldg.
4.75% due 1/15/2008

      297,264
  150,000   

Ford Motor Credit Co.
6.50% due 1/25/2007

      150,025
  250,000   

General Motors Acceptance Corp.
4.375% due 12/10/2007

      246,521
         
        693,810
   
  Chemicals — 3.1%   
  207,000   

ICI Wilmington
7.05% due 9/15/2007

      208,924
  150,000   

Lyondell Chemical Co.
10.875% due 5/1/2009

      152,812
  250,000   

Potash Corp. Saskatchewan
7.125% due 6/15/2007

      251,767
  250,000   

Praxair, Inc.
4.75% due 7/15/2007

      249,375
         
        862,878
   
  Construction Machinery — 1.8%   
  

Caterpillar Financial Svcs.

   
  200,000   

2.625% due 1/30/2007

      199,600
  200,000   

3.10% due 5/15/2007

      198,331
  100,000   

John Deere Capital Corp.
3.625% due 5/25/2007

      99,305
         
        497,236
   
  Electric — 0.9%   
  250,000   

Pepco Holdings, Inc.
5.50% due 8/15/2007

      249,800
   
Principal
Amount		          Value
     
  Energy — 2.3%   
$ 250,000   

Anadarko Petroleum Corp.
3.25% due 5/1/2008

    $ 242,281
  200,000   

Occidental Petroleum Corp.
4.00% due 11/30/2007

      197,890
  222,300   

RAS Laffan Liquefied Natural Gas
3.437% due 9/15/2009†

      216,594
         
        656,765
   
  Entertainment — 1.0%   
  275,000   

AOL Time Warner, Inc.
6.15% due 5/1/2007

      275,542
   
  Finance Companies — 3.2%   
  200,000   

Capital One Bank
4.25% due 12/1/2008

      196,052
  300,000   

General Electric Capital Corp.
3.50% due 8/15/2007

      296,963
  250,000   

Istar Financial, Inc.
7.00% due 3/15/2008

      254,192
  150,000   

Residential Capital Corp.
6.125% due 11/21/2008

      150,743
         
        897,950
   
  Financial–Banks — 1.7%   
  250,000   

Popular NA, Inc.
3.875% due 10/1/2008

      243,534
  250,000   

Sovereign Bank
4.00% due 2/1/2008

      246,391
         
        489,925
   
  Home Construction — 0.9%   
  250,000   

Ryland Group, Inc.
5.375% due 6/1/2008

      248,326
   
  Insurance — 1.8%   
  250,000   

UnitedHealth Group, Inc.
3.375% due 8/15/2007

      246,929
  250,000   

WellPoint, Inc.
3.75% due 12/14/2007

      246,054
         
        492,983
   
  Lodging — 0.7%   
  200,000   

Starwood Hotels & Resorts
7.375% due 5/1/2007

      200,817
   
  Media–Cable — 0.9%   
  250,000   

Comcast Corp.
7.625% due 4/15/2008

      256,674
   
  Media–NonCable — 0.7%   
  100,000   

R.H. Donnelley Fin. Corp I
10.875% due 12/15/2012

      109,000
  100,000   

Scholastic Corp.
5.75% due 1/15/2007

      100,145
         
        209,145
   
  Metals and Mining — 1.3%   
  350,000   

Steel Dynamics, Inc.
9.50% due 3/15/2009

      360,500
   
  Natural Gas–Pipelines — 1.9%   
  275,000   

Enterprise Prod. Operating LP
4.00% due 10/15/2007

      271,636
  250,000   

Sempra Energy
4.621% due 5/17/2007

      249,046
         
        520,682
   

 

See notes to financial statements.

 

    11

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LOGO  

Schedule of Investments — RS Low Duration Bond VIP Series (continued)

 

December 31, 2006

 

Principal
Amount		          Value
     
  Paper and Forest Products — 1.8%   
$ 250,000   

Int’l. Paper Co.
3.80% due 4/1/2008

    $ 244,908
  250,000   

Packaging Corp. of America
4.375% due 8/1/2008

      245,457
         
        490,365
   
  Real Estate Investment Trusts — 0.9%   
  250,000   

EOP Operating LP
6.763% due 6/15/2007

      251,615
   
  Retailers — 2.7%   
  250,000   

CVS Corp.
3.875% due 11/1/2007

      246,811
  255,000   

Federated Dept. Stores
6.625% due 9/1/2008

      259,147
  250,000   

J. C. Penney Corp., Inc.
6.50% due 12/15/2007

      251,866
         
        757,824
   
  Supermarkets — 0.9%   
  250,000   

Safeway, Inc.
7.00% due 9/15/2007

      252,804
   
  Transportation Services — 0.9%   
  250,000   

FedEx Corp.
2.65% due 4/1/2007

      248,302
   
  Utilities–Electric and Water — 1.7%   
  230,000   

American Electric Power
4.709% due 8/16/2007 (1)

      228,872
  250,000   

Tampa Electric
5.375% due 8/15/2007

      249,763
         
        478,635
   
  Wireline Communications — 0.9%   
  250,000   

Telecom Italia Capital
4.00% due 11/15/2008

      243,464
   
  

Total Corporate Bonds
(Cost $9,770,042)

      9,731,282
   
     
  Sovereign Debt Security — 0.9%   
$ 250,000   

United Mexican States
4.625% due 10/8/2008
(Cost $247,243)

    $ 246,875
   
     
  U.S. Government Securities — 20.6%   
  U.S. Government Agency Securities — 15.2%   
  

FHLMC

   
$ 415,000   

3.15% due 12/16/2008

    $ 399,586
  1,460,000   

4.00% due 12/15/2009

      1,422,240
  

FNMA

   
  140,000   

3.75% due 3/18/2010 (1)

      136,294
  270,000   

3.875% due 2/15/2010

      261,697
  410,000   

4.50% due 12/1/2009

      402,601
  550,000   

5.00% due 10/15/2011

      551,218
  1,080,000   

5.125% due 4/15/2011

      1,087,723
         
        4,261,359
   
Principal
Amount		          Value
     
  U.S. Treasury Notes — 5.4%   
  

U.S. Treasury Notes

   
$ 312,000   

3.375% due 12/15/2008

    $ 303,749
  700,000   

4.50% due 11/30/2011

      693,766
  247,000   

4.625% due 11/30/2008

      246,103
  262,000   

4.625% due 10/31/2011

      261,048
         
        1,504,666
   
  

Total U.S. Government Securities
(Cost $5,766,789)

      5,766,025
   
     
Shares          Value
 
 		 Other Investments - For Trustee Deferred
Compensation Plan (2) — 0.0%
  1   

RS Emerging Growth Fund, Class A

    $ 34
  2   

RS Global Natural Resources Fund, Class A

      49
  1   

RS Growth Fund, Class A

      20
  4   

RS Investors Fund, Class A

      42
  1   

RS MidCap Opportunities Fund, Class A

      11
  

RS Partners Fund, Class A

      16
  1   

RS Smaller Company Growth Fund, Class A

      17
  

RS Value Fund, Class A

      11
   
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $200)

      200
   
     
Principal
Amount		          Value
  Repurchase Agreement — 1.1%
$ 302,000   

State Street Bank and Trust Co.
repurchase agreement,
dated 12/29/2006, maturity
value $302,171 at
5.10%, due 1/2/2007 (3)
(Cost $302,000)

    $ 302,000
   
 
 		 Total Investments — 99.3%
(Cost $27,926,252)		      27,781,274
 
 		 Cash, Receivables, and Other Assets
Less Liabilities — 0.7%		      187,616
   
  Net Assets — 100%    $ 27,968,890
   

 

†   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to certain qualified buyers. At 12/31/2006, the aggregate market value of these securities amounted to $1,088,663 representing 3.9% of net assets which have been deemed liquid pursuant to the Fund’s liquidity procedures approved by the Board of Trustees.
(1)   Interest accrual can change due to structural features. The rate shown is the rate in effect at 12/31/2006.
(2)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(3)   The repurchase agreement is fully collateralized by $305,000 in U.S. Government Agency 5.55%, due 10/4/2016, with a value of $311,100.

 

See notes to financial statements.

 

12     

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LOGO  

Financial Information — RS Low Duration Bond VIP Series

 

LOGO 
                                    [GRAPHIC]
 

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $27,926,252)

    $ 27,781,274  

Cash

      560  

Interest receivable

      197,077  

Receivable for fund shares sold

      16,919  

Prepaid insurance

      371  
        

Total Assets

      27,996,201  
        

LIABILITIES

   

Accrued expenses

      14,664  

Payable for fund shares redeemed

      1,660  

Deferred trustees’ compensation

      200  

Due to Adviser

      10,787  
        

Total Liabilities

      27,311  
        

Net Assets

    $ 27,968,890  
        

COMPONENTS OF NET ASSETS

   

Paid-in capital

    $ 28,501,677  

Distributions in excess of net investment income

      (200 )

Accumulated net realized loss on investments

      (387,609 )

Net unrealized depreciation of investments

      (144,978 )
        

Net Assets

    $ 27,968,890  
        

Shares of beneficial interest outstanding with no par value

      2,847,891  

Net Asset Value Per Share

      $9.82  
LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Interest

    $ 1,277,915  
        

Expenses:

   

Investment advisory fees — Note B

      125,400  

Custodian fees

      42,818  

Printing expense

      14,414  

Audit fees

      9,251  

Trustees’ fees — Note B

      3,983  

Insurance expense

      1,679  

Legal fees

      1,166  

Loan commitment fees — Note H

      433  

Registration fees

      145  

Other

      508  
        

Total Expenses before Waivers and Custody credits

      199,797  

Less: Expenses waived by sub-adviser — Note B

      (2,999 )

Custody credits — Note A

      (821 )
        

Expenses Net of Waivers and Custody credits

      195,977  
        

Net Investment Income

      1,081,938  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS

   

Net realized loss on investments — Note A

      (132,262 )

Net change in unrealized depreciation
of investments — Note C

      185,411  
        

Net Realized and Unrealized Gain
on Investments

      53,149  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 1,135,087  
        

 

See notes to financial statements.

 

    13

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LOGO  

Financial Information — RS Low Duration Bond VIP Series

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 1,081,938        $ 760,998  

Net realized loss on investments

        (132,262 )        (227,342 )

Net change in unrealized depreciation of investments

        185,411          (200,381 )
                     

Net Increase in Net Assets Resulting from Operations

        1,135,087          333,275  
                     

Dividends to Shareholders from:

          

Net investment income

        (1,090,755 )        (760,325 )
                     

From Capital Share Transactions:

          

Net increase in net assets from capital share transactions — Note G

        546,552          4,147,737  
                     

Net Increase in Net Assets

        590,884          3,720,687  

NET ASSETS:

          

Beginning of year

        27,378,006          23,657,319  
                     

End of year*

      $ 27,968,890        $ 27,378,006  
                     

*  Includes undistributed/(distributions in excess of) net investment income

      $ (200 )      $ 3,528  

 

See notes to financial statements.

 

14     

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LOGO  

Financial Information — RS Low Duration Bond VIP Series

 

The financial highlights table is intended to help you understand the Fund’s financial performance for the past 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 dividends and distributions).

 

  Financial Highlights
    Year ended
12/31/06		     Year ended
12/31/05		     Year ended
12/31/04		     Period from
August 28, 2003† to
December 31, 2003		  

Net asset value,
beginning of period

   $9.81     $9.97     $10.06     $10.00  
   

Net investment income

   0.38     0.28     0.18     0.03  

Net realized and
unrealized gain/(loss)

   0.01     (0.16 )   (0.09 )   0.07  
   

Total from Investment Operations

   0.39     0.12     0.09     0.10  
   

Dividends from net investment income

   (0.38 )   (0.28 )   (0.18 )   (0.03 )

Distributions from net realized capital gains

   —     —     —     (0.01 )
   

Total Dividends and Distributions

   (0.38 )   (0.28 )   (0.18 )   (0.04 )
   

Net asset value, end of period

   $9.82     $9.81     $9.97     $10.06  
   

Total Return*

   4.07 %   1.25 %   0.91 %   0.97 %(a)
   

Net assets, end of period (thousands)

   $27,969     $27,378     $23,657     $10,840  

Net ratio of expenses to
average net assets

   0.71 %(b)(d)   0.79 %   0.81 %   1.74 %(c)

Net ratio of net investment
income to average net assets

   3.88 %(d)   2.94 %   2.11 %   0.93 %(c)

Portfolio turnover rate

   78 %   109 %   90 %   92 %
   

 

†   Commencement of operations.
*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Not annualized.
(b)   Before offset of custody credits. Including the custody credits, the expense ratio is 0.70%.
(c)   Annualized.
(d)   Includes the effect of expenses waived by GIS.

 

See notes to financial statements.

 

    15

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LOGO  

Notes to Financial Statements — RS Low Duration Bond VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Low Duration Bond VIP Series (the “Fund” or “LDBV”) is a series of the Trust. LDBV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian VC Low Duration Bond Fund (“GVLDBF”), a series (“Predecessor Fund”) of The Guardian Variable Contract Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of LDBV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Pursuant to valuation procedures approved by the Board of Trustees, certain debt securities may be valued each business day by an independent pricing service (“Service”). Debt securities for which quoted bid prices are readily available and representative of the bid side of the market, in the judgment of the Service, are valued at the bid price. Other debt securities that are valued by the Service are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions.

 

Other securities, including securities for which market quotations are not readily available (such as certain mortgage-backed securities, restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Repurchase agreements are carried at cost which approximates market value (see Note D). Short-term debt securities with maturities of 60 days or less are valued on an amortized cost basis which approximates market value.

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily.

 

Futures Contracts

 

LDBV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, LDBV is required to deposit either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by LDBV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by LDBV. The daily changes in the variation margin are recognized as unrealized gains or losses by LDBV. Should interest or exchange rates, securities prices

 

16     

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or prices of futures contracts move unexpectedly, LDBV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for LDBV. Net realized short-term and long-term capital gains for LDBV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of LDBV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

     Ordinary
Income		    Return of
Capital		    Total

2006

    $ 1,085,666    $ 5,089    $ 1,090,755

2005

      760,325      —      760,325

 

As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Capital Loss Carryforward
(Including Post- October Loss)		     Unrealized
Depreciation		  
$   —   $ (387,609 )   $ (144,978 )

 

Taxes

 

LDBV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:

 

    Capital Loss
Carryforward		     Expiration
Date
  $ (15,848 )   2012
    (220,126 )   2013
    (145,732 )   2014
         
Total   $ (381,706 )  
         

 

As of December 31, 2006, for federal income tax purposes, the Fund had a post-October capital loss of $5,903.

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

During the year ended December 31, 2006, the Fund reclassified amounts to paid-in capital from distributions in excess of net investment income and accumulated net realized loss on investments. Increases/(decreases) to the various capital accounts were as follows:

 

Paid-in
Capital		     Distributions
In Excess of
Net Investment
Income		   Accumulated
Net Realized
Loss on
Investments
$ (5,089 )   $ 5,089   $   —

 

Custody Credits

 

LDBV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, LDBV’s custodian fees were reduced by $821. LDBV could have employed the uninvested assets to produce income if LDBV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.45% of the average daily net assets of the Fund.

 

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                                    [GRAPHIC]
 

Notes to Financial Statements — RS Low Duration Bond VIP Series (continued)

 

December 31, 2006

 

GIS serves as the sub-adviser for LDBV. Pursuant to a Sub-Advisory, Sub-Administration and Accounting Services Agreement, GIS provides sub-advisory, administrative and accounting services to LDBV, subject to the general oversight of RS Investments and the Board of Trustees of the Trust. As compensation for its services, RS Investments pays GIS at an annual rate of 0.4275% of the average daily net assets of LDBV. Payment of the sub-investment advisory fees does not represent a separate or additional expense to LDBV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 0.70% of the average daily net assets of LDBV. GIS subsidized 0.01% of the ordinary operating expenses of LDBV or $2,999 for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $25,027,824 and $21,473,317, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, at December 31, 2006 aggregated $55,603 and $200,581, respectively, resulting in net unrealized depreciation of $144,978. The cost of investments owned at December 31, 2006 for federal income tax purposes was $27,926,252.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, LDBV will 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, LDBV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

Note E.   Reverse Repurchase Agreements

 

LDBV may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short-term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time LDBV enters into a reverse repurchase agreement, LDBV segregates on its books cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by LDBV may be unable to deliver the securities when LDBV seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in LDBV’s net asset value and may be viewed as a form of leverage.

 

Note F.   Dollar Roll Transactions

 

LDBV may enter into dollar rolls (principally using TBA’s) in which LDBV sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an agreed-upon price on a

fixed date in a future month. The securities repurchased will bear the same interest as those sold, but generally will be collateralized at the time of delivery by different pools of

mortgages with different prepayment histories than those securities sold. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Dollar roll

transactions involve the risk that the buyer of the securities

sold by LDBV may be unable to deliver the securities when the LDBV seeks to repurchase them. LDBV is compensated

 

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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 rolls may increase fluctuations in LDBV’s net asset value and may be viewed as a form of leverage.

 

Note G.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for LDBV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      590,712        960,622        $ 5,829,576        $ 9,549,032  

Shares issued in reinvestment of dividends

      111,226        77,224          1,090,755          760,325  

Shares repurchased

      (646,229 )      (619,309 )        (6,373,779 )        (6,161,620 )
   

Net increase

      55,709        418,537        $ 546,552        $ 4,147,737  
   

 

Note H.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospects.

 

Note I.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note J.   Sales Transactions

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note K.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

    19

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS Low Duration Bond VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Low Duration Bond VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian VC Low Duration Bond Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Variable Contract Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS Low Duration Bond VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
2,677,637.433   75,206.908   57,586.034   2,810,430.655

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at

 

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improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

24     

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

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Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

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Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

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RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

28    RS LOW DURATION BOND VIP SERIES

Table of Contents
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RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

RS LOW DURATION BOND VIP SERIES   29

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LOGO

 

06   ANNUAL REPORT

RS Variable Products Trust

 

RS High Yield Bond VIP Series

12.31.06
As Revised 4.06.07		   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS High Yield Bond VIP Series   
Portfolio Manager Biography    3
Letter from Portfolio Manager    3
Fund Performance    7
Understanding Your Fund’s Expenses    8
Financial Information   
Schedule of Investments    9
Statement of Assets and Liabilities    14
Statement of Operations    14
Statements of Changes in Net Assets    15
Financial Highlights    16
Notes to Financial Statements    17
Report of Independent Registered Public Accounting Firm    21
Supplemental Information    22
Administration    28
RS Investments’ Senior Management Biographies    29

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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

 

LOGO     

Ho Wang (Guardian Investor Services)

has managed RS High Yield Bond VIP Series since April 2006 (includes time managing The Guardian VC High Yield Bond Fund). Before joining Guardian Life as a managing director in March 2006, Mr. Wang served as senior portfolio manager, high yield for seven years at Muzinich & Co., Inc. managing a high-yield total return portfolio. He earned a B.A. in political science and economics from Queens College and an M.B.A. from St. John’s University.

 

Fund Philosophy

RS High Yield Bond VIP Series seeks current income by investing in debt securities rated below investment grade, commonly known as “high yield” securities. Capital appreciation is a secondary objective.

 

Investment Process

The Fund normally invests at least 80% of the Fund’s net assets (plus amount, if any of the Fund’s borrowing for investment purposes) in high-yield corporate bonds, convertible bonds and other debt securities that, at the time of purchase, are rated below investment grade by nationally recognized statistical ratings organizations or, if unrated, have been determined by Guardian Investor Services LLC (GIS) to be of comparable quality. The investment team considers several factors in purchasing and selling securities, such as issuer’s earnings patterns, financial history, management and general prospects, relative to the price of the security.

 

Performance

RS High Yield Bond VIP Series returned 3.66% in the fourth quarter of 2006 and 9.17% for the year. The Fund underperformed its benchmark, the Lehman Brothers U.S. Corporate High Yield Index1 by 0.54% in the fourth quarter and 2.68% for the year ended December 31, 2006.

 

The high yield market started with a positive tone with good results for the first four months returning 3.52%. A retrenchment took place in the May/June period, where the return was 0.01% attributable to inflation concerns, murky Fed interest rate direction and equity market volatility. The second half finished strong with a total return for the year of 11.85% for the Index, the second best year since 1997. As a result, high yield bonds outperformed every other fixed income instrument.

 

The U.S. dollar-denominated new issuance set a new record. We believe liquidity in the market improved dramatically due to positive high yield mutual fund inflows, $48 billion of coupon payments and participation from other investment sources including hedge funds, international investors and investment grade players.

 

Portfolio Review

2006 may have marked a turning point in Federal Reserve policy regarding interest rate hikes. After increasing interest rates eight times in 2005, the Federal Reserve (the Fed) did so four more times in 2006 at their first four meetings of the year. However, the tightening pattern was broken in August when they declined to raise rates again. The Fed has held a wait-and-see posture in the three meetings since then. The Fed Funds rate remains at 5.25% and may stay there for a while as the Fed ponders the course of the economy and inflation in upcoming economic data releases.

 

As stated above, the below investment grade corporate segment of the taxable fixed income market as represented by the Lehman Brothers High Yield Index performed well in 2006, returning 11.85%. High Yield bonds outperformed every other fixed income investment on a nominal basis with lower quality credits outperforming higher quality credits.

 

1 The Lehman Brothers Corporate High Yield Index is an unmanaged index that is generally considered to be representative of the investable universe of the U.S. dollar-denominated high-yield debt market. Unlike the Fund, the index does not incur fees or expenses.

 

RS HIGH YIELD BOND VIP SERIES   3

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RS High Yield Bond VIP Series (continued)

 

The automotive sector started the year comprising 14.3% of the Lehman Brothers High Yield Index, the largest single industry sector, thanks to General Motors/General Motors Acceptance Corp. (GMAC) and Ford Motor Company/Ford Motor Credit Company (FMCC). This sector returned 23.14% for 2006 and was sharply higher in the fourth quarter, returning 5.06%. This was driven by the closing of the General Motors Acceptance Corp. (GMAC) (4.45%)2 sale to Cerberus and lower perceived bankruptcy risk at FMCC (4.82%)3 due to a large debt refinancing. Currently, GMAC is the largest single holding in the Fund with FMCC being the second largest. Although we outperformed the automotive sectors by 0.06% in the quarter, our performance was somewhat constrained by bond fund holding restrictions that limit our positions to 5% of any individual credit. Because of this, we were actually underweight in the Auto sector, which currently comprises 12.5% of the Lehman Corporate High Yield Index, with GM/GMAC accounting for 5.7% of that total. By taking longer duration bets and focusing our holdings on GMAC and FMCC, the two best performers in the sector, we were able to overcome the disadvantage and still post positive performance relative to the Index’s automotive sector.

 

The media-cable sector was one of the top performing sectors during 2006, returning 20.37%. During the fourth quarter, returned 7.2% versus a return of 4.2% for the overall High Yield Index. Returns appeared to be driven by increased equity valuations in much of the sector as many cable companies have increased penetration for bundled services including digital video, high speed data, and telephony or voice over IP (VOIP). Additionally, we believe equity valuations of high yield cable companies benefited from refinancing as well as having favorable leveraged dryout (LBO) characteristics. The cable sector has limited exposure to economic factors and has fewer secular driven issues, such as advertising. We think these defensive characteristics provide these securities with additional support in a slowing or uncertain economic environment. The Fund’s portfolio was skewed toward senior unsecured and senior secured bonds (due to concerns regarding near term debt maturities, potential covenant violations and unsustainable capital structure) instead of subordinated paper which registered greater outperformance by comparison. Restructuring credits, which would have caused unsecured bondholders to be negatively impacted, were able to find refinancing in a very liquid market. Some of these events did not materialize, thereby causing the cable sector to underperform the Index.

 

Throughout 2006, the Fund was underweight in securities with a credit rating of Caa and lower relative to the Lehman Brothers High Yield Index by approximately 4%-5%. On a credit quality basis, we increased our exposure during the 4th quarter in Caa and lower rated securities from 8.70% to 10.17% and in B rated securities from 52.85% to 54.24%. The BB and higher rated securities were reduced from 38.45% to 35.59%. Although we increased our exposure in Caa securities, we were still underweight in the class as compared to the Lehman Brothers Corporate High Yield Index (10.17% for the Fund vs. 15.79% for the Index). Taking less risk by underweighting the Caa sector hurt the performance of the portfolio by 0.70% for the year and 0.26% for the fourth quarter. During the fourth quarter Caa securities (6.12%) outperformed both Ba (3.55%) and B (4.01%) securities. For the year, Caa securities returned 17.66% as compared to Ba and B returns of 10.07% and 11.22%, respectively.

 

Outlook

We believe the 2007 high yield market will be affected by various factors including monetary policy, inflation, labor markets, energy and housing. We think a low default rate, inactive monetary policy, accommodative borrowing environment and stable global economic growth point to a cautiously optimistic 2007 outlook.

 

The corporate releveraging trend will continue to be spurred by private equity sponsors’ need to invest capital. Liquidity appears to be ample in the high yield market, which should continue to be receptive toward

large LBO transactions seen in 2006 such as HCA Inc.,

 

2 Percentage is different from Top Ten Holding because the 4.45% is based on an issuer of GMAC, which consists of two securities.
3 Percentage is different from Top Ten Holding because the 4.82% is based on an issuer of Ford Motor Credit Co., which consists of five securities.

 

4    RS HIGH YIELD BOND VIP SERIES

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Freescale Semiconductor, Inc. and NXP BV/NXP Funding LLC.

 

As the credit cycle and slower economy take hold in the second half of 2007, both an increasing default rate and decelerating earnings growth may occur. Risk aversion or flight to quality may recur as evidenced in May and June 2006. Under this scenario, high yield risk appetites may be reduced. Bond issues with stronger covenant protection and more senior standing in the issuer’s capital structure may become more appealing.

 

While we remain positive on the fundamentals of the high yield market into the first half of 2007, we are concerned that the economy and earnings growth may slow as the year progresses. We will, therefore, continue to be opportunistic while closely monitoring both individual credits and the economic trends.

 

Thank you for your continued support.

 

LOGO

Ho Wang

Portfolio Manager

 

Any discussions of specific securities should not be considered a recommendation to buy or sell those securities. Fund holdings will vary.

 

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006.

 

Bond funds are subject to interest rate 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.

 

RS HIGH YIELD BOND VIP SERIES   5

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RS High Yield Bond VIP Series (continued)

 

Assets Under Management: $64,357,868

Data as of December 31, 2006.

 

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Bond Quality1

 
LOGO

 

1

Source: Standard and Poor’s Ratings Groups

 

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Top Ten Holdings2

Company    Coupon    Maturity Date    Percentage of Total Net Assets

General Motors Acceptance Corp.

    6.750%    12/1/2014    3.92%

Lyondell Chemical Co.

    10.875%    5/1/2009    3.46%

Fisher Scientific Int’l., Inc.

    6.125%    7/1/2015    3.23%

Ford Motor Credit Co.

    7.250%    10/25/2011    1.81%

Charter Comm. Hldgs. II

    10.250%    9/15/2010    1.48%

Harrahs Operating Co., Inc.

    6.500%    6/1/2016    1.45%

Qwest Corp.

    7.875%    9/1/2011    1.39%

TECO Energy, Inc.

    7.000%    5/1/2012    1.37%

Nextel Comm., Inc.

    7.375%    8/1/2015    1.35%

Graphic Packaging Int’l., Inc.

    9.500%    8/15/2013    1.25%

 

2

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell individual securities.

 

6    RS HIGH YIELD BOND VIP SERIES

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Performance Update

As of 12/31/06

   
     Inception
Date		   1-Year
Total
Return		   3-Year
Annualized
Return		   5-Year
Annualized
Return		   Annualized
Return
Since Fund
Inception

RS High Yield Bond VIP Series

   9/13/99   9.17%   7.19%   8.03%               5.43% 

Lehman Brothers Corporate High Yield Bond Index

       11.85%   8.49%   10.18%               6.89%

 

The Series is the successor to The Guardian VC High Yield Bond Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

LOGO  

Results of a Hypothetical $10,000 Investment

If invested on 9/13/99

 
LOGO

 

To give you a comparison, the chart above shows the performance of a hypothetical $10,000 investment made in RS High Yield Bond VIP Series and in the Lehman Brothers 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. Investment return and principal value will fluctuate, so shares, when redeemed, may be worth more or less than their original cost. Total return figures assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units. Current and month-end performance information, which may be lower or higher than that cited, is available by calling 800-221-3253 or visiting www.guardianinvestor.com.

 

RS HIGH YIELD BOND VIP SERIES   7

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Understanding Your Fund’s Expenses — Unaudited

 

By investing in the Fund, you incur two types of costs: (1) transaction costs, including, as applicable, sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees and exchange fees; and (2) ongoing costs, including as applicable, investment advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Funds’ expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

Based on Actual Return

    $1,000.00    $1,079.50    $3.98    0.76%

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,021.37    $3.87    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 184/365 (to reflect the one-half year period).

 

8    RS HIGH YIELD BOND VIP SERIES

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Schedule of Investments — RS High Yield Bond VIP Series

 

December 31, 2006

 

Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  Corporate Bonds — 95.9%  
  Aerospace and Defense — 2.6%  
  Bombardier, Inc.    
$ 110,000   Sr. Nt.†
8.00% due 11/15/2014		   Ba2/BB   $ 112,750  
  Comm. & Power Inds., Inc.    
  499,000   Sr. Sub. Nt.
8.00% due 2/1/2012		   B2/B–     506,485  
  DRS Technologies, Inc.    
  272,000   Sr. Sub. Nt.
7.625% due 2/1/2018		   B3/B     280,160  
  L-3 Comms. Corp.    
  130,000   Sr. Sub. Nt.
5.875% due 1/15/2015		   Ba3/BB+     125,450  
  150,000   Sr. Sub. Nt.
6.125% due 7/15/2013		   Ba3/BB+     147,000  
  150,000   Sr. Sub. Nt.
6.375% due 10/15/2015		   Ba3/BB+     148,500  
  Transdigm, Inc.    
  340,000   Sr. Sub. Nt.
7.75% due 7/15/2014		   B3/B–     350,200  
           
        1,670,545  
     
  Automotive — 10.3%  
  Ford Motor Credit Co.    
  700,000   Nt.
6.75% due 8/15/2008		   B1/B     692,546  
  1,190,000   Sr. Nt.
7.25% due 10/25/2011		   B1/B     1,165,334  
  300,000   Sr. Nt.
8.00% due 12/15/2016		   B1/B     296,445  
  457,000   Sr. Nt.†
9.75% due 9/15/2010		   B1/B     486,161  
  430,000   Sr. Nt.
9.875% due 8/10/2011		   B1/B     459,896  
  General Motors
Acceptance Corp.		    
  340,000   Nt.
6.15% due 4/5/2007		   Ba1/BB+     340,011  
  2,455,000   Nt.
6.75% due 12/1/2014		   Ba1/BB+     2,521,612  
  Goodyear Tire & Rubber Co.    
  110,000   Sr. Nt.†
8.625% due 12/1/2011		   B2/B–     113,575  
  110,000   Sr. Nt.† (1)
9.14% due 12/1/2009		   B2/B–     110,412  
  Rental Svc. Corp.    
  30,000   Sr. Nt.†
9.50% due 12/1/2014		   Caa1/B–     30,975  
  Titan Int’l., Inc.    
  120,000   Sr. Nt.†
8.00% due 1/15/2012		   B3/B     120,750  
  United Components, Inc.    
  280,000   Sr. Sub. Nt.
9.375% due 6/15/2013		   Caa1/CCC+     289,800  
           
        6,627,517  
     
  Building Materials — 1.3%  
  ESCO Corp.    
  65,000   Sr. Nt.†
8.625% due 12/15/2013		   B2/B     66,788  
  Norcraft Cos. Fin.    
  375,000   Sr. Sub. Nt.
9.00% due 11/1/2011		   B1/B–     388,125  
Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  U.S. Concrete, Inc.    
$ 130,000   Sr. Sub. Nt.
8.375% due 4/1/2014		   B2/B–   $ 127,075  
  255,000   Sr. Sub Nt.†
8.375% due 4/1/2014		   B2/B–     249,262  
           
        831,250  
     
  Chemicals — 6.1%  
  Equistar Chemicals LP    
  545,000   Sr. Nt.
10.125% due 9/1/2008		   B1/BB–     579,062  
  Huntsman Int’l. LLC    
  130,000   Sr. Sub. Nt.†
7.875% due 11/15/2014		   B3/B     130,975  
  Koppers, Inc.    
  298,000   Sr. Nt.
9.875% due 10/15/2013		   B2/B     324,075  
  Lyondell Chemical Co.    
  50,000   Sr. Nt.
8.00% due 9/15/2014		   B1/B+     51,875  
  2,188,000   Sr. Sub. Nt.
10.875% due 5/1/2009		   B2/B     2,229,025  
  Momentive Performance Materials, Inc.    
  260,000   Sr. Nt.†
9.75% due 12/1/2014		   B3/B–     260,000  
  Mosaic Co.    
  65,000   Sr. Nt.†
7.375% due 12/1/2014		   B1/BB–     66,706  
  30,000   Sr. Nt.†
7.625% due 12/1/2016		   B1/BB–     31,088  
  Nell AF SARL    
  255,000   Sr. Nt.†
8.375% due 8/15/2015		   B2/B–     262,013  
           
        3,934,819  
     
  Construction Machinery — 2.0%  
  Ashtead Capital, Inc.    
  255,000   Nt.†
9.00% due 8/15/2016		   B3/B     272,850  
  Ashtead Hldgs. PLC    
  170,000   Sr. Nt.†
8.625% due 8/1/2015		   B3/B     176,800  
  Terex Corp.    
  155,000   Sr. Sub. Nt.
9.25% due 7/15/2011		   B1/B+     162,169  
  United Rentals NA, Inc.    
  672,000   Sr. Sub. Nt.
7.75% due 11/15/2013		   B3/B     674,520  
           
        1,286,339  
     
  Consumer Products — 1.9%  
  Elizabeth Arden, Inc.    
  555,000   Sr. Sub. Nt.
7.75% due 1/15/2014		   B1/B–     559,163  
  Jafra Cosmetics    
  387,000   Sr. Sub. Nt.
10.75% due 5/15/2011		   B1/B–     413,606  
  Riddell Bell Hldgs., Inc.    
  252,000   Sr. Sub. Nt.
8.375% due 10/1/2012		   B3/B–     246,330  
           
        1,219,099  
     

 

See notes to financial statements.

 

    9

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Schedule of Investments — RS High Yield Bond VIP Series (continued)

 

December 31, 2006

 

Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  Electric — 3.6%  
  Nevada Power Co.    
$ 255,000   Mtg. Nt. Ser. N
6.65% due 4/1/2036		   Ba1/BB+   $ 264,904  
  NRG Energy, Inc.    
  260,000   Sr. Nt.
7.375% due 1/15/2017		   B1/B–     260,650  
  Reliant Resources, Inc.    
  340,000   Sr. Sec. Nt.
9.50% due 7/15/2013		   B2/B     364,650  
  Sierra Pacific Resources    
  390,000   Sr. Nt.
8.625% due 3/15/2014		   B1/B     418,727  
  TECO Energy, Inc.    
  145,000   Sr. Nt.
6.75% due 5/1/2015		   Ba2/BB     151,525  
  840,000   Nt.
7.00% due 5/1/2012		   Ba2/BB     884,100  
           
        2,344,556  
     
  Energy — 5.6%  
  Allis-Chalmers Energy, Inc.    
  210,000   Sr.Nt.
9.00% due 1/15/2014		   B3/B–     211,050  
  Basic Energy Svcs., Inc.    
  170,000   Sr. Nt.
7.125% due 4/15/2016		   B1/B     167,450  
  Belden & Blake Corp.    
  170,000   Sr. Sec. Nt.
8.75% due 7/15/2012		   Caa2/CCC+     174,250  
  Chaparral Energy, Inc.    
  470,000   Sr. Nt.
8.50% due 12/1/2015		   B3/CCC+     467,650  
  Chesapeake Energy Corp.    
  228,000   Sr. Nt.
6.375% due 6/15/2015		   Ba2/BB     225,720  
  255,000   Sr. Nt.
7.625% due 7/15/2013		   Ba2/BB     268,706  
  Complete Production
Svcs., Inc.		    
  130,000   Sr. Nt.†
8.00% due 12/15/2016		   B2/B     133,250  
  Encore Acquisition Co.    
  450,000   Sr. Sub. Nt.
7.25% due 12/1/2017		   B1/B     435,375  
  Hanover Compressor Co.    
  85,000   Sr. Nt.
7.50% due 4/15/2013		   B2/B     85,850  
  Hilcorp Energy I LP    
  170,000   Sr. Nt.†
9.00% due 6/1/2016		   B3/B     179,775  
  OPTI Canada, Inc.    
  65,000   Sr. Sec. Nt.†
8.25% due 12/15/2014		   B1/BB     66,788  
  Pioneer Natural Resource Co.    
  510,000   Sr. Nt.
6.875% due 5/1/2018		   Ba1/BB+     493,117  
  Pride Int’l., Inc.    
  168,000   Sr. Nt.
7.375% due 7/15/2014		   Ba2/BB–     173,460  
  Western Oil Sands, Inc.    
  222,000   Sr. Sec. Nt.
8.375% due 5/1/2012		   Ba3/BBB–     246,420  
Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  Whiting Petroleum Corp.    
$ 300,000   Sr. Sub. Nt.
7.00% due 2/1/2014		   B1/B   $ 299,250  
           
        3,628,111  
     
  Environmental — 0.4%  
  Allied Waste NA, Inc.    
  250,000   Sr. Nt.
7.875% due 4/15/2013		   B2/BB–     257,812  
     
  Financial–Other — 0.3%  
  FTI Consulting, Inc.    
  75,000   Sr. Nt.†
7.75% due 10/1/2016		   Ba2/B+     77,812  
  NCO Group, Inc.    
  130,000   Sr. Sub. Nt.†
11.875% due 11/15/2014		   Caa1/B–     131,625  
           
        209,437  
     
  Food and Beverage — 3.0%  
  ASG Consolidated LLC    
  420,000   Sr. Disc. Nt. (2)
0/11.50% due 11/1/2011		   B3/B–     373,800  
  Constellation Brands, Inc.    
  510,000   Sr. Nt.
7.25% due 9/1/2016		   Ba2/BB     524,025  
  Del Monte Corp.    
  441,000   Sr. Sub. Nt.
6.75% due 2/15/2015		   B2/B     436,590  
  Michael Foods, Inc.    
  580,000   Sr. Sub. Nt.
8.00% due 11/15/2013		   B3/B–     601,750  
           
        1,936,165  
     
  Gaming — 5.7%  
  Boyd Gaming Corp.    
  510,000   Sr. Sub. Nt.
6.75% due 4/15/2014		   Ba3/B+     508,725  
  340,000   Sr. Sub. Nt.
7.125% due 2/1/2016		   Ba3/B+     338,300  
  Buffalo Thunder Dev. Auth.    
  110,000   Sr. Sec. Nt.†
9.375% due 12/15/2014		   B2/B     111,650  
  Harrahs Operating Co., Inc.    
  1,040,000   Nt.
6.50% due 6/1/2016		   Baa3/BB     931,164  
  MGM Mirage, Inc.    
  390,000   Sr. Nt.
7.625% due 1/15/2017		   Ba2/BB     390,975  
  Pokagon Gaming Authority    
  170,000   Sr. Nt.†
10.375% due 6/15/2014		   B3/B     186,150  
  Seneca Gaming Corp.    
  685,000   Sr. Nt.
7.25% due 5/1/2012		   Ba2/BB     696,987  
  Station Casinos    
  340,000   Sr. Sub. Nt.
6.875% due 3/1/2016		   Ba3/B     305,150  
  Turning Stone Resort Casino    
  170,000   Sr. Nt.†
9.125% due 9/15/2014		   Ba3/B+     173,825  
           
        3,642,926  
     

 

See notes to financial statements.

 

10     

Table of Contents

 

December 31, 2006

 

Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  Health Care — 7.7%  
  CDRV Investors, Inc.    
$ 260,000   Sr. Nt.† (1)
9.86% due 12/1/2011		   Caa1/CCC+   $ 253,500  
  Fisher Scientific Int’l., Inc.    
  2,100,000   Sr. Sub. Nt.
6.125% due 7/1/2015		   Baa3/BBB     2,076,077  
  Fresenius Medical Care    
  310,000   Capital Tr.
7.875% due 6/15/2011		   B1/B+     324,725  
  HCA, Inc.    
  340,000   Sr. Nt.
6.95% due 5/1/2012		   Caa1/B–     322,150  
  440,000   Sr. Sec. Nt.†
9.125% due 11/15/2014		   B2/BB–     470,250  
  440,000   Sr. Sec. Nt.†
9.25% due 11/15/2016		   B2/BB–     471,350  
  HealthSouth Corp.    
  340,000   Sr. Nt.†
10.75% due 6/15/2016		   Caa1/CCC+     365,925  
  IASIS Healthcare LLC    
  340,000   Sr. Sub. Nt.
8.75% due 6/15/2014		   B3/B–     344,250  
  Triad Hospitals, Inc.    
  340,000   Sr. Sub. Nt.
7.00% due 11/15/2013		   B2/B+     342,125  
           
        4,970,352  
     
  Home Construction — 0.6%  
  K. Hovnanian Enterprises, Inc.    
  340,000   Sr. Nt.
6.25% due 1/15/2016		   Ba1/BB     321,300  
  85,000   Sr. Nt.
8.625% due 1/15/2017		   Ba1/BB     90,525  
           
        411,825  
     
  Insurance — 0.5%  
  UnumProvident Finance Co.    
  300,000   Sr. Nt.†
6.85% due 11/15/2015		   Ba1/BB+     311,909  
     
  Lodging — 1.0%  
  Host Marriott LP    
  675,000   Sr. Nt. Ser. O
6.375% due 3/15/2015		   Ba1/BB     665,719  
     
  Media–Cable — 3.8%  
  Cablevision Systems Corp.    
  435,000   Sr. Nt.
8.00% due 4/15/2012		   B3/B+     427,387  
  Charter Comm. Hldgs. II    
  912,000   Sr. Nt.
10.25% due 9/15/2010		   Caa2/CCC–     954,180  
  Charter Comm.
Operating LLC		    
  278,000   Sr. Nt.†
8.00% due 4/30/2012		   B3/B–     288,773  
  CSC Hldgs., Inc.    
  315,000   Sr. Nt. Ser. B
7.625% due 4/1/2011		   B2/B+     320,906  
  Insight Comm., Inc.    
  368,000   Sr. Disc. Nt.
12.25% due 2/15/2011		   B3/CCC+     385,480  
Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  NTL Cable PLC    
$ 42,000   Sr. Nt.
9.125% due 8/15/2016		   B2/B–   $ 44,363  
           
        2,421,089  
     
  Media–NonCable — 5.4%  
  Block Comm., Inc.    
  340,000   Sr. Nt.†
8.25% due 12/15/2015		   B2/B–     339,150  
  CMP Susquehanna Corp.    
  170,000   Sr. Sub. Nt.†
9.875% due 5/15/2014		   B3/CCC     169,150  
  Dex Media East LLC    
  269,000   Sr. Sub. Nt.
12.125% due 11/15/2012		   B2/B     296,236  
  EchoStar DBS Corp.    
  530,000   Sr. Nt.
6.375% due 10/1/2011		   Ba3/BB–     526,687  
  Hughes Network Systems LLC/HNS Finance    
  85,000   Sr. Nt.
9.50% due 4/15/2014		   B1/B–     88,719  
  Idearc, Inc.    
  390,000   Sr. Nt.†
8.00% due 11/15/2016		   B2/B+     395,850  
  Intelsat Bermuda Ltd.    
  85,000   Sr. Nt.†
9.25% due 6/15/2016		   B2/B+     91,375  
  Mediacom Broadband LLC    
  150,000   Sr. Nt.†
8.50% due 10/15/2015		   B3/B     151,875  
  Panamsat Corp.    
  425,000   Sr. Nt.†
9.00% due 6/15/2016		   B2/B     449,969  
  R.H. Donnelley Corp.    
  119,000   Sr. Disc. Nt. Ser. A-1
6.875% due 1/15/2013		   B3/B     114,091  
  221,000   Sr. Disc. Nt. Ser. A-2
6.875% due 1/15/2013		   B3/B     211,884  
  R.H. Donnelley Fin. Corp I    
  285,000   Sr. Sub. Nt.
10.875% due 12/15/2012		   B2/B     310,650  
  Radio One, Inc.    
  340,000   Sr. Sub. Nt.
6.375% due 2/15/2013		   B1/B     317,900  
           
        3,463,536  
     
  Metals and Mining — 0.4%  
  Aleris Int’l., Inc.    
  260,000   Sr. Nt.†
9.00% due 12/15/2014		   B3/B–     261,300  
     
  Natural Gas–Distributors — 1.1%  
  Amerigas Partners LP    
  680,000   Sr. Nt.
7.125% due 5/20/2016		   B1/NR     680,000  
     
  Natural Gas–Pipelines — 5.4%  
  Atlas Pipeline Partners LP    
  170,000   Sr. Nt.
8.125% due 12/15/2015		   B2/B+     174,675  
  Colorado Interstate Gas Co.    
  600,000   Sr. Nt.
6.80% due 11/15/2015		   Ba1/B+     623,869  
  El Paso Natural Gas    
  255,000   Sr. Nt. Ser. A
7.625% due 8/1/2010		   Ba1/B+     266,475  

 

See notes to financial statements.

 

    11

Table of Contents
LOGO  

Schedule of Investments — RS High Yield Bond VIP Series (continued)

 

December 31, 2006

 

Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  El Paso Performance-Linked Tr.    
$ 170,000   Nt.†
7.75% due 7/15/2011		   B2/B+   $ 179,775  
  Kinder Morgan, Inc.    
  450,000   Sr. Nt.
6.50% due 9/1/2012		   Baa2/BBB     452,133  
  MarkWest Energy Partners LP    
  510,000   Sr. Nt.†
8.50% due 7/15/2016		   B2/B     530,400  
  SemGroup LP    
  600,000   Sr. Nt.†
8.75% due 11/15/2015		   B1/NR     603,000  
  Williams Cos., Inc.    
  510,000   Sr. Nt.
7.75% due 6/15/2031		   Ba2/BB–     535,500  
  Williams Partners LP    
  130,000   Nt.†
7.25% due 2/1/2017		   Ba3/BB–     132,600  
           
        3,498,427  
     
  Noncaptive Consumer — 0.4%  
  ACE Cash Express, Inc.    
  260,000   Sr. Nt.†
10.25% due 10/1/2014		   Caa1/B–     263,250  
     
  Packaging — 1.9%  
  Crown Americas    
  600,000   Sr. Nt.
7.75% due 11/15/2015		   B1/B     622,500  
  Owens-Brockway Glass Container    
  306,000   Sr. Sec. Nt.
7.75% due 5/15/2011		   Ba2/BB–     314,415  
  248,000   Sr. Sec. Nt.
8.875% due 2/15/2009		   Ba2/BB–     253,580  
           
        1,190,495  
     
  Paper and Forest Products — 4.9%  
  Abitibi-Consolidated, Inc.    
  585,000   Nt.
8.55% due 8/1/2010		   B2/B+     555,750  
  Bowater, Inc.    
  600,000   Nt.
6.50% due 6/15/2013		   B2/B+     547,500  
  Caraustar Inds., Inc.    
  510,000   Nt.
7.375% due 6/1/2009		   B3/B+     493,425  
  Graphic Packaging Int’l., Inc.    
  764,000   Sr. Sub. Nt.
9.50% due 8/15/2013		   B3/B-     806,020  
  Jefferson Smurfit Corp.    
  340,000   Sr. Nt.
7.50% due 6/1/2013		   B2/CCC+     319,600  
  Millar Western Forest    
  222,000   Sr. Nt.
7.75% due 11/15/2013		   B2/B–     199,245  
  Norske Skog Canada Ltd.    
  260,000   Sr. Nt. Ser. D
8.625% due 6/15/2011		   B2/B+     263,250  
           
        3,184,790  
     
Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  Retailers — 1.4%  
  Autonation, Inc.    
$ 85,000   Sr. Nt.
7.00% due 4/15/2014		   Ba2/BB+   $ 85,637  
  40,000   Sr. Nt. (1)
7.374% due 4/15/2013		   Ba2/BB+     40,200  
  Michaels Stores, Inc.    
  130,000   Sr. Nt.†
10.00% due 11/1/2014		   B2/CCC     135,200  
  260,000   Sr. Sub. Nt.†
11.375% due 11/1/2016		   Caa1/CCC     271,050  
  Rent-A-Center    
  320,000   Sr. Sub. Nt. Ser. B
7.50% due 5/1/2010		   B2/B+     320,800  
  Sally Hldgs. LLC    
  32,000   Sr. Nt.†
9.25% due 11/15/2014		   B2/CCC+     32,600  
           
        885,487  
     
  Services — 2.5%  
  Education Management LLC    
  425,000   Sr. Nt.†
8.75% due 6/1/2014		   B2/CCC+     439,875  
  340,000   Sr. Sub. Nt.†
10.25% due 6/1/2016		   Caa1/CCC+     359,550  
  TDS Investor Corp.    
  510,000   Sr. Nt.† (1)
9.994% due 9/1/2014		   Caa1/B–     497,250  
  West Corp.    
  260,000   Sr. Nt.†
9.50% due 10/15/2014		   Caa1/B–     260,000  
  65,000   Sr. Sub. Nt.†
11.00% due 10/15/2016		   Caa1/B–     65,650  
           
        1,622,325  
     
  Supermarkets — 0.8%  
  Delhaize America, Inc.    
  340,000   Debt.
9.00% due 4/15/2031		   Ba1/BB+     403,684  
  Supervalu, Inc.    
  130,000   Sr. Nt.
7.50% due 11/15/2014		   B1/B     135,551  
           
        539,235  
     
  Technology — 5.0%  
  Activant Solutions, Inc.    
  170,000   Sr. Sub. Nt.†
9.50% due 5/1/2016		   Caa1/CCC+     158,100  
  Freescale Semiconductor, Inc.    
  260,000   Sr. Nt.†
8.875% due 12/15/2014		   B1/B     259,025  
  130,000   Sr. Nt.†
9.125% due 12/15/2014		   B1/B     129,188  
  130,000   Sr. Nt.† (1)
9.244% due 12/15/2014		   B1/B     128,863  
  130,000   Sr. Sub. Nt.†
10.125% due 12/15/2016		   B2/B     130,162  
  Iron Mountain, Inc.    
  750,000   Sr. Sub. Nt.
8.625% due 4/1/2013		   B3/B     774,375  
  Nortel Networks Ltd.    
  170,000   Sr. Nt.† (1)
9.624% due 7/15/2011		   B3/B–     179,137  
  170,000   Sr. Nt.†
10.75% due 7/15/2016		   B3/B–     185,937  

 

See notes to financial statements.

 

12     

Table of Contents

 

December 31, 2006

 

Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  NXP BV/ NXP Funding LLC    
$ 100,000   Sr. Sec. Nt.†
7.875% due 10/15/2014		   Ba2/BB+   $ 103,375  
  100,000   Sr. Sec. Nt.† (1)
8.118% due 10/15/2013		   Ba2/BB+     101,500  
  430,000   Sr. Nt.†
9.50% due 10/15/2015		   B2/B+     440,750  
  Solectron Global Fin. Ltd.    
  170,000   Sr. Sub. Nt.
8.00% due 3/15/2016		   B3/B     172,125  
  SunGard Data Systems, Inc.    
  150,000   Sr. Nt.
9.125% due 8/15/2013		   Caa1/B–     157,500  
  260,000   Sr. Nt. (1)
9.973% due 8/15/2013		   Caa1/B–     270,075  
           
        3,190,112  
     
  Textile — 0.4%    
  Hanesbrands, Inc.    
  260,000   Sr. Nt.† (1)
8.735% due 12/15/2014		   B2/B–     264,550  
     
  Tobacco — 0.8%    
  Reynolds American, Inc.    
  510,000   Sr. Sec. Nt.
7.25% due 6/1/2013		   Ba3/BB     530,143  
     
  Transportation — 1.4%    
  Avis Budget Car Rental LLC    
  85,000   Sr. Nt.†
7.625% due 5/15/2014		   Ba3/BB–     82,875  
  255,000   Sr. Nt.†
7.75% due 5/15/2016		   Ba3/BB–     246,075  
  85,000   Sr. Nt.† (1)
7.874% due 5/15/2014		   Ba3/BB–     82,025  
  OMI Corp.    
  450,000   Sr. Nt.
7.625% due 12/1/2013		   B1/BB     460,125  
           
        871,100  
     
  Wireless Communications — 3.5%    
  Centennial Cell Comm. Corp.    
  215,000   Sr. Nt.
10.125% due 6/15/2013		   B2/CCC     231,663  
  Inmarsat Fin. PLC    
  222,000   Sr. Nt.
7.625% due 6/30/2012		   Ba3/B+     229,215  
  MetroPCS Wireless, Inc.    
  430,000   Sr. Nt.†
9.25% due 11/1/2014		   Caa2/CCC     449,350  
  Nextel Comm., Inc.    
  850,000   Sr. Nt. Ser. D
7.375% due 8/1/2015		   Baa3/BBB+     871,611  
  Rogers Wireless, Inc.    
  420,000   Sr. Sub. Nt.
8.00% due 12/15/2012		   B1/BB–     448,350  
           
        2,230,189  
     
  Wireline Communications — 4.2%    
  Citizens Comm. Co.    
  300,000   Sr. Nt.
9.25% due 5/15/2011		   Ba2/BB+     331,875  
  Nordic Telephone Co. Hldgs.    
  170,000   Sr. Nt.†
8.875% due 5/1/2016		   B2/B     181,900  
  Qwest Corp.    
  230,000   Sr. Nt.
7.50% due 10/1/2014		   Ba1/BB+     243,800  
  375,000   Sr. Nt.
7.625% due 6/15/2015		   Ba1/BB+     401,250  
  840,000   Sr. Nt.
7.875% due 9/1/2011		   Ba1/BB+     894,600  
Principal
Amount		        Rating
Moody’s/
S&P*		   Value  
     
  U.S. West Comm.    
$ 336,000   Debt.
8.875% due 6/1/2031		   Ba1/BB+   $ 350,280  
  Windstream Corp.    
  255,000   Sr. Nt.
8.625% due 8/1/2016		   Ba3/BB–     279,225  
           
        2,682,930  
     
 

Total Corporate Bonds
(Cost $60,118,484)

       61,727,339  
     
     
Shares          Value  
  Warrant — 0.0%   
  170   

XM Satellite Radio, Inc.

exp. 3/15/2010
(Cost $34,340)

    $ 1,020  
     
     
 
 		 Other Investments - For Trustee Deferred
Compensation Plan (3) — 0.0%		   
  2   

RS Emerging Growth Fund, Class A

    $ 75  
  4   

RS Global Natural Resources Fund, Class A

      111  
  3   

RS Growth Fund, Class A

      44  
  8   

RS Investors Fund, Class A

      96  
  2   

RS MidCap Opportunities Fund, Class A

      24  
  1   

RS Partners Fund, Class A

      36  
  2   

RS Smaller Company Growth Fund, Class A

      39  
  1   

RS Value Fund, Class A

      24  
     
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $449)

      449  
     
     
Principal
Amount		          Value  
  Repurchase Agreement — 2.6%  
$  1,683,000   

State Street Bank and Trust Co.

repurchase agreement,

dated 12/29/2006, maturity

value $1,683,954 at

5.10%, due 1/2/2007 (4)
(Cost $1,683,000)

    $ 1,683,000  
     
 
 		 Total Investments — 98.5%
(Cost $61,836,273)		      63,411,808  
 
 		 Cash, Receivables, and Other Assets
Less Liabilities — 1.5%		      946,060  
     
  Net Assets — 100%    $   64,357,868  
     

 

*   Unaudited.
†   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to certain qualified buyers. At 12/31/2006, the aggregate market value of these securities amounted to $14,465,368 representing 22.5% of net assets of which $14,344,618 have been deemed liquid pursuant to the Fund’s liquidity procedures approved by the Board of Trustees.
(1)   Floating rate note. The rate shown is the rate in effect at 12/31/2006.
(2)   Step-up bond.
(3)   Investments in designated RS Mutual Funds under a deferred compensation plan adopted October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(4)   The repurchase agreement is fully collateralized by $1,685,000 in U.S. Government Agency, 5.55%, due 10/4/2016, with a value of $1,718,700.

 

See notes to financial statements.

 

    13

Table of Contents
LOGO  

Financial Information — RS High Yield Bond VIP Series

 

LOGO  

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $61,836,273)

    $ 63,411,808  

Cash

      478  

Interest receivable

      1,048,512  

Receivable for fund shares sold

      36  

Prepaid insurance

      880  
        

Total Assets

      64,461,714  
        

LIABILITIES

   

Payable for fund shares redeemed

      49,153  

Accrued expenses

      21,465  

Deferred trustees’ compensation

      449  

Due to Adviser

      32,779  
        

Total Liabilities

      103,846  
        

Net Assets

    $ 64,357,868  
        

COMPONENTS OF NET ASSETS

   

Paid-in capital

    $ 68,036,406  

Undistributed net investment income

      11,948  

Accumulated net realized loss on investments

      (5,266,021 )

Net unrealized appreciation of investments

      1,575,535  
        

Net Assets

    $ 64,357,868  
        

Shares of beneficial interest outstanding with no
par value

      7,597,934  

Net Asset Value Per Share

      $8.47  
LOGO  

Statement of Operations

Year Ended December 31, 2006

  

INVESTMENT INCOME

   

Interest

    $ 5,015,691  
        

Expenses:

   

Investment advisory fees — Note B

      390,770  

Custodian fees

      62,089  

Printing expense

      18,847  

Audit fees

      13,047  

Trustees’ fees — Note B

      9,433  

Insurance expense

      4,076  

Legal fees

      2,777  

Loan commitment fees — Note H

      1,027  

Registration fees

      343  

Other

      505  
        

Total Expenses before Waivers and Custody credits

      502,914  

Less: Expenses waived by sub-adviser — Note B

      (3,896 )

Custody credits — Note A

      (1,384 )
        

Expenses Net of Waivers and Custody credits

      497,634  
        

Net Investment Income

      4,518,057  
        

REALIZED AND UNREALIZED GAIN/(LOSS)
ON INVESTMENTS

   

Net realized gain on investments — Note A

      385,786  

Net change in unrealized appreciation
of investments — Note C

      799,042  
        

Net Realized and Unrealized Gain
on Investments

      1,184,828  
        

NET INCREASE IN NET ASSETS
FROM OPERATIONS

    $ 5,702,885  
        

 

See notes to financial statements.

 

14     

Table of Contents

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 4,518,057        $ 4,014,966  

Net realized gain on investments

        385,786          894,500  

Net change in unrealized appreciation of investments

        799,042          (2,815,587 )
                     

Net Increase in Net Assets Resulting from Operations

        5,702,885          2,093,879  
                     

Dividends to Shareholders from:

          

Net investment income

        (4,517,672 )        (4,027,155 )
                     

From Capital Share Transactions:

          

Net increase/(decrease) in net assets from capital share transactions - Note G

        (717,455 )        2,483,833  
                     

Net Increase in Net Assets

        467,758          550,557  

NET ASSETS:

          

Beginning of year

        63,890,110          63,339,553  
                     

End of year*

      $ 64,357,868        $ 63,890,110  
                     

*  Includes undistributed net investment income of:

      $ 11,948        $ 11,563  

 

See notes to financial statements.

 

    15

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Financial Information — RS High Yield Bond VIP Series

 

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 dividends and distributions).

 

Financial Highlights

    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $8.33     $8.60     $8.43     $7.61     $8.13  
   

Net investment income

   0.61     0.55     0.58     0.53     0.63  

Net realized and
unrealized gain/(loss)

   0.14     (0.27 )   0.17     0.82     (0.53 )
   

Total from Investment Operations

   0.75     0.28     0.75     1.35     0.10  
   

Dividend to Shareholders from:

          

Net Investment Income

   (0.61 )   (0.55 )   (0.58 )   (0.53 )   (0.62 )
   

Net asset value, end of year

   $8.47     $8.33     $8.60     $8.43     $7.61  
   

Total Return*

   9.17 %   3.30 %   9.22 %   17.95 %   1.29 %
   

Net assets, end of year (thousands)

   $64,358     $63,890     $63,340     $54,424     $35,683  

Net ratio of expenses to
average net assets

   0.76 %(a)   0.80 %   0.79 %   0.81 %   0.87 %

Net ratio of net investment
income to average net assets

   6.94 %(a)   6.35 %   6.97 %   7.17 %   7.88 %

Portfolio turnover rate

   88 %   88 %   90 %   165 %   66 %
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.
(a)   Includes the effect of expenses waived by GIS

 

See notes to financial statements.

 

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Notes to Financial Statements — RS High Yield Bond VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS High Yield Bond VIP Series (the “Fund” or “HYBV”) is a series of the Trust. HYBV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian VC High Yield Bond Fund (“GVCHYBF”), a series (“Predecessor Fund”) of The Guardian Variable Contract Funds, Inc. was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of HYBV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Pursuant to valuation procedures approved by the Board of Trustees, certain debt securities may be valued each business day by an independent pricing service (“Service”). Debt securities for which quoted bid prices are readily available and representative of the bid side of the market, in the judgment of the Service, are valued at the bid price. Other debt securities that are valued by the Service are carried at fair value as determined by the Service, based on methods which include consideration of: yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions.

 

Other securities, including securities for which market quotations are not readily available (such as certain mortgage-backed securities, restricted securities, illiquid securities and foreign securities subject to a “significant event”) or for which market quotations are considered unreliable are valued at fair value as determined in accordance with the guidelines and procedures adopted by the Fund’s Board of Trustees. A “significant event” is an event that may affect the value of a portfolio security that occurs after the close of trading in the security’s primary trading market or exchange but before the Fund’s NAV is calculated.

 

Investing outside of the U.S. may involve certain considerations and risks not typically associated with domestic investments, including the possibility of political and economic unrest and different levels of governmental supervision and regulation of foreign securities markets.

 

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. These securities are generally more volatile and less liquid than investment grade debt. Lower quality debt securities can also be more sensitive to adverse economic conditions, including the issuer’s financial condition or stresses in its industry.

 

Futures contracts are valued at the settlement prices established by the boards of trade or exchanges on which they are traded.

 

Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Repurchase agreements are carried at cost which approximates market value (see Note D). Short-term debt securities with maturities of 60 days or less are valued on an amortized cost basis which approximates market value.

 

Investment transactions are recorded on the date of purchase or sale. Security gains or losses are determined on an identified cost basis. Interest income, including amortization/accretion of premium/discount, is accrued daily.

 

Futures Contracts

 

HYBV may enter into financial futures contracts for the delayed delivery of securities, currency or contracts based on financial indices at a fixed price on a future date. In entering into such contracts, HYBV is required to deposit

 

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Notes to Financial Statements — RS High Yield Bond VIP Series (continued)

 

December 31, 2006

 

either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by HYBV each day, depending on the daily fluctuations in the value of the underlying security, and are recorded for financial statement purposes as variation margins by HYBV. The daily changes in the variation margin are recognized as unrealized gains or losses by HYBV. Should interest or exchange rates, securities prices or prices of futures contracts move unexpectedly, HYBV may not achieve the anticipated benefits of the financial futures contracts and may realize a loss.

 

Dividend Distributions

 

Dividends from net investment income are declared and paid semi-annually for HYBV. Net realized short-term and long-term capital gains for HYBV will be distributed at least annually. All such dividends and distributions are credited in the form of additional shares of HYBV at the net asset value on the ex-dividend date.

 

All dividends and distributions are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

    Ordinary
Income
2006   $ 4,517,672
2005     4,027,155

 

As of December 31, 2006, the components of accumulated losses on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Capital Loss
Carryforward		     Unrealized
Appreciation
$ 12,397   $ (5,241,208 )   $ 1,550,720

 

Taxes

 

HYBV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:

 

    Capital Loss
Carryforward		     Expiration
Date
  $ (2,355,192 )   2009
    (2,886,016 )   2010
         
Total   $ (5,241,208 )  
         

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital gains, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gains for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

Custody Credits

 

HYBV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, HYBV’s custodian fees were reduced by $1,384. HYBV could have employed the uninvested assets to produce income if HYBV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and
     Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.60% of the average daily net assets of the Fund.

 

GIS serves as the sub-adviser for HYBV. Pursuant to a Sub-Advisory, Sub-Administration and Accounting Services Agreement, GIS provides sub-advisory, administrative

 

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and accounting services to HYBV, subject to the general oversight of RS Investments and the Board of Trustees of the Trust. As compensation for its services, RS Investments pays GIS at an annual rate of 0.57% of the average daily net assets of HYBV. Payment of the sub-investment advisory fees does not represent a separate or additional expense to HYBV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with reverse repurchase agreements and securities lending) that exceeds 0.76% of the average daily net assets of HYBV. GIS subsidized 0.01% of the ordinary operating expenses of HYBV or $3,896 for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Investment Transactions

 

Purchases and proceeds from sales of securities (excluding short-term securities) amounted to $54,552,625 and $53,863,415, respectively, during the year ended December 31, 2006.

 

The gross unrealized appreciation and depreciation of investments, on a tax basis, at December 31, 2006 aggregated $1,851,493 and $300,773, respectively, resulting in net unrealized appreciation of $1,550,720. The cost of investments owned at December 31, 2006 for federal income tax purposes was $61,861,088.

 

Note D.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, HYBV will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults, HYBV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

Note E.   Reverse Repurchase Agreements

 

HYBV may enter into reverse repurchase agreements with banks or third party broker-dealers to borrow short-term funds. Interest on the value of reverse repurchase agreements issued and outstanding is based upon competitive market rates at the time of issuance. At the time HYBV enters into a reverse repurchase agreement, HYBV segregates on its books cash, U.S. government securities or liquid, unencumbered securities that are marked-to-market daily. The value of such segregated assets must be at least equal to the value of the repurchase obligation (principal plus accrued interest), as applicable. Reverse repurchase agreements involve the risk that the buyer of the securities sold by HYBV may be unable to deliver the securities when HYBV seeks to repurchase them. Reverse repurchase agreements may increase fluctuations in HYBV’s net asset value and may be viewed as a form of leverage.

 

Note F.   Dollar Roll Transactions

 

HYBV may enter into dollar rolls (principally using TBA’s) in which HYBV sells mortgage securities for delivery in the current month and simultaneously contracts to repurchase similar securities at an agreed-upon price on a fixed date. The securities repurchased will bear the same interest as those sold, but generally will be collateralized at the time of delivery by different pools of mortgages with different prepayment histories than those securities sold. During the period between the sale and repurchase, the Fund will not be entitled to receive interest and principal payments on the securities sold. Dollar roll transactions involve the risk that the buyer of the securities sold by HYBV may be unable to deliver the replacement securities when it is required to do so. HYBV is compensated by the difference between the current sales price and the forward price for the future purchase (often referred to as the “drop”), as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls may increase fluctuations in HYBV’s net asset value and may be viewed as a form of leverage.

 

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Notes to Financial Statements — RS High Yield Bond VIP Series (continued)

 

December 31, 2006

 

Note G.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for HYBV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      958,102        987,276        $ 8,115,873        $ 8,446,844  

Shares issued in reinvestment of dividends

      540,016        481,999          4,517,672          4,027,155  

Shares repurchased

      (1,569,739 )      (1,168,801 )        (13,351,000 )        (9,990,166 )
   

Net increase/(decrease)

      (71,621 )      300,474        $ (717,455 )      $ 2,483,833  
   

 

Note H.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note I.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note J.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note K.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

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Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS High Yield Bond VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS High Yield Bond VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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Supplemental Information — Unaudited

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian VC High Yield Bond Fund (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Variable Contract Funds, Inc. on behalf of the Predecessor Fund, and RS Variable Products Trust, on behalf of RS High Yield Bond VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
7,348,517.800   178,707.856   404,769.724   7,931,995.380

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at improved rates and because enhanced distribution

 

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Supplemental Information — Unaudited (continued)

 

capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

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Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

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Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

    27

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LOGO  

Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

28     

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LOGO  

RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

 
    29
RS HIGH YIELD BOND VIP SERIES   29

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LOGO  

RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

 
30    RS HIGH YIELD BOND VIP SERIES

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LOGO

 

06   ANNUAL REPORT

RS Variable Products Trust

 

RS Cash Management VIP Series

12.31.06
As Revised 4.06.07		   LOGO

Table of Contents
LOGO  

Table of Contents

 

RS Cash Management VIP Series   
Portfolio Manager Biography    3
Letter from Portfolio Manager    3
Fund Performance    5
Understanding Your Fund’s Expenses    6
Financial Information   
Schedule of Investments    7
Statement of Assets and Liabilities    9
Statement of Operations    9
Statements of Changes in Net Assets    10
Financial Highlights    11
Notes to Financial Statements    12
Report of Independent Registered Public Accounting Firm    15
Supplemental Information    16
Administration    22
RS Investments’ Senior Management Biographies    23

Except as otherwise specifically stated, all information and portfolio manager commentary, including portfolio security positions, is as of December 31, 2006. 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.

Table of Contents
LOGO  

RS Cash Management VIP Series

 

LOGO     

Alexander M. Grant (Guardian Investor Services)

has managed RS Cash Management VIP Series since 1986 (includes time managing The Guardian Cash Fund). Mr. Grant has been managing director of Guardian Life since 1999 and has managed Guardian Life’s tax-exempt assets since 1993. He holds a B.A. in English from State University of New York at Buffalo.

 

 

Fund Philosophy

RS Cash Management VIP Series seeks as high a level of current income as is consistent with liquidity and preservation of capital by investing in money market instruments denominated in U.S. dollars.

 

Investment Process

The Fund primarily selects investments that present minimal credit risks, in accordance with guidelines established by the Board of Trustees. The Fund selects investments that have remaining maturities of 397 days or less, or which have a rate of interest that is readjusted at least once every 397 days.

 

Performance

As of December 31, 2006, the effective 7-day net annualized yield for the RS Cash Management VIP Series was 4.81%. The Fund produced a total annual return for 2006 of 4.52%. In contrast, the effective 7-day annualized yield of Tier One money market funds as measured by iMoneyNet, Inc. was 4.54%; total return for 2006 for the same category was 4.30%. iMoneyNet, Inc. (formerly IBC Financial Data, Inc.) is a research firm that tracks money market funds.

 

Portfolio Review

Money market funds are directly affected by the actions of the Federal Reserve Board and at the beginning of 2006 the Fed Funds target rate stood at 4.25%. The Fed Funds target rate is the rate at which banks can borrow from each other overnight. While the Federal Reserve Board 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. The Discount Rate is the rate at which banks can borrow directly from the Federal Reserve. Throughout the year money market issuers altered their rate offerings in response to monetary policy and stock market expectations.

 

The first Federal Open Markets Committee (FOMC) meeting of the year saw the rate increase by 0.25%. More significantly it was also the last meeting chaired by Alan Greenspan. Mr. Greenspan had led the FOMC since August 1987 and his tenure helped secure the inflation fighting credentials of the Federal Reserve. Ben Bernanke assumed the chairmanship and at his first meeting in March, the FOMC again raised rates by 0.25% to 4.75%. The FOMC noted, “Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace…Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add inflation pressures.”1

 

By June 2006, the Fed Funds rate had risen to 5.25% and the Fed Funds rate remained at this level for the rest of 2006. When the Fed began its rate hiking policy in June 2004, the portfolio strategy for the Fund was to stay slightly short of our peer group’s weighted average maturity (WAM). This provided a strong 7-day yield in the fund while allowing us to take advantage of 17 successive hikes as the Fed Funds target rose from 1.00% to 5.25%. By the end of the second quarter, economic growth had moderated from the stronger pace earlier in the year. This was a result of the cooling

 

1

FOMC Statement March 28, 2006.

 

RS CASH MANAGEMENT VIP SERIES   3

Table of Contents
LOGO  

RS Cash Management VIP Series (continued)

 

of the housing market and the lagged effects of increases in interest rates and energy.

 

When it became clear that the Fed Funds rate was likely to remain at 5.25%, the Fund’s strategy was re-evaluated. A barbell strategy was deployed to seek to maintain the strong 7-day yield. The bulk of the Fund’s maturities were invested in the shorter end (0-3 months). The fund also picked up longer dated issues, which had the advantage of higher yields for a longer period of time. In addition, the Fund looked for floating rate issues (which re-set weekly or against one or three-month London Interbank Offered Rate (LIBOR)), which would deliver a longer retention of yield spread.

 

The Fund held across a range of instruments. These included commercial paper, floating rate taxable municipal bonds, repurchase agreements, certificates of deposit, short maturity corporate bonds, and U.S. government agencies. The breakdown of each category held at the end of 2006 is shown on the sector chart on the following page.

 

Another factor affecting performance was the portfolio’s average maturity of 38 days as of December 31, 2006. The average Tier One money market fund as measured by iMoneyNet had an average maturity of 42 days.

 

As 2006 ended, the FOMC noted that while economic growth had cooled during the year, going forward it was expected to expand at a moderate pace. However, the committee also noted that inflation risks remained and, “…inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand. The extent and

timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information”2.

 

Outlook

Currently, the Fund is still pursuing the barbell strategy. Although various indicators at the beginning of 2007 (the inversion of the yield curve, the Fed Funds and Eurodollar Synthetic forward rates) highlighted the expectation that rates would soon be cut, we believe that the Fed Funds rate will continue to remain at 5.25% through the first half of 2007. This view and investment strategy will of course be dependent on the inflation outlook, economic growth, the housing market and consumer spending.

 

Thank you for your continued support.

 

LOGO

 

Alexander M. Grant, Jr.

Portfolio Manager

 

2

FOMC Statement December 12, 2006.

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 December 31, 2006.

 

Shares of the Funds are not deposits or obligations of, or guaranteed or endorsed by, any bank or depositary institution, nor are they insured by the Federal Deposit Insurance Corp. (FDIC), the National Credit Union Association (NCUA), the Federal Reserve Board or any other agency. Although the Fund seeks to preserve the value of an investment at $10.00 per share, it is possible to lose money by investing in the Fund.

 

4    RS CASH MANAGEMENT VIP SERIES

Table of Contents

 

Assets Under Management: $220,269,860

 

LOGO  

Sector Allocation

LOGO

Data as of December 31, 2006

 

LOGO  

Portfolio Statistics

Average Maturity (days)      38
Yields       

Effective 7-Day Yield

      4.81%

Current 7-Day Yield

      4.70%

 

LOGO  

Performance Update

As of 12/31/06

   
    

Inception

Date

  

1-Year

Total
Return

  

3-Year

Annualized
Return

  

5-Year

Annualized
Return

  

10-Year

Annualized
Return

  

Annualized Return

Since Fund Inception

  

RS Cash Management VIP Series

   12/29/1981   4.52%   2.68%   1.98%   3.44%   5.41%  

Lehman Brothers 3 Month T-Bill Index1

       4.87%   3.07%   2.42%   3.84%   5.65%  

 

The Series is the successor to The Guardian Cash Fund, a mutual fund with substantially similar investment objective, strategies, and policies (the “Predecessor Series”). The performance of the Series provided in the chart above includes that of the Predecessor Series prior to October 9, 2006. All performance data quoted is historical and the results represent past performance and neither guarantee nor predict future investment results. Please keep in mind that any high double-digit returns are highly unusual and cannot be sustained. To obtain performance data current to the most recent month (available within 7 business days of the most recent month end), please call us at 800-221-3253 or visit our website at www.guardianinvestor.com. Current performance may be higher or lower than the performance quoted here. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost.

 

Total return figures are historical and assume the reinvestment of dividends and distributions and the deduction of all Fund expenses. 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. The return figures shown do not reflect the deduction of taxes that a contractowner may pay on distributions or redemption units.

 

1

The Lehman Brothers 3 month. T-Bill Index is generally considered to be representative of the average yield of three-month Treasury Bills. Unlike the Fund, the Index does not incur fees or expenses.

 

RS CASH MANAGEMENT VIP SERIES   5

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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. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these cost with the ongoing costs of investing in other underlying funds.

 

The examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated. The table below shows the Fund’s expenses in two ways:

 

Expenses based on actual return

This section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” for your Fund to estimate the expenses you paid on your account during this period.

 

Expenses based on hypothetical 5% return for comparison purposes

This section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund with the cost of investing in other underlying 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

07/01/06

   

Ending
Account Value

12/31/06

   

Expenses Paid
During Period*

07/01/06-12/31/06

   

Expense Ratio
During Period*

07/01/06-12/31/06

Based on Actual Return

    $1,000.00    $1,024.00    $3.01    0.59%

Based on Hypothetical Return (5% return before expenses)

    $1,000.00    $1,022.23    $3.01    0.59%

 

* Expenses are equal to the Fund’s annualized expense ratio as indicated, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

 

6    RS CASH MANAGEMENT VIP SERIES

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Schedule of Investments — RS Cash Management VIP Series

 

December 31, 2006

 

Principal
Amount		          Value  
     
  Corporate Bonds — 14.2%   
  Capital Markets — 4.6%   
$ 5,000,000   

J.P. Morgan Chase
6.875% due 1/15/2007

    $ 5,002,962  
  5,000,000   

Morgan Stanley
5.80% due 4/1/2007

      5,004,031  
           
        10,006,993  
     
  Conglomerates — 2.4%   
  

General Electric Capital Corp.

   
  1,320,000   

3.45% due 7/16/2007

      1,307,092  
  4,007,000   

5.00% due 2/15/2007

      4,005,762  
           
        5,312,854  
     
  Financial — 0.6%   
  1,250,000   

Lehman Brothers Hldgs., Inc.
8.25% due 6/15/2007

      1,265,365  
     
  Financial–Banks — 5.4%   
  5,000,000   

Bank of America Corp.
5.309% due 8/1/2007 (1)

      5,000,000  
  6,918,000   

Washington Mutual, Inc.
5.625% due 1/15/2007

      6,918,157  
           
        11,918,157  
     
  Food and Staples Retailing — 1.2%   
  2,725,000   

Wal-Mart Stores, Inc.
4.375% due 7/12/2007

      2,711,929  
     
  

Total Corporate Bonds
(Cost $31,215,298)

      31,215,298  
     
     
  Certificate of Deposit — 2.3%   
$ 5,000,000   

HSBC Bank
5.24% due 1/12/2007
(Cost $4,991,994)

    $ 4,991,994  
     
     
  U.S. Government Securities — 4.5%   
  U.S. Government Agency Securities — 4.5%   
$ 5,000,000   

FHLB
5.00% due 2/9/2007

    $ 5,000,000  
  5,000,000   

FHLMC
5.36% due 11/27/2007

      5,000,000  
     
  

Total U.S. Government Securities
(Cost $10,000,000)

      10,000,000  
     
     
  Commercial Paper — 56.5%   
  ASSET BACKED — 6.8%   
$ 5,000,000   

Barton Capital LLC
5.25% due 1/17/2007 (2)

    $ 4,988,333  
  5,000,000   

Govco, Inc.
5.27% due 1/16/2007 (2)

      4,989,021  
  5,000,000   

Surrey Funding Corp.
5.24% due 1/30/2007 (2)

      4,978,895  
     
  

TOTAL ASSET BACKED

      14,956,249  
     
  FINANCIAL — 17.8%   
  Finance Companies — 1.8%   
$ 3,950,000   

Private Export Funding Corp.
5.22% due 4/5/2007

    $ 3,896,161  
     
Principal
Amount		          Value  
     
  Financial–Banks — 9.2%   
$ 5,000,000   

Barclays U.S. Fdg. LLC
5.25% due 3/28/2007

    $ 4,937,292  
  5,000,000   

BNP Paribas Finance, Inc.
5.228% due 1/2/2007

      4,999,274  
  5,000,000   

Dresdner U.S. Fin., Inc.
5.23% due 1/17/2007

      4,988,378  
  

Societe Generale NA

   
  250,000   

5.25% due 3/5/2007

      247,703  
  200,000   

5.25% due 4/12/2007

      197,054  
  5,000,000   

UBS Finance LLC
5.22% due 1/11/2007

      4,992,750  
           
        20,362,451  
     
  Financial–Other — 6.8%   
  5,000,000   

American General Fin. Corp.
5.26% due 1/16/2007

      4,989,042  
  5,000,000   

Bear Stearns Co., Inc.
5.22% due 1/19/2007

      4,986,950  
  5,000,000   

Countrywide Fin. Corp.
5.28% due 1/19/2007

      4,986,800  
           
        14,962,792  
     
  

TOTAL FINANCIAL

      39,221,404  
     
  INDUSTRIAL — 31.9%   
  Automotive — 4.5%   
$ 5,000,000   

American Honda Fin. Corp.
5.22% due 2/5/2007

    $ 4,974,625  
  5,000,000   

Toyota Motor Credit Corp.
5.22% due 2/14/2007

      4,968,100  
           
        9,942,725  
     
  Computers and Peripherals — 4.1%   
  5,000,000   

Hewlett Packard Co.
5.25% due 2/8/2007 (2)

      4,972,292  
  4,000,000   

IBM Corp.
5.23% due 2/15/2007 (2)

      3,973,850  
           
        8,946,142  
     
  Electronics and Instruments — 2.3%   
  5,000,000   

Sharp Electronics Corp.
5.25% due 1/22/2007

      4,984,687  
     
  Energy Equipment and Services — 2.2%   
  5,000,000   

Schlumberger Technology Corp.
5.24% due 2/20/2007 (2)

      4,963,611  
     
  Food and Beverage — 4.5%   
  5,000,000   

Coca-Cola Enterprises, Inc.
5.22% due 1/26/2007

      4,981,875  
  5,000,000   

Nestle Fin. France S.A.
5.225% due 1/17/2007

      4,988,389  
           
        9,970,264  
     
  Food and Staples Retailing — 2.3%   
  5,000,000   

Sysco Corp.
5.22% due 1/5/2007 (2)

      4,997,100  
     
  Industrial–Other — 5.2%   
  5,000,000   

Air Products & Chemicals
5.26% due 1/16/2007

      4,989,042  
  6,500,000   

American Transmission
5.26% due 1/2/2007 (2)

      6,499,050  
           
        11,488,092  
     

 

See notes to financial statements.

 

    7

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Schedule of Investments — RS Cash Management VIP Series (continued)

 

December 31, 2006

 

Principal
Amount		          Value  
     
  Pharmaceuticals — 4.5%   
$ 5,000,000   

Alcon Capital Corp.
5.22% due 1/12/2007

    $ 4,992,025  
  5,000,000   

Novartis Fin. Corp.
5.30% due 1/3/2007 (2)

      4,998,528  
           
        9,990,553  
     
  Utilities–Electric and Water — 2.3%   
  5,000,000   

Southern Co.
5.25% due 1/29/2007

      4,979,583  
     
  

TOTAL INDUSTRIAL

      70,262,757  
     
  

Total Commercial Paper
(Cost $124,440,410)

      124,440,410  
     
     
  Taxable Municipal Securities — 21.9%  
  California — 1.9%   
$ 2,195,000   

California Housing Fin. Agency
5.38% due 1/3/2007 (1)

    $ 2,195,000  
  2,000,000   

Sacramento Cnty., CA
5.38% due 1/3/2007 (1)

      2,000,000  
           
        4,195,000  
     
  Colorado — 3.9%   
  8,520,000   

Colorado Housing & Fin. Auth.
5.38% due 1/3/2007 (1)

      8,520,000  
     
  Connecticut — 1.1%   
  2,500,000   

Connecticut St. Housing & Fin. Auth.
5.35% due 1/4/2007 (1)

      2,500,000  
     
  Michigan — 1.6%   
  3,450,000   

Michigan St. Housing Dev. Auth.
5.38% due 1/3/2007 (1)

      3,450,000  
     
  New York — 9.8%   
  11,940,000   

New York City Trans.
5.38% due 1/3/2007 (1)

      11,940,000  
  4,650,000   

New York St. Dormitory Auth. Rev.
5.37% due 1/4/2007 (1)

      4,650,000  
  5,000,000   

Port Auth. of New York & New Jersey
5.50% due 8/15/2007

      5,001,424  
           
        21,591,424  
     
  Utah — 3.6%   
  1,655,000   

Utah Housing Corp. Single Family
Ser. D-2 Cl. I 5.38% due 1/3/2007 (1)

      1,655,000  
  2,405,000   

Utah Housing Corp. Single Family
Ser. E-2 Cl. I
5.38% due 1/3/2007 (1)

      2,405,000  
  2,190,000   

Utah St. Housing Fin. Agency
Ser. F-3 Cl. I
5.38% due 1/3/2007 (1)

      2,190,000  
  1,675,000   

Utah St. Housing Fin. Agency
Ser. G-3 Cl. I
5.38% due 1/3/2007 (1)

      1,675,000  
           
        7,925,000  
     
  

Total Taxable Municipal Securities (Cost $48,181,424)

      48,181,424  
     
    
Shares		          Value  
     
 
 		 Other Investments - For Trustee Deferred
Compensation Plan (3) — 0.0%		  
 
  7   

RS Emerging Growth Fund, Class A

    $ 265  
  13   

RS Global Natural Resources Fund, Class A

      388  
  10   

RS Growth Fund, Class A

      155  
  29   

RS Investors Fund, Class A

      337  
  6   

RS MidCap Opportunities Fund, Class A

      85  
  4   

RS Partners Fund, Class A

      126  
  6   

RS Smaller Company Growth Fund, Class A

      136  
  3   

RS Value Fund, Class A

      85  
     
  

Total Other Investments - For Trustee Deferred Compensation Plan
(Cost $1,577)

      1,577  
     
     
Principal
Amount		          Value  
  Repurchase Agreement — 0.2%  
$ 579,000   

State Street Bank and Trust Co.

repurchase agreement,

dated 12/29/06, maturity

value $579,328 at

5.10%, due 1/2/07 (4)
(Cost $579,000)

    $ 579,000  
     
 
 		 Total Investments — 99.6%
(Cost $219,409,703)		      219,409,703  
 
 		 Cash, Receivables, and Other Assets
Less Liabilities — 0.4%		      860,157  
     
  Net Assets — 100%    $ 220,269,860   
     

 

(1)   Floating rate note. The rate shown is the rate in effect at 12/31/2006. The due date shown is the next reset date.
(2)   Securities exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to certain qualified buyers. At 12/31/2006, the aggregate market value of these securities amounted to $45,360,680 representing 20.6% of net assets which have been deemed liquid 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 October 9, 2006, for disinterested Trustees. See Note B in Notes to Financial Statements.
(4)   The repurchase agreement is fully collateralized by $580,000 in U.S. Government Agency, 5.55%, due 10/4/2016, with a value of $591,600.

 

See notes to financial statements.

 

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                                    [GRAPHIC]
 

Financial Information — RS Cash Management VIP Series

 

LOGO 
                                    [GRAPHIC]
 

Statement of Assets and Liabilities

December 31, 2006

ASSETS

   

Investments, at market (cost $219,409,703)

    $ 219,409,703

Interest receivable

      1,383,381

Receivable for fund shares sold

      167,887

Prepaid insurance

      2,987
      

Total Assets

      220,963,958
      

LIABILITIES

   

Payable for fund shares redeemed

      552,488

Accrued expenses

      46,176

Deferred trustees’ compensation

      1,577

Due to custodian

      680

Due to Adviser

      93,177
      

Total Liabilities

      694,098
      

Net Assets

    $ 220,269,860
      

COMPONENTS OF NET ASSETS

   

Paid-in capital

    $ 220,269,860
      

Net Assets

    $ 220,269,860
      

Shares of beneficial interest outstanding with no par value

      22,026,986

Net Asset Value Per Share

      $10.00
LOGO  

Statement of Operations

Year Ended December 31, 2006

INVESTMENT INCOME

   

Interest

    $ 11,257,506  
        

Expenses:

   

Investment advisory fees — Note B

      1,117,385  

Custodian fees

      74,922  

Printing expense

      38,670  

Trustees’ fees — Note B

      31,989  

Audit fees

      29,718  

Insurance expense

      15,581  

Legal fees

      8,992  

Registration fees

      2,020  

Loan commitment fees — Note E

      226  

Other

      892  
        

Total Expenses before Custody credits

      1,320,395  

Less: Custody credits — Note A

      (658 )
        

Expenses Net of Custody credits

      1,319,737  
        

NET INVESTMENT INCOME, REPRESENTING NET INCREASE IN NET ASSETS FROM OPERATIONS

    $ 9,937,769  
        

 

See notes to financial statements.

 

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Financial Information — RS Cash Management VIP Series (continued)

 

LOGO  

Statements of Changes in Net Assets

Year Ended December 31,

       2006        2005  

INCREASE/(DECREASE) IN NET ASSETS

          

From Operations:

          

Net investment income

      $ 9,937,769        $ 6,866,066  
                     

Dividends to Shareholders from:

          

Net investment income

        (9,937,769 )        (6,866,066 )
                     

From Capital Share Transactions:

          

Net increase/(decrease) in net assets from capital share transactions — Note D

        2,758,812          (78,289,137 )
                     

Net Increase/(Decrease) in Net Assets

        2,758,812          (78,289,137 )

NET ASSETS:

          

Beginning of year

        217,511,048          295,800,185  
                     

End of year

      $ 220,269,860        $ 217,511,048  
                     

 

See notes to financial statements.

 

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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) or an investment in the Fund (assuming reinvestment of all dividends and distributions).

 

 

Financial Highlights

    Year Ended
12/31/06		     Year Ended
12/31/05		     Year Ended
12/31/04		     Year Ended
12/31/03		     Year Ended
12/31/02		  

Net asset value,
beginning of year

   $10.00     $10.00     $10.00     $10.00     $10.00  
   

Net investment income

   0.44     0.27     0.08     0.07     0.12  

Net realized and
unrealized gain/(loss)

   —     —     —     —     —  
   

Total from Investment Operations

   0.44     0.27     0.08     0.07     0.12  
   

Dividends to Shareholders from:

   (0.44 )   (0.27 )   (0.08 )   (0.07 )   (0.12 )

Net Investment Income

          
   

Net asset value, end of year

   $10.00     $10.00     $10.00     $10.00     $10.00  
   

Total Return*

   4.52 %   2.69 %   0.85 %   0.66 %   1.25 %
   

Net assets, end of year (thousands)

   $220,270     $217,511     $295,800     $356,271     $492,713  

Net ratio of expenses to average net assets

   0.59 %   0.58 %   0.57 %   0.56 %   0.55 %

Net ratio of net investment income to average net assets

   4.45 %   2.60 %   0.84 %   0.67 %   1.24 %

Portfolio turnover rate

   N/A     N/A     N/A     N/A     N/A  
   

 

*   Total returns do not reflect the effects of charges deducted pursuant to the terms of GIAC’s variable contracts.
     Inclusion of such charges would reduce the total returns for all periods shown.

 

See notes to financial statements.

 

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Notes to Financial Statements — RS Cash Management VIP Series

 

December 31, 2006

 

Note A.   Organization and Accounting Policies

 

RS Variable Products Trust (the “Trust”), a Massachusetts business trust, was organized on May 18, 2006. The Trust currently offers twelve series. RS Cash Management VIP Series (the “Fund” or “CMV”) is a series of the Trust. CMV is a diversified fund. The financial statements for the other remaining series of the Trust are presented in separate reports.

 

The Guardian Cash Fund, Inc. (“GCF”) (“Predecessor Fund”) was reorganized into the Fund, effective October 9, 2006, pursuant to an Agreement and Plan of Reorganization (“Agreement and Plan”) dated August 15, 2006.

 

Class I shares of CMV are only sold to certain separate accounts of The Guardian Insurance & Annuity Company, Inc. (“GIAC”). GIAC is a wholly-owned subsidiary of The Guardian Life Insurance Company of America (“GLICOA”). The Fund is available for investment only through the purchase of certain variable annuity and variable life insurance contracts issued by GIAC.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income, gains (losses) and expenses during the reporting period. Actual results could differ from those estimates.

 

Significant accounting policies of the Fund are as follows:

 

Investments

 

Repurchase agreements are carried at cost which approximates market value (see Note C). CMV values its investments based on amortized cost in accordance with Rule 2a-7 under the 1940 Act.

 

Investments in an underlying fund are valued at the closing net asset value of the underlying fund on the day of valuation.

 

Investment transactions are recorded on the date of purchase or sale. Interest income, including amortization/accretion of premium/discount, is accrued daily.

 

Dividend Distributions

 

Dividends from net investment income, which includes any net realized capital gains or losses, are declared and accrued daily and paid monthly on the last business day of each month. All dividends and distributions are credited in the form of additional shares of CMV.

 

Distributions are determined in conformity with federal income tax regulations. Differences between the recognition of income on an income tax basis and recognition of income based on GAAP may cause temporary overdistributions of net realized gains and net investment income on a GAAP basis.

 

The tax character of dividends paid to shareholders during the years ended December 31, 2006 and 2005 were as follows:

 

    Ordinary
Income
2006   $ 9,937,769
2005     6,866,066

 

As of December 31, 2006, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
Ordinary
Income		   Capital Loss
Carryforward		  
$ 12,724   $ (11,147 )

 

Taxes

 

CMV intends to remain qualified to be taxed as a “regulated investment company” under the provisions of the U.S. Internal Revenue Code (“Code”), and as such will not be subject to federal income tax on taxable income (including any realized capital gains) which is distributed in accordance with the provisions of the Code. Therefore, no federal income tax provision is required.

 

As of December 31, 2006, for federal income tax purposes, the Fund had capital losses carryforward as follows:

 

    Capital Loss
Carryforward		     Expiration
Date
  $ (7,909 )   2011
    (3,238 )   2012
         
Total   $ (11,147 )  
         

 

Reclassification of Capital Accounts

 

The treatment for financial statement purposes of distributions made during the year from net investment income and net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences primarily are caused by differences in the timing of the recognition of certain components of income or capital

 

12     

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gains. Where such differences are permanent in nature, they are reclassified in the components of net assets based on their ultimate characterization for federal income tax purposes. Any such reclassifications would have no effect on net assets, results of operations, or net asset value per share of the Fund.

 

Custody Credits

 

CMV has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund’s expenses. During the period, under this arrangement, CMV’s custodian fees were reduced by $658. CMV could have employed the uninvested assets to produce income if CMV had not entered into such arrangement.

 

Note B.   Investment Advisory Agreements and Payments to or from Related Parties

 

The Fund has an investment advisory agreement with RS Investment Management Co. LLC (“RS Investments”), an independent subsidiary of Guardian Investor Services LLC (“GIS”), whereby RS Investments serves as adviser and administrator to the Fund. GIS, a wholly-owned subsidiary of GLICOA, acquired a majority interest in RS Investments on August 31, 2006. Fees for investment advisory services are at an annual rate of 0.50% of CMV’s average daily net assets for the first $500 million and at an annual rate of 0.45% of CMV’s average daily net assets in excess of $500 million.

 

GIS serves as the sub-adviser for CMV. Pursuant to a Sub-Advisory, Sub-Administration and Accounting Services Agreement, GIS provides sub-advisory, administrative and accounting services to CMV, subject to the general oversight of RS Investments and the Board of Trustees of the Trust. As compensation for its services, RS Investments pays GIS at an annual rate of 0.475% of the average daily net assets of CMV. Payment of the sub-investment advisory fees does not represent a separate or additional expense to CMV.

 

An expense limitation with respect to the Fund’s total annual operating expenses is imposed through December 31, 2009 to limit the Fund’s total annual operating expenses in future periods to the annual rate of total annual operating expenses that was applicable to shares of the Predecessor Fund as of September 30, 2006. GIS assumes a portion of the ordinary operating expenses (excluding interest expense associated with securities lending) that exceeds 0.59% of the average daily net assets of CMV. No subsidy of the ordinary operating expenses of CMV was required for the year ended December 31, 2006.

 

The Fund has adopted a Deferred Compensation Plan (the “Plan”) whereby a disinterested Trustee may elect to defer receipt of all, or a portion, of his annual compensation. The amount of a 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. A Fund may cover its deferred compensation obligation to a Trustee by investing in one or more of such designated Funds. Each Fund’s liability for deferred compensation to a Trustee is adjusted periodically to reflect the investment performance of the Funds designated by the Trustee. Deferred amounts remain in a Fund until distributed in accordance with the Plan. Trustees’ fees in the accompanying financial statements include the current fees, either paid in cash or deferred, and the net increase or decrease in the value of the deferred amounts.

 

Note C.   Repurchase Agreements

 

The collateral for repurchase agreements is either cash or fully negotiable U.S. government securities. Repurchase agreements are fully collateralized (including the interest earned thereon) and such collateral is marked-to-market daily while the agreements remain in force. If the value of the collateral falls below the value of the repurchase price plus accrued interest, CMV will 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, CMV maintains the right to sell the collateral and may claim any resulting loss against the seller. At December 31, 2006, all repurchase agreements held by the Fund had been entered into on December 29, 2006.

 

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Notes to Financial Statements — RS Cash Management VIP Series (continued)

 

December 31, 2006

 

Note D.   Shares of Beneficial Interest

 

There is an unlimited number of shares of beneficial interest authorized for CMV Class I. Transactions in shares of beneficial interest were as follows:

 

       Year Ended December 31,        Year Ended December 31,  
        2006        2005        2006        2005  
        Shares        Amount  

Shares sold

      16,340,865        13,825,996        $ 163,408,649        $ 138,259,958  

Shares issued in reinvestment of dividends

      993,777        686,607          9,937,769          6,866,066  

Shares repurchased

      (17,058,761 )      (22,341,516 )        (170,587,606 )        (223,415,161 )
   

Net increase/(decrease)

      275,881        (7,828,913 )      $ 2,758,812        $ (78,289,137 )
   

 

 

Note E.   Temporary Borrowings

 

The Fund, with other funds managed by the same adviser, share in a $75 million committed revolving credit/overdraft protection facility from PNC Bank for temporary purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. Interest is calculated based on the market rates at the time of borrowing. Each Fund may borrow up to the lesser of one-third of its total assets (including amounts borrowed) or any lower limit defined in the Fund’s Statement of Additional Information or the Prospectus.

 

Note F.   Indemnifications

 

Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Fund enters into contracts with its vendors and others that provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund. However, based on experience, the Fund expects the risk of loss to be remote.

 

Note G.   Sales Transaction

 

On August 31, 2006, GIS, a wholly owned subsidiary of GLICOA, acquired approximately 65% of the ownership interest in RS Investments. The Fund entered into a new investment advisory agreement with RS Investments as of that date. GIS’ acquisition of that interest in RS Investments did not result in any change in the personnel engaged in the management of the Fund or in the investment objective or policies of the Fund. RS Investments’ continued service as the investment adviser to the Fund after the acquisition was approved by the Fund’s Board of Trustees and the shareholders of the Fund.

 

All fees and expenses, including accounting expenses, legal expenses, proxy expenses, additional trustee fees and expenses or other similar expenses incurred in connection with the completion of the transaction, were paid by RS Investments and GIS.

 

Note H.   New Accounting Pronouncements

 

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return. FIN 48 provides guidance on the measurement, recognition, classification and disclosure of tax positions, along with accounting for the related interest and penalties. FIN 48 is effective within the first required financial statement reporting period (semi annual reporting) for fiscal years beginning after December 15, 2006, and is to be applied to all open tax years as of the date of effectiveness. The Fund is currently evaluating the impact, if any, of applying the various provisions of FIN 48.

 

In September 2006, FASB issued FASB Statement No. 157, “Fair Value Measurement” (“SFAS 157”), which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Fund believes the adoption of SFAS 157 will have no material impact on its financial statements.

 

14     

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LOGO  

Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of RS Cash Management VIP Series

 

In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of RS Cash Management VIP Series (the “Fund”) at December 31, 2006, the results of its operations, changes in its net assets and the financial highlights for the year then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The statement of changes in net assets for the year ended December 31, 2005 and the financial highlights for each of the periods presented through December 31, 2005 were audited by other auditors whose report dated February 8, 2006 expressed an unqualified opinion on those statements and financial highlights.

 

PricewaterhouseCoopers LLP

San Francisco, California

February 8, 2007

 

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LOGO  

Supplemental Information — Unaudited

 

 

 

Meeting of Shareholders On September 28, 2006, a special meeting of shareholders was held for The Guardian Cash Fund, Inc. (“Predecessor Fund”). Voting results are shown below. At the meeting, shareholders of the Predecessor Fund approved an Agreement and Plan of Reorganization (the “Agreement and Plan”), dated August 15, 2006, between The Guardian Cash Fund, Inc. and RS Variable Products Trust, on behalf of RS Cash Management VIP Series.

 

Proposal To Approve the Agreement and Plan:

 

For   Against   Abstain   Total
22,782,893.284   1,176,410.954   2,803,241.010   26,762,545.248

 

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Supplemental Information — Unaudited

 

Approval of Investment Advisory Agreements for Series of RS Variable Products Trust

The Board of Trustees of RS Variable Products Trust (the “Trust”), including all of the Trustees who are not interested persons of the Trust or of RS Investments (the “disinterested Trustees”), met in person on April 30, May 3, May 12, and May 24, 2006, to consider approval of an Investment Advisory Agreement between the Funds and RS Investments; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Investor Services LLC (“GIS”) with respect to RS Asset Allocation VIP Series, RS S&P 500 Index VIP Series, RS Investment Quality Bond VIP Series, RS Low Duration Bond VIP Series, RS High Yield Bond VIP Series, and RS Cash Management VIP Series; a Sub-Advisory Contract between RS Investments and UBS Global Asset Management (Americas) Inc. (“UBS”) with respect to RS Large Cap Value VIP Series; a Sub-Advisory, Sub-Administration and Accounting Services Agreement between RS Investments and Guardian Baillie Gifford Limited (“GBG”) with respect to RS International Growth VIP Series and RS Emerging Markets VIP Series; and a Sub-Sub-Investment Advisory Agreement between GBG and Baillie Gifford Overseas Limited (“BGO”) with respect to RS International Growth VIP Series and RS Emerging Markets Growth VIP Series (collectively, the “Advisory Agreements”). In all of their deliberations, the disinterested Trustees were advised by their independent counsel, with whom they had additional separate discussions on a number of occasions. In addition, the disinterested Trustees were assisted in their review by third-party consultants, whom the disinterested Trustees retained for purposes of assisting them in their consideration of the Advisory Agreements.

 

Each of the Funds was newly formed in connection with the proposed reorganization of each of the Guardian-sponsored mutual funds (the “predecessor funds”) into a corresponding Fund advised by RS Investments and, with respect to a number of the Funds, sub-advised, or sub-sub-advised, by GIS, UBS, GBG or BGO. In the course of their deliberations, the Trustees met with representatives of RS Investments and of GIS, who discussed with the Trustees the capabilities of both firms, and what they saw as the complementary capabilities of the two firms in the areas of investment management and distribution/promotion of mutual fund shares. Representatives of the disinterested Trustees also met with representatives of UBS and BGO. The Trustees considered that it was anticipated that portfolio management personnel of each of the predecessor funds except The Guardian UBS VC Small Cap Value Fund (the predecessor fund to RS Partners VIP Series) would continue as the portfolio management personnel of the Funds, and that the portfolio management personnel of RS Investments’ Value Group would assume the portfolio management responsibility for RS Partners VIP Series.

 

The Trustees considered the fees proposed to be charged by RS Investments to the Funds, and, if applicable, by the sub-advisers to RS Investments or by BGO to GBG under the Advisory Agreements. The Trustees noted that the fees to be charged to the Funds under the Advisory Agreements were in all cases at least as favorable to the Funds as the fees charged to their predecessor funds. RS Investments furnished information to the Trustees compiled by the third-party consultants based on information from the independent Lipper and Morningstar organizations showing a comparison of RS Investments’ fee rate for each Fund compared to peer mutual funds having similar objectives, strategies, and asset sizes as selected by the third-party consultants. The Trustees also reviewed information from that compilation showing total expenses for the Funds in comparison to the peer funds.

 

RS Investments stated that each of the Funds would be subject to an expense limitation until December 31, 2009, that would be the same as the expense limitation of the relevant predecessor fund or determined based upon the predecessor fund’s expense ratio as of September 30, 2006. In addition, the Trustees recognized that it was possible the Funds over time could experience reduced expenses both because RS Investments and GIS, as a combined firm, may be in a position to purchase services from third parties for their clients at

 

    17

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Supplemental Information — Unaudited (continued)

 

improved rates and because enhanced distribution capabilities resulting from the combination may result in increases in the sizes of the Funds and possible reduced expenses through economies of scale.

 

The Trustees noted that, because the Funds would be new Funds and because of the upcoming consolidation of the RS and GIS fund families, it would be appropriate to consider in greater detail in the future whether and to what extent economies of scale might be realized as the Funds grow and whether a reduction in the advisory fees paid by the Funds by means of breakpoints might be appropriate.

 

The Trustees reviewed performance information for each of the predecessor funds for various periods. That review included an examination of comparisons of the performance of the predecessor funds to relevant securities indexes and various peer groups of mutual funds using data from the independent Lipper and Morningstar organizations with respect to various periods, and relative rankings of the predecessor funds compared to peer funds during various periods. The Trustees considered the performance of each predecessor fund over the life of the fund and in recent periods, while also considering its applicable investment objective and strategy and its overall expense ratio. The Trustees noted that the performance information presented to the Trustees showed that most of the predecessor funds were above the median performance among their peers for the three- and five-year periods, which the Trustees believed to be most relevant, but that certain funds had less favorable relative performance for other periods. The Trustees also noted that several funds had acceptable, if relatively high, total expense levels. In light of the fact that the Funds were being formed in connection with the broader transaction involving GIS’s proposed acquisition of a majority interest in RS Investments, the Trustees determined to approve the Advisory Agreements for a one-year period (rather than the two-year period allowed under the Investment Company Act of 1940, as amended) in order to give themselves the opportunity to formally reconsider the Funds’ performance and expenses after having observed the Funds and the GIS organization during the Funds’ initial year of operation.

 

The Trustees considered the nature, extent, and quality of the services to be provided by RS Investments and the sub-advisers. In this regard, the Trustees took into account the experience of the proposed portfolio management teams and the resources available to them generally. After considering all of the information described above, the Trustees unanimously voted to approve the Advisory Agreements, including the advisory fees proposed in connection with that approval, for the one-year period commencing upon the Funds’ commencement of operations.

 

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LOGO  

Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal

Occupations

During Past 5 Years

   

No. of Portfolios

in Fund Complex
Overseen by

Trustee

    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers               
Terry R.
Otton†
52 years old		    Trustee; President and Principal Executive Officer    Trustee since December 2006; President and Principal Executive Officer since September 2005; Co-President and Co-Principal Executive Officer, November 2004-September 2005; Treasurer and Principal Financial and Accounting Officer, May 2004- September 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.    35    Trustee, RS Investment Trust

Dennis J. Manning††

60 years old

    Trustee    Since August 2006    President and CEO, The Guardian Life Insurance Company of America, an insurance company (“Guardian Life”); Chairman, RS Investments (since August 2006).    35    Trustee, RS Investment Trust
Benjamin L. Douglas†
40 years old		    Vice President, Secretary and Chief Legal Officer    Vice President and Secretary since February 2004; Chief Legal Officer since August 2004    General Counsel, RS Investments; formerly Vice President and Senior Counsel, Charles Schwab Investment Management Inc., an investment management firm.    N/A    N/A
James E. Klescewski†
51 years old		    Treasurer and Principal Financial and Accounting Officer    Since September 2006    CFO, RS Investments; formerly CFO, JCM Partners, LLC; formerly, CFO, Private Wealth Partners, LLC; formerly CFO, Fremont Investment Advisors, Inc.; formerly, CFO, Montgomery Asset Management, LLC, (all firms listed above are investment management firms.)    N/A    N/A

 

    19

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LOGO  

Supplemental Information — Unaudited (continued)

 

LOGO  

Trustees and Officers Information Table

   
Name, Address*
and Age		    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		   

Principal
Occupations

During Past 5 Years

    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Interested Trustees and Principal Officers (continued)          
John J. Sanders, Jr.†
61 years old		    Senior Vice President, Chief Compliance Officer, and Anti-Money Laundering Compliance Officer    Senior Vice President since November 2004; Chief Compliance Officer since August 2004; Anti-Money Laundering Compliance Officer since May 2004    Chief Compliance Officer, RS Investments; formerly, Chief Compliance Officer and Co-COO, Husic Capital Management, an investment management firm.    N/A    N/A
Disinterested Trustees                    
Leonard B. Auerbach
60 years old		    Trustee; Chairman of the Board; Co-Chairman of the Board, August 2004- February 2006    Since June 1987    Chairman and CEO, L, B, A & C, Inc., a consulting firm; formerly Managing Director and CEO, AIG CentreCapital Group, Inc., a financial services firm.    35    Director, Luminent Mortgage Capital, Inc.; Trustee, RS Investment Trust
Judson
Bergman
50 years old		    Trustee    Since May 2006    Founder and CEO, Envestnet Asset Management, a provider of back- office solutions for financial advisors and the wealth management industry.    35    Trustee, RS Investment Trust
Jerome S.
Contro
50 years old		    Trustee; Co-Chairman of the Board, August 2004- February 2006    Since June 2001    Partner, Tango Group, a private investment firm.    35    Director, Janus Capital Trust; Trustee, RS Investment Trust
John W.
Glynn, Jr.
66 years old		    Trustee    Since July 1997    President, Glynn Capital Management, an investment management firm.    35    Trustee, RS Investment Trust

 

 

20     

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LOGO  

Trustees and Officers Information Table

   

Name, Address*

and Age

    Position(s) Held
with Trust		    Term of Office** and
Length of Time Served		    Principal
Occupations
During Past 5 Years		    No. of Portfolios
in Fund Complex
Overseen by
Trustee		    Other Directorships
Held by Trustee
Disinterested Trustees (continued)               
Anne M.
Goggin
58 years old		    Trustee    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.    35    Trustee, RS Investment Trust
John P.
Rohal,
59 years old		    Trustee    Since December 2006    Private investor; formerly Chairman of EGM Capital, LLC, an investment management firm.    35    Trustee, RS Investment Trust

 

  * Unless otherwise indicated, the business address of the persons listed is c/o RS Investments, 388 Market Street, Suite 1700, San Francisco, CA 94111.

 

** Under the Trust’s Amended and Restated Agreement and Declaration of Trust, a Trustee serves until his successor is elected or qualified, or until he sooner dies, resigns, is removed, or becomes disqualified. Under the Trust’s Bylaws, 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.

 

  †

“Interested persons” as defined by the 1940 Act by virtue of their positions with RS Investments.

 

††

Mr. Manning is an “interested person” under the 1940 Act by virtue of his position with Guardian Life, the indirect parent of GIS, 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.

 

  The Statement of Additional Information relating to the Funds includes additional information about Trustees and is available, without charge, upon request, by writing to the Funds, calling 1-800-221-3253, or on our Web site at http://www.guardianinvestor.com.

 

The Funds file their 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 Funds’ Form N-Q is available on the Securities and Exchange Commission’s Web site at http://www.sec.gov. The Funds’ Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC, and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. This information is also available, without charge, upon request, by calling toll-free 1-800-221-3253.

 

A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities, and information regarding how the Funds voted proxies relating to portfolio securities during the 12-month period ended June 30, 2006, are available (i) without charge, upon request, by calling toll-free 1-800-221-3253; and (ii) on the Securities and Exchange Commission’s Web site at http://www.sec.gov.

 

    21

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LOGO  

Administration

 

Officers and Trustees

 

Terry R. Otton

Trustee, President, and Principal Executive Officer

 

Leonard B. Auerbach

Trustee and Chairman

Chairman and CEO, L, B, A & C, Inc.

 

Judson Bergman

Trustee

Founder and CEO, Envestnet Asset Management

 

Jerome S. Contro

Trustee

Partner, Tango Group

 

John W. Glynn, Jr.

Trustee

President, Glynn Capital Management

 

Anne M. Goggin

Trustee

Attorney at Law

 

Dennis J. Manning

Trustee

President and Chief Executive Officer, The Guardian Life Insurance Company of America

 

John P. Rohal

Trustee

 

Benjamin L. Douglas

Secretary, Chief Legal Officer, and Vice President

 

James E. Klescewski

Treasurer and Principal Financial and Accounting Officer

 

John J. Sanders, Jr.

Chief Compliance Officer and Senior Vice President

 

 

Investment Adviser

 

RS Investment Management Co. LLC

388 Market Street, San Francisco, CA 94111

 

Distributor

 

Guardian Investor Services LLC

7 Hanover Square, New York, NY 10004

 

Custodian, Transfer Agent and Disbursing Agent

 

State Street Bank and Trust Company

North Quincy, MA

 

Independent Registered Public Accounting Firm

 

PricewaterhouseCoopers LLP

San Francisco, CA

 

Legal Counsel

 

Ropes & Gray LLP

Boston, MA

 

22     

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LOGO  

RS Investments’ Senior Management Biographies

 

LOGO     

Terry R. Otton

is chief executive officer of RS Investments. He joined RS Investments in 2004 as co-chief executive officer, chief operating officer, and chief financial officer. He has more than 22 years of experience in the investment management industry, having previously served since 2001 as a managing director of the mergers-and-acquisitions practice at Putnam Lovell NBF Group, Inc., an investment banking firm focused on the investment management industry. Previously, Mr. Otton spent more than 10 years as the CFO of Robertson, Stephens & Company and Robertson Stephens Investment Management, the predecessor of RS Investments. He was one of the original principals who established RS’s mutual fund business in 1986, and he served as its CFO until it became an independent, employee-owned firm in 1999. Mr. Otton holds a B.S. in business administration from the University of California at Berkeley and is a Certified Public Accountant.

LOGO     

James E. Klescewski

joined RS Investments in 2006 as chief financial officer. He has three decades of financial and accounting experience, including similar positions at Montgomery Asset Management, LLC, Fremont Investment Advisors, Inc., and Siebel Capital Management, Inc. Jim holds an M.B.A., along with a B.S. in accounting, from the California State University at Hayward, and is a Certified Public Accountant.

 

RS CASH MANAGEMENT VIP SERIES   23

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LOGO  

RS Investments’ Senior Management Biographies (continued)

 

LOGO     

Benjamin L. Douglas

joined RS Investments in 2003 as general counsel after nearly a decade specializing in investment management law. He joined the firm from Charles Schwab Investment Management, where he served as vice president and senior counsel. Previously, he was an associate at Shartsis, Friese & Ginsburg LLP, a leading law firm in the investment management industry. Mr. Douglas holds a J.D. and an M.P.P., along with a B.A. in history, from the University of California at Berkeley.

LOGO     

John J. Sanders, Jr.

joined RS Investments in 2004 as chief compliance officer. He has more than 35 years of operations and compliance experience. Prior to joining RS, Mr. Sanders was the director of compliance and the co-COO for Husic Capital Management in San Francisco, beginning in April 2000. Prior to that, he was the equity compliance director at Fleet Robertson Stephens. Mr. Sanders began his career in the securities industry with Kidder, Peabody & Co. in New York. In 1976, he moved to San Francisco and joined Robertson, Colman, Siebel and Weisel (which became Robertson Stephens in 1983) as the director of compliance and operations. He also serves as chief compliance officer and senior vice president of RS Investment Trust, reporting directly to the Fund’s Board of Trustees.

 

24    RS CASH MANAGEMENT VIP SERIES

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Item 2. Code of Ethics.

 

The registrant, as of the end of the period covered by this report, has adopted a code of ethics, as defined in this Item 2, that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

 

Item 3. Audit Committee Financial Expert.

 

The Registrant’s board of trustees has determined that each of Leonard B. Auerbach, Judson Bergman, Jerome S. Contro and John W. Glynn is an audit committee financial expert serving on its audit committee. Each of those individuals is “independent,” as defined by this Item 3.

 

Item 4. Principal Accountant Fees and Services.

 

(a)-(d)

 

Fees for services rendered to the Registrant by its principal accountant

 

Fiscal Year Ended

    Audit Fees *    Audit-Related Fees    Tax Fees *    All Other Fees*

December 31, 2005

    $ 240,960    $ —      $ 68,768    $ —  

December 31, 2006

    $ 255,950    $ —      $ 54,360    $ —  
* Fees are exclusive of out of pocket expenses.

 

Fees for services rendered by the Registrant’s principal accountant to the Registrant’s investment adviser (not including sub-advisers whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant if the engagement related directly to the operations and financial reporting of the Registrant.

 

Fiscal Year Ended

    Audit Fees    Tax Fees *    All Other Fees *

December 31, 2005

    $ —      $ —      $ —  

December 31, 2006

    $ —      $ —      $ —  
* Fees are exclusive of out of pocket expenses.

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Audit-Related Fees represent fees billed in the Registrant’s last two fiscal years for services traditionally performed by the Registrant’s auditor, including accounting consultation for proposed transactions or concerning financial accounting and reporting standards and other audit or attest services not required by statute or regulation.

 

Tax Fees represent fees billed in the Registrant’s last two fiscal years for tax compliance, tax planning and tax advice services. Tax planning and tax advice services include assistance with tax audits, employee benefit plans and requests for rulings or technical advice from taxing authorities.

 

All Other Fees represent fees billed in the Registrant’s last two fiscal years for services relating to examination of investment management controls.

 

  (e)(1)    The Registrant’s Audit Committee pre-approves at least annually audit and non-audit services that are required to be pre-approved under paragraph (c)(7) of Rule 2-01 of Regulation S-X. In addition, the chairman of the Audit Committee is authorized to pre-approve a proposed engagement that arises between meetings of the Audit Committee and that needs to commence prior to the next meeting of the Audit Committee. That approval is reported to the Audit Committee at its next meeting.
  (e)(2)    None, or 0% of services relating to the Audit-Related Fees, Tax Fees and All Other Fees disclosed above were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
       (f)    Not applicable.
       (g)    The aggregate non-audit fees billed by the Registrant’s accountant for services rendered to the Registrant, and rendered to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the Registrant for each of the last two fiscal years of the Registrant are $- for 2005 and $1,539,532 for 2006. For the period ended December 31, 2006, fees include fees billed by the Registrant’s accountant to Guardian Investor Services LLC which acquired a majority ownership interest in RS Investments, the Registrant’s investment adviser, on August 1, 2006.
       (h)    The Registrant’s audit committee of the board of directors has considered whether the provision of non-audit services that were rendered to the Registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.

 

Item 5. Audit Committee of Listed registrants.

 

Not applicable.

 

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Item 6. Schedule of Investments.

 

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.

 

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

 

Not applicable.

 

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

 

Not applicable.

 

Item 10. Submission of Matters to a Vote of Security Holders.

 

There have been no material changes to the procedures by which the shareholders may recommend nominees to the registrant’s board of directors, where those changes were implemented after the registrant last provided disclosure in response to the requirements of this item.

 

Item 11. Controls and Procedures.

 

  (a) The Registrant’s principal executive officer and principal financial officer have concluded, as of a date within 90 days of the filing date of this report, based on their evaluation of 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))), 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, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)), that the design and operation of such procedures are effective 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.

 

  (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. Since the end of the period covered by this report and prior to the date of filing of this Form N-CSR/A, the Registrant has implemented certain additional internal controls with respect to the calculation and presentation of certain performance information, as reflected in the revised shareholder report filed as part of this Form N-CSR/A.

 

3

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Item 12. Exhibits.

 

(a)(1)

   Code of ethics that is the subject of disclosure required by Item 2 is attached hereto.

(a)(2)

   Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.

(a)(3)

   Not applicable.

(b)

   Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant)    RS Variable Products Trust   
By (Signature and Title)*   

/s/ Terry R. Otton

   
   Terry R. Otton, President   
   (principal executive officer)   

 

Date April 13, 2007

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

By (Signature and Title)*   

/s/ Terry R. Otton

   
   Terry R. Otton, President   
   (principal executive officer)   

 

Date April 13, 2007

 

By (Signature and Title)*   

/s/ James E. Klescewski

   
   James E. Klescewski, Treasurer   
   (principal financial officer)   

 

Date April 13, 2007

*

Print the name and title of each signing officer under his or her signature.