The RS Value Fund seeks to achieve long-term growth of capital and invests principally in small- and mid-cap companies as defined in our most current prospectus. The Fund invests using a value methodology combining balance sheet and cash flow analysis.
Investment Objective
Long-term capital appreciation.
Investment Strategy
The Fund invests principally in equity securities that RS Investments believes are undervalued, of companies with market capitalizations between $1.0 billion and 120% of the market capitalization of the largest company included in the Russell Midcap® Index on the last day of the most recent quarter (currently, approximately $50.2 billion, based on the size of the largest company on December 31, 2007). In evaluating investments for the Fund, RS Investments employs a return on capital analysis, combining balance sheet and cash flow analysis. The Fund typically invests most of its assets in securities of U.S. companies, but may also invest any portion of its assets in foreign securities.
Since its inception, the Fund frequently has held a substantial portion of its assets, at times equaling or exceeding 25%, in cash and cash equivalents. The Fund may, but will not necessarily, do so in the future.
Investment Process
In evaluating investments for the Fund, RS Investments employs a value methodology, combining balance sheet and cash flow analysis. We typically perform fundamental analysis to identify companies that it believes are undervalued—including, for example, companies that have not yet been discovered or have not yet become popular, unpopular companies with potential for increases in value due to structural changes or due to changed circumstances, or previously popular companies that are out of favor due to short-term factors.
We may perform a number of analyses in evaluating a potential investment, including, for example:
• performing fundamental research focusing on business analysis;
• observing how management allocates capital;
• striving to understand the unit economics of the business of the company;
• studying the cash flow rate of return on capital employed;
• discerning the sources and uses of cash;
• considering how management is compensated;
• asking how the stock market is pricing the entire company.
Sell Discipline
Although RS Investments may consider the factors described above in purchasing or selling investments in the Fund, RS Investments may purchase, sell, or continue to hold an investment for the Fund whenever it believes doing so may benefit the Fund, or on the basis of any of the factors described above or any other factors it may in its discretion consider.
Risk Factors
Investing in small- and mid-size companies can involve risks such as having less publicly available information, higher volatility, and less liquidity than in the case of larger companies. Overweighting investments in certain sectors or industries increases the risk of loss due to general declines in the prices of stocks in those sectors or industries. Foreign securities are subject to political, regulatory, economic, and exchange-rate risks not present in domestic investments. The value of a debt security is affected by changes in interest rates and is subject to any credit risk of the issuer or guarantor of the security.
