|
| |
NOTES TO FINANCIAL STATEMENTS |
(continued) |
of an investment of the Fund’s assets by a sub-adviser in such Underlying Fund. For the six months ended June 30, 2010, the Adviser reduced management fees charged by $317 due to such sub-adviser investments. Certain officers and trustees of the Trust are officers, directors or stockholders of the Adviser and Van Eck Securities Corporation, the Distributor.
As of June 30, 2010, the Fund had five sub-advisers, Dix Hills Partners, LLC, Tetra Capital Management, LLC, Aristos Capital Management, LLC, Centaur Performance Group, LLC and Primary Funds, LLC. The Adviser directly paid sub-advisory fees to the sub-advisers at a rate of 1.00% of the portion of the average daily net assets of the Fund managed by each of the sub-advisers.
Note 4—Investments—For the period ended June 30, 2010, the cost of purchases and proceeds from sales of investments-other than U.S. government securities and short-term obligations aggregated $7,898,093 and $7,559,199, respectively. For the period ended June 30, 2010, proceeds of short sales and the cost of purchases of short sale covers aggregated $3,042,483 and $3,578,743, respectively.
Note 5—Income Taxes—For Federal income tax purposes, the identified cost of investments owned at June 30, 2010 was $7,885,953 and net unrealized depreciation aggregated $102,043 of which $154,183 related to appreciated securities and $256,226 related to depreciated securities.
No dividends or distributions have been paid so far this year. The tax character of dividends and distributions paid to shareholders were as follows:
| | | | | | |
| | Year Ended
December 31, 2009 | |
| | | |
| | | | | | |
Ordinary income | | | $ | 383,803 | | |
Long term capital gains | | | | — | | |
| | | | | | |
Total | | | $ | 383,803 | | |
| | | | | | |
The Fund recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by applicable tax authorities. Management has analyzed the Fund’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (tax years ended December 31, 2006-2009), or expected to be taken in the Fund’s current tax year. Therefore, no provision for income tax is required in the Fund’s financial statements.
Note 6—Concentration of Risk—The Fund may invest in debt securities which are rated as below investment grade by rating agencies. Such securities involve more risk of default than do higher rated securities and are subject to greater price variability.
At June 30, 2010, Van Eck Securities Corp. owns approximately 19% of the outstanding shares of beneficial interest Fund. Additionally, the aggregate shareholder accounts of three insurance companies own approximately 32%, 29% and 18% of the outstanding shares of beneficial interest of the Fund.
In the normal course of business, the Fund enters into contracts that contain a variety of general indemnifications. The Fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Adviser believes the risk of loss under these arrangements to be remote.
Note 7—Trustee Deferred Compensation Plan—The Trust has a Deferred Compensation Plan (the “Plan”) for Trustees under which the Trustees can elect to defer receipt of their trustee fees until retirement, disability or termination from the Board of Trustees. The fees otherwise payable to the participating Trustees are deemed invested in shares of the Van Eck Funds (another registered investment company managed by the Adviser) as directed by the Trustees.
The expense for the deferred compensation plan is included in “Trustees fees and expenses” in the Statement of Operations. The liability for the deferred compensation plan is shown as “Deferred Trustee fees” in the Statement of Assets and Liabilities.
Note 8—Custodian Fees—The Fund has entered into an expense offset agreement with its custodian wherein it receives credit toward the reduction of custodian fees whenever there are uninvested cash balances. For the period ended June 30, 2010, there were no offsets of custodial fees.
Note 9—Subsequent Event Review—The Fund has evaluated subsequent events and transactions for potential recognition or disclosure through the date the financial statements were issued and there were no material events requiring recording or disclosure.
25
|
VAN ECK VIP MULTI-MANAGER ALTERNATIVES FUND |
| |
APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS |
(unaudited) |
The Investment Company Act of 1940, as amended, provides, in substance, that each investment advisory agreement between a fund and its investment advisers will be entered into only if it is approved, and will continue in effect from year to year, after an initial two-year period, only if its continuance is approved at least annually, by the Board of Trustees (the “Board”), including by a vote of a majority of the Trustees who are not “interested persons” of the Fund (“Independent Trustees”), cast in person at a meeting called for the purpose of considering such approval.
Approval of Advisory and Sub-Advisory Agreements
In considering the renewal of the Fund’s existing investment advisory and sub-advisory agreements, the Board reviewed and considered information that had been provided by the Adviser and the Fund’s existing sub-advisers, which consist of the following: Aristos Capital Management, LLC (“Aristos”), Centaur Performance Group, LLC (“Centaur”) Dix Hills Partners (“Dix Hills”), Explorer Asset Management, LLC (“Explorer”), Lazard Asset Management LLC (“LAM”), Martingale Asset Management, L.P. (“Martingale”), PanAgora Asset Management LLC (“PanAgora”), Primary Funds LLC (“Primary”) and Tetra Capital Management LLC (“Tetra,” and, collectively with Aristos, Centaur, Dix Hills, Explorer, LAM, Martingale, PanAgora and Primary, the “Existing Sub-Advisers”). Such information had been provided throughout the year at regular Board meetings, as well as information requested by the Board and furnished by the Adviser and the Existing Sub-Advisers for the meetings of the Board held on June 10, 2010 and June 29 and 30, 2010 to specifically consider the renewal of the Fund’s investment advisory agreements. This information included, among other things, the following:
| |
n | Information about the overall organization of the Adviser and the Adviser’s short-term and long-term business plan with respect to its mutual fund operations; |
| |
n | The Adviser’s consolidated financial statements for the past three fiscal years; |
| |
n | A description of the advisory and sub-advisory agreements with the Fund, their terms and the services provided thereunder; |
| |
n | Information regarding each Existing Sub-Adviser’s organization, personnel, investment strategies and key compliance procedures; |
| |
n | Information concerning the Adviser’s compliance program, the resources devoted to compliance efforts undertaken by the Adviser and its affiliates on behalf of the Fund, and reports regarding a variety of compliance-related issues; |
| |
n | An independently prepared report comparing the management fees and non-investment management expenses of the Fund during its fiscal year ended December 31, 2009 with those of (i) the universe of funds with similar investment strategies, offered in connection with variable insurance products (the “Expense Universe”) and (ii) a sub-group of the Expense Universe consisting of funds of comparable size and with comparable fee and expense structures (the “Expense Group”); |
| |
n | An independently prepared report comparing the Fund’s annualized investment performance for the one- through five-year periods ended December 31, 2009 with those of (i) the universe of funds with similar investment strategies, offered in connection with variable insurance products (the “Performance Universe”) and (ii) a sub-group of the Performance Universe consisting of funds of comparable size and with comparable fee and expense structures; |
| |
n | Additional comparative information prepared by the Adviser concerning the performance and fees and expenses of the Fund and of relevant peer funds with a management structure and investment strategies and techniques comparable to those of the Fund; |
| |
n | Information regarding the performance results of the Fund’s sub-advisers in managing their respective portions of the Fund’s assets; |
| |
n | An analysis of the profitability of the Adviser with respect to the services it provides to the Fund and the Van Eck complex of mutual funds as a whole; |
| |
n | Information with respect to the brokerage practices of the Adviser and each Existing Sub-Adviser, including the benefits received from research acquired with soft dollars, if any; and |
| |
n | Other information provided by the Adviser and each Existing Sub-Adviser in response to a comprehensive questionnaire prepared by independent legal counsel on behalf of the Independent Trustees. |
In considering whether to approve the investment advisory and sub-advisory agreements, the Board evaluated the following factors: (1) the quality, nature, cost and character of the investment management services provided by the
26
Existing Sub-Advisers; (2) the capabilities and background of the Existing Sub-Advisers’ investment personnel, and the overall capabilities, experience, resources and strengths of each Existing Sub-Adviser and its affiliates in managing investment companies and other accounts utilizing similar investment strategies; (3) the quality, nature, cost and character of the administrative and other services provided by the Adviser and its affiliates, including its services in overseeing the services provided by each Existing Sub-Adviser; (4) the quality, nature and extent of the services performed by the Adviser in interfacing with, and monitoring the services performed by, third parties, such as the Fund’s custodian, transfer agent, sub-accounting agent and independent auditors, and the Adviser’s commitment and efforts to review the quality and pricing of third party service providers to the Fund with a view to reducing non-management expenses of the Fund; (5) the terms of the advisory and sub-advisory agreements and the reasonableness and appropriateness of the particular fee paid by the Fund for the services described therein; (6) the profits, if any, realized by the Adviser from managing the Fund, in light of the services rendered and the costs associated with providing such services; (7) the Adviser’s willingness to reduce the cost of the Fund to shareholders from time to time by means of waiving a portion of its management fees or paying expenses of the Fund or by reducing fees from time to time; (8) the services, procedures and processes used to determine the value of Fund assets, and the actions taken to monitor and test the effectiveness of such services, procedures and processes; (9) the ongoing efforts of, and resources devoted by, the Adviser with respect to the development of a comprehensive compliance program and written compliance policies and procedures, and the implementation of recommendations of independent consultants with respect to a variety of compliance issues; (10) the responsiveness of the Adviser and its affiliated companies to inquiries from, and examinations by, regulatory agencies such as the Securities and Exchange Commission; (11) the Adviser’s record of compliance with its policies and procedures; and (12) the ability of the Adviser and each Existing Sub-Adviser to attract and retain quality professional personnel to perform a variety of investment advisory and administrative services for the Fund.
The Board considered the fact that the Adviser is managing other investment products and vehicles, including exchange-traded funds, hedge funds and separate accounts. The Board concluded that the management of these products contributes to the Adviser’s financial stability and is helpful to the Adviser in attracting and retaining quality portfolio management personnel for the Fund. In addition, the Board concluded that the Adviser has established appropriate procedures to monitor conflicts of interest involving the management of the Fund and the other products and for resolving any such conflicts of interest in a fair and equitable manner.
In evaluating the investment performance of the Fund, the Board noted that the Fund had outperformed, on an annualized basis, its Performance Universe average for the two- through four-year periods ended December 31, 2009. The Board concluded that the performance of the Fund is satisfactory. When considering the fees and expenses of the Fund, the Board noted that, during 2009, the total expense ratio, net of waivers, for the Fund was higher than the expense ratios for its Expense Group. The Board also noted that there are very few other mutual funds that pursue similar investment objectives utilizing alternative investment strategies in a multi-manager structure, and that the Adviser has agreed to waive or to reimburse expenses through April 2011 to the extent necessary to maintain an agreed upon expense ratio. The Board concluded that the management fee charged to the Fund for advisory, sub-advisory and related services and the total expense ratio of the Fund are reasonable.
The Board noted that the Fund commenced its operations on May 1, 2003, and that the Adviser has not realized any profits with respect to the Fund since its commencement, and may not realize profits in the coming year. In view of the small asset size of the Fund and the fact that none of the Existing Sub-Advisers is affiliated with the Adviser, the Board concluded that the profitability of the Existing Sub-Advisers was not a relevant factor in its renewal deliberations regarding the Existing Sub-Advisers. Similarly, the Board concluded that the Fund does not have sufficient assets for the Adviser or any Existing or New Sub-Adviser to realize economies of scale for the foreseeable future, and, therefore, that the implementation of breakpoints would not be warranted at this time.
The Board noted that, unlike the other Existing Sub-Advisers, Explorer has been retained to assist the Adviser in determining the appropriate allocation of the Fund’s assets among the other Existing Sub-Advisers, and that Explorer does not directly manage assets of the Fund. The Board concluded that Explorer continues to be qualified to perform these services for the Fund.
The Board concluded that each of the other Existing Sub-Advisers continues to be qualified to manage the Fund’s assets in accordance with its respective investment objectives and policies, has an investment strategy that is appropriate for pursuing the Fund’s investment objectives, and has strategies that are complementary in pursuing the Fund’s investment objective.
27
|
VAN ECK VIP MULTI-MANAGER ALTERNATIVES FUND |
| |
APPROVAL OF ADVISORY AND SUB-ADVISORY AGREEMENTS |
(continued) |
The Board did not consider any single factor as controlling in determining whether or not to renew the investment advisory agreement. Nor are the items described herein all of the matters considered by the Board. Based on its consideration of the foregoing factors and conclusions, and such other factors and conclusions as it deemed relevant, and assisted by the advice of its independent counsel, the Board concluded that the renewal of the investment advisory and sub-advisory agreements, including the fee structures (described herein) is in the interests of shareholders, and accordingly, the Board approved the continuation of the advisory and sub-advisory agreements for an additional one-year period.
28
This report must be preceded or accompanied by a Van Eck VIP (the “Trust”) Prospectus, which includes more complete information. An investor should consider the investment objective, risks, and charges and expenses of the Fund carefully before investing. The prospectus contains this and other information about the investment company. Please read the prospectus carefully before investing.
Additional information about the Trust’s Board of Trustees/Officers and a description of the policies and procedures the Trust uses to determine how to vote proxies relating to portfolio securities are provided in the Statement of Additional Information. The Statement of Information and information regarding how the Trust voted proxies relating to portfolio securities during the most recent twelve month period ending June 30 is available, without charge, by calling 800.826.2333, or by visiting vaneck.com, or on the Securities and Exchange Commission’s website at http://www.sec.gov.
The Trust files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Trust’s Form N-Qs are available on the Commission’s website at http://www.sec.gov and may be reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 202.942.8090. The Fund’s complete schedule of portfolio holdings is also available by calling 800.826.2333 or by visiting vaneck.com.
| | |
|
| | |
Investment Adviser: | | Van Eck Associates Corporation |
Distributor: | | Van Eck Securities Corporation |
| | 335 Madison Avenue, New York, NY 10017 |
Account Assistance: | | 800.544.4653 |
| | |
vaneck.com |
Item 2. CODE OF ETHICS.
Not applicable.
Item 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
Item 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
Item 6. SCHEDULE OF INVESTMENTS.
Information included in Item 1.
Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
Item 8. PORTFOLIO MANAGER OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
Item 9. PURCHASE 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.
No changes.
Item 11. CONTROLS AND PROCEDURES.
(a) The Chief Executive Officer and the Chief Financial Officer have concluded
that the Van Eck VIP Multi-Manager Alternatives Fund disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act)
provide reasonable assurances that material information relating to the
Van Eck VIP Multi-Manager Alternatives Fund is made known to them by the appropriate
persons, based on their evaluation of these controls and procedures as of a
date within 90 days of the filing date of this report.
(b) There were no significant changes in the registrant's internal controls
over financial reporting or in other factors that could significantly
affect these controls over financial reporting subsequent to the date of
our evaluation.
Item 12. EXHIBITS.
(a)(1) Not applicable.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Act (17 CFR 270.30a-2) is attached as Exhibit 99.CERT.
(b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 is
furnished as Exhibit 99.906CERT.
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) VAN ECK VIP TRUST - VAN ECK VIP MULTI-MANAGER ALTERNATIVES FUND
By (Signature and Title) /s/ Bruce J. Smith, SVP & CFO
-----------------------------
Date August 26, 2010
-------------------
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/ Derek S. van Eck, CEO
--------------------------
Date August 26, 2010
-------------------
By (Signature and Title) /s/ Bruce J. Smith, CFO
------------------------
Date August 26, 2010
-------------------
