UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21279
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THE MERGER FUND VL
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(Exact name of registrant as specified in charter)
100 SUMMIT LAKE DRIVE
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VALHALLA, NEW YORK 10595
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(Address of principal executive offices) (Zip code)
BONNIE L. SMITH
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100 SUMMIT LAKE DRIVE
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VALHALLA, NEW YORK 10595
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(Name and address of agent for service)
914-741-5600
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Registrant's telephone number, including area code
Date of fiscal year end: DECEMBER 31
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Date of reporting period: JUNE 30, 2006
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ITEM 1. REPORT TO STOCKHOLDERS.
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THE MERGER FUND VL
SEMI-ANNUAL REPORT
JUNE 30, 2006
CHART 1
PORTFOLIO COMPOSITION
BY TYPE OF DEAL*<F1>
Friendly 94.9%
Hostile 5.1%
CHART 2
PORTFOLIO COMPOSITION
BY TYPE OF BUYER*<F1>
Strategic 85.1%
Financial 14.9%
CHART 3
PORTFOLIO COMPOSITION
BY DEAL TERMS*<F1>
Stock with Fixed Exchange Ratio 8.5%
Stock with Flexible Exchange Ratio 6.2%
Cash & Stock 19.0%
Cash 58.3%
Undetermined 8.0%
*<F1> Data as of June 30, 2006
CHART 4
PORTFOLIO COMPOSITION
BY SECTOR*<F2>
Energy 20.9%
Basic Industries 19.5%
Financial Services 12.3%
Telecommunications 10.7%
Media & Entertainment 8.0%
Technology 6.6%
Consumer Services 6.1%
Business Services 5.7%
Healthcare 4.4%
Transportation 1.9%
Utilities 1.5%
Consumer Non-Durables 1.4%
Capital Goods 1.0%
CHART 5
PORTFOLIO COMPOSITION
BY REGION*<F2>
United States 61.4%
Europe 27.6%
Canada 8.8%
Bahamas 2.2%
*<F2> Data as of June 30,
CHART 6
MERGER ACTIVITY
1991 - 2006
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
1991 $19.9516 $20.5286 $27.3834 $16.3747
1992 $16.6579 $30.7912 $16.1062 $20.9834
1993 $20.3626 $30.0446 $72.4562 $64.2678
1994 $43.9419 $41.2508 $79.3201 $58.3516
1995 $63.2519 $109.5822 $138.6244 $92.8259
1996 $81.5836 $147.5119 $114.5835 $180.8346
1997 $157.8150 $135.3298 $146.4147 $247.8092
1998 $207.8147 $667.8133 $273.4782 $271.3921
1999 $344.2760 $473.5610 $227.3533 $495.8469
2000 $495.6549 $238.7511 $432.3114 $264.6629
2001 $161.5246 $138.7080 $154.2153 $121.5994
2002 $45.7014 $60.8711 $95.8875 $44.3849
2003 $36.7571 $57.2983 $72.9279 $161.5566
2004 $250.4977 $109.3510 $99.8604 $186.5095
2005 $215.1986 $225.5347 $134.1715 $214.4662
2006 $238.6603 $255.6250
Source: Securities Data Corp.
THE MERGER FUND VL
EXPENSE EXAMPLE
JUNE 30, 2006
As a shareholder of the Fund, you incur ongoing costs, including management 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 costs
with the ongoing costs of investing in other mutual funds. The example is based
on an investment of $1,000 for the period 1/1/06 - 6/30/06.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. To the extent the Fund invests in shares of other
investment companies as part of its investment strategy, you will indirectly
bear your proportionate share of any fees and expenses charged by the underlying
funds in which the Fund invests in addition to the expenses of the Fund. Actual
expenses of the underlying funds are expected to vary among the various
underlying funds. These expenses are not included in the example below. The
example below includes, but is not limited to, management fees, fund accounting,
custody and transfer agent fees. However, the example below does not include
portfolio trading commissions and related expenses, and other extraordinary
expenses as determined under generally accepted accounting principles. You may
use the information in this line, 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 line under the heading
entitled "Expenses Paid During Period" to estimate the expenses you paid on your
account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds. Please 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 redemption fees. Therefore, the second line of the table is useful in
comparing ongoing costs only, and will not help you determine the relative total
costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/06 VALUE 6/30/06 PERIOD 1/1/06 - 6/30/06*<F7>
------------ ------------- ----------------------------
Actual +<F3> (1)<F5> $1,000.00 $1,109.50 $17.05
Hypothetical ++<F4> (2)<F6> $1,000.00 $1,008.63 $16.24
+<F3> Excluding dividends on short positions and interest expense, your
actual cost of investment in the Fund would be $7.32.
++<F4> Excluding dividends on short positions and interest expense, your
hypothetical cost of investment in the Fund would be $7.00.
(1)<F5> Ending account values and expenses paid during period based on a
10.95% return. This actual return is net of expenses.
(2)<F6> Ending account values and expenses paid during period based on a 5.00%
annual return before expenses.
*<F7> Expenses are equal to the Fund's annualized expense ratio of 3.26%,
multiplied by the average account value over the period, multiplied by
181/365 (to reflect the one-half year period).
THE MERGER FUND VL
SCHEDULE OF INVESTMENTS
JUNE 30, 2006
(UNAUDITED)
SHARES VALUE
------ -----
COMMON STOCKS -- 109.76%
ADVERTISING SERVICES -- 1.61%
3,100 PagesJaunes Groupe SA (g)<F14> $ 97,342
----------
APPAREL MANUFACTURING -- 1.86%
3,525 Jones Apparel Group, Inc. (d)<F11> 112,060
----------
AUDIO & VIDEO EQUIPMENT -- 1.28%
8,426 IMAX Corporation (a)<F8> (e)<F12> 77,182
----------
BANKING -- 2.92%
3,700 Commercial Capital Bancorp, Inc. (c)<F10> 58,275
3,100 Texas Regional
Bancshares, Inc. -- Class A (f)<F13> 117,552
----------
175,827
----------
BIOMETRICS -- 2.55%
22,003 Identix Incorporated (a)<F8> (c)<F10> 153,801
----------
BROADCASTING -- 4.80%
6,150 Lin TV Corp -- Class A (a)<F8> (e)<F12> 46,432
7,250 Univision Communications,
Inc. (a)<F8> (d)<F11> 242,875
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289,307
----------
BROKERAGE SERVICES -- 3.16%
37,400 Instinet Group
Incorporated (a)<F8> (e)<F12> 190,295
----------
CABLE TV -- 1.95%
3,450 Liberty Media _ Interactive
A (a)<F8> (e)<F12> 59,547
690 Liberty Media Holdings -- Cap.
Series A (a)<F8> (e)<F12> 57,801
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117,348
----------
DIAGNOSTIC TESTING -- 1.06%
1,100 Diagnostic Products Corporation (c)<F10> 63,987
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ELECTRIC & GAS UTILITIES -- 1.94%
3,400 Northwestern Corporation (e)<F12> 116,790
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FOODSERVICE -- 0.93%
1,700 ARAMARK Corporation (c)<F10> 56,287
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HEALTHCARE INFORMATION SERVICES -- 2.84%
11,055 Emdeon Corporation (a)<F8> (c)<F10> 137,193
765 WebMD Health Corp. (a)<F8> (c)<F10> (h)<F15> 34,287
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171,480
----------
HOTELS & GAMING -- 3.41%
600 Aztar Corporation (a)<F8> (d)<F11> 31,176
2,200 Kerzner International Limited (a)<F8> (e)<F12> 174,416
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205,592
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INFORMATION TECHNOLOGY -- 0.40%
500 Computer Sciences Corporation (a)<F8> (d)<F11> 24,220
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INTEGRATED GAS & ELECTRIC COMPANIES -- 5.80%
3,200 Constellation Energy Group (d)<F11> 174,464
1,400 KeySpan Corporation (e)<F12> 56,560
1,800 Public Service Enterprise Group, Inc. (f)<F13> 119,016
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350,040
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LOTTERY SERVICES -- 2.88%
5,000 GTECH Holdings Corporation (e)<F12> 173,900
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METALS & MINING -- 7.12%
2,400 Falconbridge Limited (c)<F10> 126,418
4,600 Inco Limited (d)<F11> 303,140
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429,558
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MILITARY ELECTRONICS -- 4.63%
3,700 L-3 Communications Holdings, Inc. (d)<F11> 279,054
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OIL & GAS EXPLORATION & PRODUCTION -- 6.61%
3,500 Kerr-McGee Corporation (e)<F12> 242,725
2,600 Western Gas Resources, Inc. (f)<F13> 155,610
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398,335
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OILFIELD EQUIPMENT & SERVICES -- 2.51%
2,400 Maverick Tube Corporation (a)<F8> (g)<F14> 151,656
----------
PHARMACEUTICALS -- 2.46%
6,400 Andrx Corp. (a)<F8> (d)<F11> 148,416
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PIPELINES -- 9.54%
4,550 Kinder Morgan, Inc. (e)<F12> 454,500
10,750 TransMontaigne, Inc. (a)<F8> (f)<F13> 120,507
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575,007
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REAL ESTATE DEVELOPMENT & MANAGEMENT -- 5.79%
3,300 CarrAmerica Realty Corporation (c)<F10> 147,015
6,600 Trizec Canada, Inc. (c)<F10> 201,908
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348,923
----------
SATELLITE COMMUNICATIONS -- 3.85%
9,300 PanAmSat Holding Corp. (g)<F14> 232,314
----------
SAVINGS & LOANS -- 2.58%
2,100 Golden West Financial Corporation (c)<F10> 155,820
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SENIOR LIVING FACILITIES -- 1.96%
3,600 American Retirement
Corporation (a)<F8> (c)<F10> 117,972
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SPECIALTY CHEMICALS -- 0.66%
3,000 Tronox Incorporated -- Class B (e)<F12> 39,510
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STEEL -- 4.92%
6,150 Arcelor (c)<F10> 296,869
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STOCK EXCHANGES -- 0.67%
25 Euronext NV (d)<F11> 2,344
575 NYSE Group Inc. (a)<F8> (c)<F10> 37,990
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40,334
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TELEPHONY -- 14.14%
2,100 BellSouth Corporation (c)<F10> 76,020
3,350 Millicom International Cellular
S.A. (a)<F8> (f)<F13> 152,190
10,400 Portugal Telecom, SGPS, S.A. (c)<F10> 125,572
29,445 Price Communications
Corporation (a)<F8> (f)<F13> 499,093
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852,875
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TITLE INSURANCE -- 2.93%
3,000 Fidelity National Financial, Inc. (c)<F10> 116,850
3,050 Fidelity National Title Group, Inc. (c)<F10> 59,994
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176,844
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TOTAL COMMON STOCKS (Cost $6,551,256) 6,618,945
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CONTRACTS (100 SHARES PER CONTRACT)
- -----------------------------------
PURCHASED OPTIONS -- 0.15%
CALL OPTIONS PURCHASED -- 0.00%
139 Verizon Communications Inc.
Expiration: July 2006, Exercise Price: $40.00 347
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PUT OPTIONS PURCHASED -- 0.15%
2 AMEX Natural Gas Index
Expiration: July 2006, Exercise Price: $450.00 6,122
2 Base Metals Basket
Expiration: July 2006, Exercise Price: $108.12 2,752
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8,874
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TOTAL PURCHASED OPTIONS (Cost $14,809) 9,221
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PRINCIPAL
AMOUNT
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CORPORATE BONDS -- 2.04%
$137,000 Adelphia Communications Corporation $ 79,460
10.250%, 06/15/2011 (b)<F9>
55,000 Toys "R" Us, Inc. 43,450
7.875%, 04/15/2013 (c)<F10> ----------
TOTAL CORPORATE BONDS (Cost $139,075) 122,910
----------
TAX ESCROW NOTE -- 0.05%
4,979 NextWave Wireless LLC Secured Note 3,311
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TOTAL TAX ESCROW NOTE (Cost $2,738) 3,311
----------
SHORT-TERM INVESTMENTS -- 0.02%
VARIABLE RATE DEMAND NOTES -- 0.02%
913 U.S. Bank, 5.100% 913
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TOTAL SHORT-TERM INVESTMENTS (Cost $913) 913
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TOTAL INVESTMENTS (Cost $6,708,791) $6,755,300
----------
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Percentages are stated as a percent of net assets.
ADR - American Depository Receipt.
(a)<F8> Non-income producing security.
(b)<F9> Security in default.
(c)<F10> All or a portion of the shares have been committed as collateral for
open short positions.
(d)<F11> All or a portion of the shares have been committed as collateral for
written option contracts.
(e)<F12> All or a portion of the shares have been committed as collateral for
equity swap contracts.
(f)<F13> All or a portion of the shares have been committed as collateral for
the credit facility.
(g)<F14> All or a portion of the shares have been committed as collateral for
short foreign currency contracts.
(h)<F15> Fair-valued security.
See notes to the financial statements.
THE MERGER FUND VL
SCHEDULE OF SECURITIES SOLD SHORT
JUNE 30, 2006
(UNAUDITED)
SHARES VALUE
------ -----
2,800 AT&T Inc. $ 78,092
750 Endesa, S.A. 26,083
1,650 Exelon Corporation 93,769
350 Expedia, Inc. 5,239
1,650 Fidelity National Information Services 58,410
6,250 Fidelity National Title Group, Inc. 122,938
2,400 FPL Group, Inc. 99,312
350 IAC/InterActiveCorp 9,272
11,150 Mittal Steel Company N.V. -- ADR 344,983
2,515 News Corporation -- Class B 50,753
2,625 NYSE Group Inc. 173,434
3,000 Tronox Incorporated -- Class B 38,940
2,900 Utilities Select Sector SPDR Fund 93,641
10,150 Verizon Communications 339,923
10,450 Viisage Technology, Inc. 158,422
2,220 Wachovia Corporation 120,058
2,525 WebMD Health Corp. 113,170
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1,926,439
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PRINCIPAL
AMOUNT
------
$75,000 Century Communications Corp.
9.50%, 03/01/2015 75,750
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TOTAL SECURITIES SOLD SHORT
(Proceeds $1,991,393) $2,002,189
----------
----------
ADR - American Depository Receipt.
See notes to the financial statements.
THE MERGER FUND VL
SCHEDULE OF OPTIONS WRITTEN
JUNE 30, 2006
(UNAUDITED)
CONTRACTS (100 SHARES PER CONTRACT) VALUE
- ----------------------------------- -----
CALL OPTIONS
62 Andrx Corp. $ 465
Expiration: September 2006,
Exercise Price: $25.00
6 Aztar Corporation 1,245
Expiration: August 2006,
Exercise Price: $50.00
5 Computer Sciences Corporation 75
Expiration: July 2006, Exercise Price: $55.00
21 Engelhard Corporation 0
Expiration: July 2006,
Exercise Price: $40.00
46 Inco Limited 27,140
Expiration: July 2006, Exercise Price: $60.00
19 Jones Apparel Group, Inc. 713
Expiration: August 2006, Exercise Price: $35.00
37 L-3 Communications Holdings, Inc. 21,460
Expiration: July 2006, Exercise Price: $70.00
Univision Communications, Inc.
13 Expiration: July 2006, Exercise Price: $32.50 1,527
20 Expiration: July 2006, Exercise Price: $35.00 200
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52,825
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PUT OPTIONS
Houston Exploration
46 Expiration: July 2006, Exercise Price: $60.00 4,140
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TOTAL OPTIONS WRITTEN
(Premiums received $60,787) $56,965
-------
-------
See notes to the financial statements.
THE MERGER FUND VL
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2006
(UNAUDITED)
ASSETS:
Investments, at value (Cost $6,708,791) $ 6,755,300
Deposit at brokers for short sales 583,700
Receivable from brokers for proceeds on
securities sold short 1,747,204
Receivable for investments sold 774,872
Receivable for written options 21,202
Receivable from investment adviser 18,421
Receivable for equity swap contracts 95,995
Dividends and interest receivable 17,505
Prepaid expenses 329
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Total Assets 10,014,528
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LIABILITIES:
Securities sold short, at value
(Proceeds of $1,991,393) $2,002,189
Options written, at value
(Premiums received $60,787) 56,965
Loan Payable 1,154,000
Payable to Custodian 21,648
Payable for forward currency exchange contracts 10,105
Payable for dividends on securities sold short 1,044
Payable for investment securities purchased 656,629
Payable for fund shares redeemed 974
Accrued expenses and other payables 80,607
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Total Liabilities 3,984,161
-----------
NET ASSETS $ 6,030,367
-----------
-----------
NET ASSETS Consist Of:
Accumulated undistributed net realized
gain on investments sold $ 720,295
Net unrealized appreciation (depreciation) on:
Investments $ 46,509
Short positions (10,796)
Written options 3,822
Equity swap contracts 94,004
Forward currency exchange contracts (10,105)
----------
Net unrealized appreciation 123,434
Paid-in capital 5,186,638
-----------
Total Net Assets $ 6,030,367
-----------
-----------
NET ASSET VALUE, offering price and redemption
price per share ($6,030,367 / 495,929 shares
of beneficial interest outstanding) $12.16
------
------
See notes to the financial statements.
THE MERGER FUND VL
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
INVESTMENT INCOME:
Interest $ 20,568
Dividend income on long positions
(net of foreign withholding taxes of $1,190) 36,965
--------
Total investment income 57,533
--------
EXPENSES:
Investment advisory fee $ 35,287
Interest expense 43,008
Transfer agent and shareholder
servicing agent fees 31,652
Federal and state registration fees 362
Professional fees 53,249
Trustees' fees and expenses 8,039
Custody fees 1,147
Administration fee 20,010
Reports to shareholders 3,901
Miscellaneous expenses 312
Dividends on short positions
(net of foreign withholding taxes of $60) 9,411
--------
Total operating expenses 206,378
Less: Expenses reimbursed (Note 3) (114,437)
--------
Total expenses 91,941
--------
NET INVESTMENT LOSS (34,408)
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain (loss) on:
Long transactions 344,603
Short transactions 37,438
Option contracts expired or closed 71,232
Equity swap contracts 81,523
Foreign currencies (50,616)
--------
Net realized gain 484,180
Change in unrealized appreciation /
depreciation on:
Investments 38,162
Short positions 23,678
Written options (13,173)
Equity swap contracts 102,360
Foreign currency translation 3
Forward currency exchange contracts (10,047)
--------
Net unrealized gain 140,983
--------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 625,163
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $590,755
--------
--------
See notes to the financial statements.
THE MERGER FUND VL
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2006
(UNAUDITED)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Sales of capital shares $ 187,516
Repurchases of capital shares (321,866)
Net change in receivables / payables related
to capital share transactions 66
-----------
Cash provided by capital share transactions (134,284)
Cash used by borrowings (234,000)
-----------
$(368,284)
---------
CASH PROVIDED (USED) BY OPERATIONS:
Purchases of investments (30,560,876)
Proceeds from sales of investments 31,121,843
-----------
560,967
-----------
Increase in deposit at brokers for
short sales (252,000)
Net investment income (34,408)
Net change in receivables / payables
related to operations (11,962)
-----------
(298,370)
-----------
262,597
-----------
Net increase in cash (105,687)
Cash, beginning of year 84,039
-----------
Cash, end of year $ (21,648)
-----------
-----------
Supplemental Information:
Cash paid for interest on loan outstanding $48,775
See notes to the financial statements.
THE MERGER FUND VL
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
(UNAUDITED)
Net investment loss $ (34,408) $ (24,177)
Net realized gain on investments sold,
short positions, written options expired or
closed, equity swap contracts, foreign
currencies and foreign currency
exchange contracts 484,180 261,486
Change in unrealized appreciation / depreciation
on investments, short positions, written
options, equity swap contracts, foreign
currency translation, and forward currency
exchange contracts 140,983 (36,814)
---------- ----------
Net increase in net assets resulting
from operations 590,755 200,495
---------- ----------
Distributions to shareholders from:
Net realized gains -- (60,590)
---------- ----------
Total dividends distributions -- (60,590)
Net increase (decrease) in net assets from
capital share transactions (Note 4) (134,350) 4,072,524
---------- ----------
Net increase in net assets 456,405 4,212,429
NET ASSETS:
Beginning of period 5,573,962 1,361,533
---------- ----------
End of period (including accumulated undistributed
net investment income (loss)
of $0 and $(900), respectively) $6,030,367 $5,573,962
---------- ----------
---------- ----------
See notes to the financial statements.
THE MERGER FUND VL
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
MAY 26, 2004,(1)<F16>
SIX MONTHS ENDED YEAR ENDED THROUGH
JUNE 30, 2006 DECEMBER 31, 2005 DECEMBER 31, 2004
------------- ----------------- -----------------
(UNAUDITED)
PER SHARE DATA:
Net Asset Value, beginning of period $10.96 $10.60 $10.00
------ ------ ------
Income from investment operations:
Net investment loss (0.07) (0.05) (0.02)
Net realized and unrealized
gain on investments 1.27 0.53 0.62
------ ------ ------
Total from investment operations 1.20 0.48 0.60
------ ------ ------
Less distributions:
Distributions from net realized gains -- (0.12) --
------ ------ ------
Total distributions -- (0.12) --
------ ------ ------
Net Asset Value, end of period $12.16 $10.96 $10.60
------ ------ ------
------ ------ ------
Total Return 10.95%(3)<F18> 4.53% 6.00%(3)<F18>
Supplemental data and ratios:
Net assets, end of period (000's) $6,030 $5,574 $1,362
Ratio of operating expenses to average
net assets including interest expense
and dividends on short positions:
Before expense waiver 7.31%(2)<F17> 7.40% 43.30%(2)<F17>
After expense waiver 3.26%(2)<F17> 2.39% 1.62%(2)<F17>
Ratio of operating expenses to average
net assets excluding interest expense
and dividends on short positions:
Before expense waiver 5.45%(2)<F17> 6.41% 43.08%(2)<F17>
After expense waiver 1.40%(2)<F17> 1.40% 1.40%(2)<F17>
Ratio of net investment loss
to average net assets
Before expense waiver (5.27)%(2)<F17> (5.58)% (42.14)%(2)<F17>
After expense waiver (1.22)%(2)<F17> (0.57)% (0.46)%(2)<F17>
Portfolio turnover rate(4)<F19> 287.94% 497.59% 501.71%(3)<F18>
(1)<F16> Commencement of Operations.
(2)<F17> Annualized.
(3)<F18> Not Annualized.
(4)<F19> The numerator for the portfolio turnover rate includes the lesser of
purchases or sales (excluding short positions). The denominator
includes the average long positions throughout the period.
See notes to the financial statements.
THE MERGER FUND VL
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 2006 (UNAUDITED)
NOTE 1 - ORGANIZATION
The Merger Fund VL (the "Fund") is a no-load, open-end, non-diversified
investment company organized as a statutory trust under the laws of Delaware on
November 22, 2002, and registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Fund commenced operations on May 26, 2004. The
investment objective of the Fund is to seek to achieve capital growth by
engaging in merger arbitrage. Shares of the Fund are not offered directly to
the public. The Fund's shares are currently offered only to separate accounts
funding variable annuity and variable life insurance contracts. At June 30,
2006, 96.2% of the shares outstanding of the Fund were owned by one insurance
company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. These policies are in
conformity with generally accepted accounting principles.
A. Investment Valuation
Securities listed on the NASDAQ Global Market are valued at the NASDAQ
Official Closing Price ("NOCP"). Other listed securities are valued at the last
sale price on the exchange on which such securities are primarily traded or, in
the case of options, at the higher of the intrinsic value of the option or the
last reported composite sale price. Securities not listed on an exchange are
valued at the last sale price as of the close of the New York Stock Exchange.
Securities for which there are no transactions are valued at the average of the
closing bid and asked prices. When pricing options, if no sales are reported or
if the last sale is outside the bid and asked parameters, the higher of the
intrinsic value of the option or the mean between the last reported bid and
asked prices will be used. Securities for which there are no such valuations
are valued at fair value as determined in good faith by management under the
supervision of the Board of Trustees. The Adviser (as defined herein), subject
to the supervision of the Board of Trustees, reserves the right to value
securities, including options, at prices other than last-sale prices, intrinsic
value prices, or the average of closing bid and asked prices, when such prices
are believed unrepresentative of fair market value as determined in good faith
by the Adviser. When fair-value pricing is employed, the prices of securities
used by the Fund to calculate its NAV may differ from quoted or published prices
for the same securities. In addition, due to the subjective and variable nature
of fair-value pricing, it is possible that the value determined for a particular
asset may be materially different from the value realized upon such asset's
sale. At June 30, 2006, fair-valued long securities represented 0.51% of
investments, at value. Investments in United States government securities
(other than short-term securities) are valued at the average of the quoted bid
and asked prices in the over-the-counter market. Short-term investments are
carried at amortized cost, which approximates market value.
B. Short Positions
The Fund may sell securities or currencies short for hedging purposes. For
financial statement purposes, an amount equal to the settlement amount is
included in the Statement of Assets and Liabilities as an asset and an
equivalent liability. The amount of the liability is subsequently marked-to-
market to reflect the current value of the short position. Subsequent
fluctuations in the market prices of securities or currencies sold, but not yet
purchased, may require purchasing the securities or currencies at prices which
may differ from the market value reflected on the Statement of Assets and
Liabilities.
The Fund is liable for any dividends payable on securities while those
securities are in a short position. As collateral for its short positions, the
Fund is required under the 1940 Act to maintain assets consisting of cash, cash
equivalents or liquid securities. These assets are required to be adjusted daily
to reflect changes in the value of the securities or currencies sold short.
C. Transactions with Brokers for Short Sales
The Fund's receivable from brokers for proceeds on securities sold short and
deposit at brokers for short sales are with two major securities dealers. The
Fund does not require the brokers to maintain collateral in support of the
receivable from the broker for proceeds on securities sold short.
D. Federal Income Taxes
No provision for federal income taxes has been made since the Fund has
complied to date with the provisions of the Internal Revenue Code applicable to
regulated investment companies and intends to continue to so comply in future
years and to distribute investment company net taxable income and net capital
gains to shareholders.
E. Written Options
The Fund writes (sells) call options to hedge portfolio investments. Put
options can also be written by the Fund as part of a merger arbitrage strategy
involving a pending corporate reorganization. When the Fund writes (sells) an
option, an amount equal to the premium received by the Fund is included in the
Statement of Assets and Liabilities as an asset and an equivalent liability. The
amount of the liability is subsequently marked-to-market to reflect the current
value of the option written. By writing an option, the Fund may become obligated
during the term of the option to deliver or purchase the securities underlying
the option at the exercise price if the option is exercised. Option contracts
are valued at the higher of the intrinsic value of the option or the last
composite sales price reported on the date of valuation. If no sale is reported
or if the last sale is outside the parameters of the closing bid and asked
prices, the option contract written is valued at the higher of the intrinsic
value of the option or the mean of the last reported bid and asked prices on the
day of valuation. When an option expires on its stipulated expiration date or
the Fund enters into a closing purchase transaction, the Fund realizes a gain or
loss if the cost of the closing purchase transaction differs from the premium
received when the option was sold without regard to any unrealized gain or loss
on the underlying security, and the liability related to such option is
eliminated. When an option is exercised, the premium originally received
decreases the cost basis of the security (or increases the proceeds on a sale of
the security), and the Fund realizes a gain or loss from the sale of the
underlying security.
F. Purchased Options
The Fund purchases put or call options to hedge portfolio investments.
Premiums paid for option contracts purchased are included in the Statement of
Assets and Liabilities as an asset. Option contracts are valued at the higher of
the intrinsic value of the option or the last composite sales price reported on
the date of valuation. If no sale is reported or if the last sale is outside the
parameters of the closing bid and asked prices, the option contract purchased is
valued at the higher of the intrinsic value of the option or the mean of the
last reported bid and asked prices on the day of valuation. When option
contracts expire or are closed, realized gains or losses are recognized without
regard to any unrealized gains or losses on the underlying securities.
G. Forward Currency Exchange Contracts
The Fund may enter into forward currency exchange contracts obligating the
Fund to deliver or receive a currency at a specified future date. Forward
contracts are valued daily, and unrealized appreciation or depreciation is
recorded daily as the difference between the contract exchange rate and the
closing forward rate applied to the face amount of the contract. A realized gain
or loss is recorded at the time the forward contract is closed.
H. Distributions to Shareholders
Dividends from net investment income and net realized capital gains, if any,
are declared and paid annually. Income and capital gain distributions are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are due primarily to
wash loss deferrals, constructive sales, straddle loss deferrals, and unrealized
gains or losses on Section 1256 contracts, which were realized, for tax
purposes, at December 31, 2005. Accordingly, reclassifications are made within
the net asset accounts for such amounts, as well as amounts related to permanent
differences in the character of certain income and expense items for income tax
and financial reporting purposes.
I. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
J. Foreign Securities
Investing in securities of foreign companies and foreign governments involves
special risks and considerations not typically associated with investing in U.S.
companies and the U.S. government. These risks include revaluation of currencies
and adverse political and economic developments. Moreover, securities of many
foreign companies and foreign governments and their markets may be less liquid
and their prices more volatile than those of securities of comparable U.S.
companies and the U.S. government.
K. Foreign Currency Translations
The books and records of the Fund are maintained in U.S. dollars. Foreign
currency transactions are translated into U.S. dollars on the following basis:
(i) market value of investment securities, assets and liabilities at the daily
rates of exchange, and (ii) purchases and sales of investment securities,
dividend and interest income and certain expenses at the rates of exchange
prevailing on the respective dates of such transactions. For financial reporting
purposes, the Fund does not isolate changes in the exchange rate of investment
securities from the fluctuations arising from changes in the market prices of
securities. However, for federal income tax purposes, the Fund does isolate and
treat as ordinary income the effect of changes in foreign exchange rates on
realized gain or loss from the sale of investment securities and payables and
receivables arising from trade-date and settlement-date differences.
L. When-Issued Securities
The Fund may sell securities on a when-issued or delayed-delivery basis.
Although the payment and interest terms of these securities are established at
the time the Fund enters into the agreement, these securities may be delivered
for cash proceeds at a future date. The Fund records sales of when-issued
securities and reflects the values of such securities in determining net asset
value in the same manner as other open short-sale positions. The Fund segregates
and maintains at all times cash, cash equivalents or other liquid securities in
an amount at least equal to the market value for when-issued securities.
M. Guarantees and Indemnifications
In the normal course of business, the Fund enters into contracts with service
providers that contain general indemnification clauses. The Fund's maximum
exposure under these arrangements is unknown, as this would involve future
claims that may be made against the Fund that have not yet occurred. However,
based on experience, the Fund expects the risk of loss to be remote.
N. Other
Investment and shareholder transactions are recorded on the trade date.
Realized gains and losses from security transactions are recorded on the
identified cost basis. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest is accounted for on the accrual basis
and includes amortization of premiums and discounts on the interest method. The
Fund may utilize derivative instruments including options, forward currency
exchange contracts and other instruments with similar characteristics to the
extent that they are consistent with the Fund's investment objectives and
limitations. The use of these instruments may involve additional investment
risks, including the possibility of illiquid markets or imperfect correlation
between the value of the instruments and the underlying securities.
NOTE 3 - AGREEMENTS
The Fund's investment adviser is Westchester Capital Management, Inc. (the
"Adviser") pursuant to an investment advisory agreement dated July 1, 2003.
Under the terms of this agreement, the Adviser is entitled to receive a fee,
calculated daily and payable monthly, at the annual rate of 1.25% of the Fund's
average daily net assets. Certain officers of the Fund are also officers of the
Adviser.
The Adviser has agreed to reduce its fees and reimburse the Fundto the extent
total annualized expenses, excluding dividends on short positions and interest
expense, exceed 1.40% of average daily net assets. The agreement expires on
July 1, 2013. The agreement permits the Adviser to recover the expenses paid in
excess of the cap on expenses for the three previous years, as long as the
recovery does not cause the Fund's operating expenses, excluding dividends on
short positions and interest expense, to exceed the cap on expenses. For the
six months ended June 30, 2006, the Adviser reimbursed $114,437 to the Fund.
Reimbursed expenses subject to potential recovery by year of expiration is as
follows:
YEAR OF EXPIRATION POTENTIAL RECOVERY
----------------- ------------------
12/31/07 $214,818
12/31/08 $213,775
12/31/09 $114,437
U.S. Bancorp Fund Services, LLC, a subsidiary of U.S. Bancorp, a publicly
held bank holding company, serves as transfer agent, administrator and
accounting services agent for the Fund. U.S. Bank, N.A. serves as custodian for
the Fund.
NOTE 4 - SHARES OF BENEFICIAL INTEREST
The Trustees have the authority to issue an unlimited amount of shares of
beneficial interest without par value.
Changes in shares of beneficial interest were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, 2005
------------------------------ -------------------------------
Shares Amount Shares Amount
------ ------ ------ ------
Sold 16,065 $ 187,516 408,699 $4,386,248
Reinvested -- -- 5,533 60,590
Redeemed (28,536) (321,866) (34,317) (374,314)
-------- --------- ------- ----------
Net Increase (Decrease) (12,471) $(134,350) 379,915 $4,072,524
-------- --------- ------- ----------
-------- --------- ------- ----------
NOTE 5 - INVESTMENT TRANSACTIONS
Purchases and sales of securities for the six months ended June 30, 2006
(excluding short-term investments, options and short positions) amounted to
$20,675,589 and $19,887,914, respectively. There were no purchases or sales of
U.S. Government Securities.
At December 31, 2005, the components of accumulated earnings on a tax basis
were as follows:
Cost of investments $7,022,872
----------
----------
Gross unrealized appreciation $ 146,846
Gross unrealized depreciation (227,301)
----------
Net unrealized depreciation $ (80,455)
----------
----------
Undistributed ordinary income $361,380
Undistributed long-term capital gains --
----------
Total distributable earnings $ 361,380
----------
----------
Other accumulated losses and temporary differences $ (63,259)
----------
Total accumulated earnings $ 217,666
----------
----------
The tax components of dividends paid during the years ended December 31, 2005
and December 31, 2004 were as follows:
2005 2004
---- ----
Ordinary Income $60,590 $ --
Long-Term Capital Gains -- --
The Fund had a post-October currency loss deferral of $141 and a capital loss
of $26,336, which is deferred for tax purposes until the next fiscal year.
For corporate shareholders, the percent of ordinary income distributions
qualifying for the corporate dividends-received deduction for the fiscal year
ended December 31, 2005 was 1% for the Fund (unaudited).
NOTE 6 - OPTION CONTRACTS WRITTEN
The premium amount and the number of option contracts written during the six
months ended June 30, 2006, were as follows:
PREMIUM NUMBER OF
AMOUNT CONTRACTS
------ ---------
Options outstanding at December 31, 2005 $ 60,157 230
Options written 294,299 1,600
Options closed (131,950) (589)
Options exercised (119,278) (575)
Options expired (42,441) (391)
-------- -----
Options outstanding at June 30, 2006 $ 60,787 275
-------- -----
-------- -----
NOTE 7 - CREDIT FACILITY
Custodial Trust Company has made available to the Fund a credit facility
under the 1940 Act limitation pursuant to a Loan and Security Agreement
("Agreement") dated August 16, 2004 for the purpose of purchasing portfolio
securities. The Agreement can be terminated by either the Fund or Custodial
Trust Company with three months' prior notice. For the period January 1, 2006
to June 30, 2006, the interest rate on the outstanding principal amount was the
30 Day LIBOR Rate plus 0.75% (weighted average rate of 5.50% during the six
months ended June 30, 2006). Advances are collateralized by securities owned by
the Fund and held separately in a special custody account pursuant to a Special
Custody Agreement dated July 1, 2003. During the six months ended June 30,
2006, the Fund had an outstanding average daily balance of $1,380,518. The
maximum amount outstanding during the six months ended June 30, 2006 was
$2,543,000. At June 30, 2006, the Fund had a loan payable balance of
$1,154,000. As collateral for the loan, the Fund is required under the 1940 Act
to maintain assets consisting of cash, cash equivalents or liquid securities.
The assets are required to be adjusted daily to reflect changes in the amount of
the loan outstanding.
NOTE 8 - FORWARD CURRENCY EXCHANGE CONTRACTS
At June 30, 2006, the Fund had entered into "position hedge" forward currency
exchange contracts that obligated the Fund to deliver or receive currencies at a
specified future date. The net unrealized depreciation of $10,105 is included in
the net unrealized appreciation (depreciation) section of the accompanying
financial statements. The terms of the open contracts are as follows:
SETTLEMENT CURRENCY TO U.S. $ VALUE AT CURRENCY TO U.S. $ VALUE AT
DATE BE DELIVERED JUNE 30, 2006 BE RECEIVED JUNE 30, 2006
---- ------------ ------------- ----------- -------------
7/7/06 143,468 British Pounds $ 265,330 265,227 U.S. Dollars $ 265,227
8/24/06 76,548 British Pounds 141,716 140,811 U.S. Dollars 140,811
8/28/06 41,000 British Pounds 75,906 76,654 U.S. Dollars 76,654
9/1/06 328,000 British Pounds 607,350 600,067 U.S. Dollars 600,067
7/21/06 1,611 Canadian Dollars 1,444 1,438 U.S. Dollars 1,438
8/31/06 132,000 Canadian Dollars 118,506 117,713 U.S. Dollars 117,713
7/13/06 129,266 Euros 165,476 164,043 U.S. Dollars 164,043
9/14/06 71,300 Euros 91,659 91,249 U.S. Dollars 91,249
9/22/06 159,499 Euros 205,149 205,244 U.S. Dollars 205,244
9/29/06 104,000 Euros 133,825 133,959 U.S. Dollars 133,959
11/24/06 43,173 Euros 55,746 55,597 U.S. Dollars 55,597
---------- ----------
$1,862,107 $1,852,002
---------- ----------
---------- ----------
NOTE 9 - EQUITY SWAP CONTRACTS
The Fund has entered into both long and short equity swap contracts with
multiple broker-dealers. A long equity swap contract entitles the Fund to
receive from the counterparty any appreciation and dividends paid on an
individual security, while obligating the Fund to pay the counterparty any
depreciation on the security as well as interest on the notional amount of the
contract at a rate equal to LIBOR plus 25 to 100 basis points. A short equity
swap contract obligates the Fund to pay the counterparty any appreciation and
dividends paid on an individual security, while entitling the Fund to receive
from the counterparty any depreciation on the security as well as interest on
the notional value of the contract at a rate equal to LIBOR less 25 to 100 basis
points.
The Fund may also enter into equity swap contracts whose value is determined
by the spread between a long equity position and a short equity position. This
type of swap contract obligates the Fund to pay the counterparty an amount tied
to any increase in the spread between the two securities over the term of the
contract. The Fund is also obligated to pay the counterparty any dividends paid
on the short equity holding as well as any net financing costs. This type of
swap contract entitles the Fund to receive from the counterparty any gains based
on a decrease in the spread as well as any dividends paid on the long equity
holding and any net interest income.
Fluctuations in the value of an open contract are recorded daily as a net
unrealized gain or loss. The Fund will realize a gain or loss upon termination
or reset of the contract. Either party, under certain conditions, may terminate
the contract prior to the contract's expiration date.
Credit risk may arise as a result of the failure of the counterparty to
comply with the terms of the contract. The Fund considers the creditworthiness
of each counterparty to a contract in evaluating potential credit risk. The
counterparty risk to the Fund is limited to the net unrealized gain, if any, on
the contract, along with dividends receivable on long equity contracts and
interest receivable on short equity contracts. Additionally, risk may arise from
unanticipated movements in interest rates or in the value of the underlying
securities. At June 30, 2006, the Fund had the following open equity swap
contracts:
UNREALIZED APPRECIATION
TERMINATION DATE SECURITY SHARES (DEPRECIATION)
--------------- -------- ------ --------------
08/02/06 Arcelor 4,150 $25,586
07/14/06 BAA PLC 8,850 14,469
09/01/06 BOC Group PLC 20,500 25,249
06/27/06 Carnbridge Antibody 4,600 (140)
12/31/06 Endesa 6,593 10,993
11/30/06 Enodis PLC 20,500 7,039
12/31/06 Euronext NV 2,000 9,277
10/31/06 House of Fraser PLC 46,100 225
07/25/06 Telesystems International Wireless 16,200 1,306
-------
$94,004
-------
-------
For the six months ended June 30, 2006, the Fund realized gains of $102,360
upon the termination of equity swap contracts.
NOTE 10 - FUTURE ADOPTION OF NEW ACCOUNTING STANDARDS
On July 13, 2006, the Financial Accounting Standards Board (FASB) released
FASB Interpretation No. 48 "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 provides guidance for how uncertain tax positions should be
recognized, measured, presented and disclosed in the financial statements. FIN
48 requires the evaluation of tax positions taken or expected to be taken in the
course of preparing the Fund's tax returns to determine whether the tax
positions are "more-likely-than-not" of being sustained by the applicable tax
authority. Tax positions not deemed to meet the more-likely-than-not threshold
would be recorded as a tax benefit or expense in the current year. Adoption of
FIN 48 is required for fiscal years beginning after December 15, 2006 and is to
be applied to all open tax years as of the effective date. At this time,
management is evaluating the implications of FIN 48 and its impact on the
financial statements has not yet been determined.
THE MERGER FUND VL
APPROVAL OF ADVISORY CONTRACT
On January 21, 2006, at a meeting called for the purpose of voting on such
approval, the Board of Trustees, including all of the Trustees who are not
parties to the Advisory Contract or interested persons of any such party (the
non-interested Trustees), approved the continuance of the Advisory Contract for
the Fund. In so doing, the Board studied materials specifically relating to the
Advisory Contract provided by the Adviser, counsel to the non-interested
Trustees and counsel to the Fund. The Board considered a variety of factors,
including the following:
The Board considered the nature, extent and quality of the services to be
provided by the Adviser to the Fund pursuant to the Advisory Contract, including
the Adviser's competence and integrity; research capabilities; implementation
and enforcement of compliance procedures and financial-reporting controls; and
adherence to the Fund's investment objectives, policies and restrictions. The
Board also reviewed the Adviser's methodology, research and analysis that it
employs in selecting investments for the Fund. The Board considered the non-
traditional nature of the Fund's investment approach, the specialized expertise
and experience of the Fund's portfolio managers and the difficulty, were it
warranted, of selecting an alternative adviser. The Board concluded that the
Adviser fulfilled all of the foregoing factors and responsibilities in
accordance with its obligations under the Advisory Contract.
The Board also evaluated the investment performance of the Fund relative to
the S&P 500 Index and a group of alternative-investment mutual funds, including
those that engage in merger arbitrage, since the Fund's inception.
Additionally, the Board reviewed information on the fee structure of the
Advisory Contract, including the costs of the services to be provided and the
profits to be realized by the Adviser and its affiliate from their relationship
with the Fund, as evidenced by the Adviser's profitability analysis. The
profitability analysis consisted of income and expenses by category since the
Fund's inception, less expenses allocated to other funds managed by the
Adviser's affiliate, adjusted total expenses, net income and profit margin. The
Board also reviewed comparisons of the rates of compensation paid to a group of
alternative-investment funds and Lipper data relating to average expenses and
advisory fees for comparable funds, and the benefit to the Adviser of the Fund's
soft-dollar arrangements. Based on the information provided, the Board
determined that the Fund has been unprofitable to the Adviser, and, hence, the
Fund's fee structure was reasonable compared to funds with similar investment
goals and strategies. It was noted that the Fund's management fees and expense
ratio (after the fee waiver and expense reimbursement) are within the average
range compared to its peer funds. The Board also considered the fact that the
Adviser has agreed to waive a portion of its fees and noted that the fee waiver
could be discontinued at any time after July 1, 2013.
The Board considered the issue of economies of scale and noted that, given
the very small size of the Fund, consideration of fee breakpoints was premature.
Based on its evaluation, in consultation with independent counsel, of all
material aspects of the Advisory Contract, including the foregoing factors and
such other information believed to be reasonably necessary to evaluate the terms
of the Advisory Contract, the Board, including all of the non-interested
Trustees voting separately, concluded that the continuation of the Advisory
Contract would be in the best interest of the Fund's shareholders, and
determined that the compensation to the Adviser provided for in the Advisory
Contract is fair and reasonable.
THE MERGER FUND VL
AVAILABILITY OF PROXY VOTING INFORMATION
Information regarding how the Fund generally votes proxies relating to portfolio
securities may be obtained without charge by calling the Fund's Transfer Agent
at 1-800-343-8959 or by visiting the SEC's website at www.sec.gov. Information
-----------
regarding how the Fund voted proxies relating to portfolio securities during the
period ended June 30, 2006 will be available after August 31, 2006 on the SEC's
website or by calling the toll-free number listed above.
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE
The Fund files its complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at www.sec.gov and may be reviewed and copied
-----------
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
INVESTMENT ADVISER
Westchester Capital Management, Inc.
100 Summit Lake Drive
Valhalla, NY 10595
(914) 741-5600
ADMINISTRATOR, TRANSFER AGENT, DIVIDEND PAYING AGENT AND SHAREHOLDER SERVICING
AGENT
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 343-8959
CUSTODIAN
U.S. Bank, N.A.
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 343-8959
TRUSTEES
Frederick W. Green
Michael J. Downey
James P. Logan, III
EXECUTIVE OFFICERS
Frederick W. Green, President
Bonnie L. Smith, Vice President,
Treasurer and Secretary
Roy D. Behren, Chief Compliance Officer
COUNSEL
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, NY 10103
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Milwaukee, WI 53202
ITEM 2. CODE OF ETHICS.
- -----------------------
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
- ----------------------------------------
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
- -----------------------------------------------
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
- ----------------------------------------------
Not applicable for semi-annual reports.
ITEM 6. SCHEDULE OF INVESTMENTS.
- --------------------------------
Schedule of Investments is included as part of the report to stockholders filed
under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
- -------------------------------------------------------------------------
MANAGEMENT INVESTMENT COMPANIES.
- --------------------------------
Not applicable to open-end management investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
- -------------------------------------------------------------------------
Not applicable to open-end management investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
- --------------------------------------------------------------------------
COMPANY AND AFFILIATED PURCHASERS.
- ----------------------------------
Not applicable to open-end management investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of trustees.
ITEM 11. CONTROLS AND PROCEDURES.
- ---------------------------------
(a) The Registrant's President/Principal Executive Officer and
Treasurer/Principal Financial Officer have reviewed the Registrant's
disclosure controls and procedures (as defined in Rule 30a-3(c) under the
Investment Company Act of 1940 (the "Act")) as of a date within 90 days of
the filing of this report, as required by Rule 30a-3(b) under the Act and
Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934.
Based on their review, such officers have concluded that the disclosure
controls and procedures are reasonably designed to ensure that information
required to be disclosed in this report is appropriately recorded,
processed, summarized and reported and made known to them by others within
the Registrant and by the Registrant's service provider.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during
the second fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
Registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
- -----------------
(a) (1) Not Applicable.
(2) Certifications of the Registrant's Principal Executive Officer and
Principal Financial Officer as required by Rule 30a-2(a) under the Act are
filed herewith.
(3) Not applicable to open-end management investment companies.
(b) Certification required by Rule 30a-2(b) under the Act are filed herewith.
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) The Merger Fund VL
----------------------------------------------
By (Signature and Title) /s/ Frederick W. Green
----------------------------------
Frederick W. Green, President
Date August 23, 2006
------------------------------------------------
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/ Frederick W. Green
--------------------------------
Frederick W. Green, President
Date August 23, 2006
------------------
By (Signature and Title) /s/ Bonnie L. Smith
----------------------------------
Bonnie L. Smith, Treasurer
Date August 21, 2006
--------------------