U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
POST-EFFECTIVE AMENDMENT NO. _______
VAN ECK FUNDS II, INC.
(Exact Name of Registrant as Specified in Charter)
99 Park Avenue, 8th Floor, New York, New York 10016
(Address of Principal Executive Offices)
212-687-5200
(Registrant's Telephone Number, Including Area Code and Telephone Number)
Thomas H. Elwood, Esq.
Van Eck Associates Corporation
99 Park Avenue, 8th Floor, New York, New York 10016
(Name and Address of Agent for Service)
Copy to: Philip H. Newman, Esq., Goodwin Procter, LLP
Exchange Place, Boston, Massachusetts 02109
------------------------------------------------------------------
No filing fee is required because the Registrant will register an
indefinite number of shares of common stock, $.001 par value, of the Registrant,
pursuant to Rule 24f-2.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
VAN ECK FUNDS, INC
Cross-Reference Sheet
Pursuant to Rule 481(a) under the Securities Act of 1933
FORM N-14 ITEM NO. LOCATION IN PROXY STATEMENT/PROSPECTUS
PART A
1 Cover Page of Registration Statement; Prospectus Cover Page;
Cross Reference Sheet
2 Table of Contents
3 Synopsis; Principal Risk Factors; Comparison of Investment
Objectives and Policies
4 Synopsis; The Reorganization; Comparative Information on
Shareholder Rights; Exhibit A (Agreement and Plan of
Reorganization); Exhibit B (Article of Merger); Exhibit C
(Form of Prospectus of Mid-Cap II Fund)
5 Cover Page; Synopsis; Principal Risk Factors; Comparison of
Investment Objectives and Policies; The Reorganization;
Comparative Information on Distribution Arrangements;
Comparative Information on Shareholder Services; Comparative
Information on Shareholder Rights; Management; Additional
Information; Exhibit C (Form of Prospectus of Mid-Cap II
Fund)
6 Synopsis; Comparison of Investment Objectives and Policies;
The Reorganization; Comparative Information on Distribution
Arrangements; Comparative Information on Shareholder
Services; Comparative Information on Shareholder Rights;
Additional Information; Prospectus of Mid Cap I Fund and
Total Return Fund dated May 2, 2001
7 Synopsis; The Reorganization; Comparative Information on
Shareholder Rights; Voting Information
8 The Reorganization
9 Not Applicable
PART B
10 Cover Page of Statement of Additional Information
11 Table of Contents
12 Cover Page; Form of Statement of Additional Information of
Mid Cap II Fund
13 Cover Page; Statement of Additional Information of Mid-Cap I
Fund and Total Return Fund dated May 1, 2001
14 Annual Report of Mid-Cap I Fund and Total Return Fund for
the year ended December 31, 2001; and Pro Forma Financial
Statements
Part C: Other Information
15 Indemnification
16 Exhibits
17 Undertakings
LOGO VAN ECK GLOBAL
_________________, 2002
Dear Van Eck Fund Shareholder:
At this time, we are asking shareholders to consider voting for three proposals
regarding the following funds:
o VAN ECK TOTAL RETURN FUND
o VAN ECK MID CAP VALUE FUND (formerly VAN ECK GROWTH AND INCOME
FUND)
Important Notice to Growth and Income Fund Shareholders
Please be advised that the Van Eck Growth and Income Fund has been renamed the
Van Eck Mid Cap Value Fund ("Mid Cap I Fund"). This name change reflects the
recent appointment of John A. Levin & Co., Inc. as interim sub-adviser to the
Fund that took place on January 2nd of this year.
Important Notice to Total Return Fund Shareholders
Please be advised that the Van Eck Total Return Fund is closed to all sales,
both new and subsequent account purchases, effective February 8, 2002.
Proposals for Both Funds:
I. the APPROVAL OF INVESTMENT MANAGEMENT AGREEMENTS WITH VAN ECK ASSOCIATES
CORPORATION ("VAN ECK ASSOCIATES") AS THE INVESTMENT ADVISER to the Van
Eck Mid Cap Value Fund (formerly Growth and Income Fund) and the Van Eck
Total Return Fund
II. the APPROVAL OF SUB-ADVISORY AGREEMENTS with John A. Levin & Co., Inc.,
("Levin") as sub-adviser to the Van Eck Mid Cap Value Fund and the Total
Return Fund
We are recommending that you approve the new adviser and sub-adviser for the
Funds. Chubb Asset Managers Inc., the Funds' previous adviser, has decided to
exit the mutual fund business. We believe the mixture of Van Eck's capabilities
as a proven investment adviser and Levin's expertise as a value manager will
best meet the goals of investors.
III. and, the APPROVAL OF A REORGANIZATION of the Van Eck Total Return Fund
and the Van Eck Mid Cap Fund with and into a new Fund, Van Eck Funds II,
Inc. Mid Cap Value Fund ("Mid Cap II") by means of a statutory merger
(NOTE THAT THIS REORGANIZATION SHOULD BE A TAX-FREE EVENT. YOU WOULD
CONTINUE RECEIVING YOUR QUARTERLY STATEMENTS. NO OTHER ACTION WOULD BE
REQUIRED OF YOU OTHER THAN VOTING THIS PROXY.)
Management believes that the most efficient method to manage the Funds' assets
and to meet investor needs is to consolidate the Van Eck Mid Cap Value Fund and
the Van Eck Total Return Fund into one investment vehicle. This merger will be
accomplished as a statutory merger in which the two existing Funds are merged
into a third Fund. This third Fund, as described more fully in the proxy,
follows closely the investment objectives and strategies of the existing Mid Cap
Value Fund. All three Funds seek long-term capital appreciation.
The third Fund, "Mid-Cap II," will be relatively more flexible in meeting its
objective in that the Fund will not be focused on current income. Total Return
Fund was required to maintain thirty percent of its assets in debt instruments.
Mid Cap Value Fund sought a reasonable level of income. Consolidating these
funds into Mid-Cap II should provide shareholders with significant economies of
scale (such as lower fund expenses) and a similar, but more flexible, investment
style that we believe will benefit the shareholders. Please note that the
resulting entity, Mid-Cap II, would assume the name Van Eck Mid Cap Value Fund.
If you have any questions regarding John A. Levin's past performance record, or
any questions related to this proxy, please call Van Eck Global's marketing desk
at 1-800-826-2333.
--------------------------------------------------------------------------
JOHN A. LEVIN & CO., INC.
o founded in 1982; located in New York City
o approximately $12.6 billion in assets under management (as of 9/30/01)
o experienced portfolio management
o proven long-term value investment track record
--------------------------------------------------------------------------
Attached are the Notice and Proxy Statement/Prospectus for a Special Meeting of
Shareholders of Mid-Cap I and Total Return Fund to be held on April 26, 2002 at
9:00 a.m. for the purpose of approval of new advisory and sub-advisory
arrangements and a merger of both Funds into a third Fund through the Agreement
and Plan of Reorganization.
PLEASE READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY--IT DISCUSSES THE PROPOSAL
AS WELL AS THE REASONS WHY THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR
THE PROPOSAL.
Please take a moment now to sign and return the proxy card in the enclosed
postage-paid envelope. Or, you may call the telephone number on your proxy card
to use our convenient touch-tone voting system. Whatever method you choose, your
vote is important. IT IS CRITICAL THAT A MAJORITY OF THE FUND'S OUTSTANDING
SHARES VOTE. UNLESS A MAJORITY OF SHARES IS VOTED, THE FUND WILL INCUR
ADDITIONAL EXPENSES SOLICITING SUFFICIENT VOTES TO HOLD THE MEETING. Your prompt
attention in this matter benefits all shareholders. Thank you.
Sincerely,
/s/ Derek van Eck
Derek van Eck
President
MID-CAP VALUE FUND
(formerly Growth and Income Fund)
TOTAL RETURN FUND
each a series of
VAN ECK FUNDS, INC
99 Park Avenue, New York, New York 10016
(212) 687-5200 1-800-826-2333
----------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
April 26, 2002
----------------------------------------
A SPECIAL MEETING OF SHAREHOLDERS OF VAN ECK MID-CAP VALUE FUND (formerly
Growth and Income Fund) ("MID-CAP I FUND") AND VAN ECK TOTAL RETURN FUND ("TOTAL
RETURN FUND"), BOTH SERIES OF VAN ECK FUND, INC (THE "COMPANY"), will be held at
99 Park Avenue, 8th Floor, New York, New York 10016, on April 26, 2002 at 9:00
a.m., New York Time, for the following purposes:
(1)(a) (For Mid-Cap I Fund shareholders only) To approve an investment
management agreement with Van Eck Associates Corporation.
(1)(b) (For Total Return Fund shareholders only) To approve an investment
management agreement with Van Eck Associates Corporation.
(2)(a) (For Mid-Cap I Fund shareholders only) To approve an investment
sub-advisory agreement with John A. Levin & Co., Inc.
(2)(b) (For Total Return Fund shareholders only) To approve an investment
sub-advisory agreement with John A. Levin & Co., Inc.
(3) To consider and act upon a proposal to approve the Agreement and
Plan of Reorganization dated May 1, 2002 providing for the merger of
the Company with and into Van Eck Funds II, Inc. ("Van Eck II").
(4) To act upon such other matters as may properly come before the
meeting or any adjournment or adjournments thereof.
Shareholders of record at the close of business on February 11, 2002 are
entitled to notice of, and to vote at, the meeting or any adjournment thereof.
By order of the Board of Directors
/s/ Thomas H. Elwood
Thomas H. Elwood
Secretary
____________, 2002
----------------------------------------
YOUR VOTE IS IMPORTANT!
----------------------------------------
WHETHER YOU EXPECT TO ATTEND THE MEETING OR NOT, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY.
INVESTORS ARE ADVISED TO READ AND RETAIN THIS PROXY STATEMENT/PROSPECTUS FOR
FUTURE REFERENCE.
MID CAP VALUE FUND
(formerly Growth and Income Fund)
TOTAL RETURN FUND
each a series of
VAN ECK FUNDS, INC.
99 Park Avenue, 8th Floor, New York, New York 10016
(212) 687-5200 . 1-800-826-2333
MID-CAP VALUE FUND
a series of
VAN ECK FUNDS II, INC.
99 Park Avenue, 8th Floor, New York, New York 10016
(212) 687-5200 . 1-800-826-2333
---------------------------------------
PROXY STATEMENT/PROSPECTUS
DATED ______ __, 2002
SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON APRIL 26, 2002
99 PARK AVENUE, 8TH FLOOR, NEW YORK, NEW YORK 10016
---------------------------------------
INTRODUCTION
This Proxy Statement/Prospectus is furnished to the shareholders of Mid
Cap Value Fund ("Mid-Cap I") and Total Return Fund ("Total Return Fund" and
together with Mid-Cap I, the "Funds") in connection with the solicitation by the
Board of Directors of Van Eck Funds, Inc. ("Van Eck I"), of which Mid-Cap I Fund
and Total Return Fund are series, of proxies to be used at a special meeting of
shareholders of Mid-Cap I Fund and Total Return Fund to be held on April 26,
2002 at 9:00 a.m., New York Time, or any adjournments thereof (the "Meeting"),
(1a and b) to approve an investment management agreement with Van Eck Associates
Corporation, (2a and b) to approve an investment sub-advisory agreement with
John A. Levin & Co., Inc. and (3) to approve an Agreement and Plan of
Reorganization (the "Plan"). Under the Reorganization, and according to the
terms of the Plan, which has been approved by the Board of Directors of Van Eck
I, Van Eck I will be merged with and into Van Eck Funds II, Inc. ("Van Eck II")
with Van Eck II the surviving corporation. Under the Plan, the shares of Mid-Cap
I Fund would be converted into a number of shares of Mid-Cap II Fund ("Mid-Cap
II") with a value equal to the value of the net assets of Mid-Cap I Fund
immediately prior to the effective time of the Reorganization. Each shareholder
of Mid-Cap I Fund would receive a pro rata number of these whole and fractional
shares of Mid-Cap II Fund based on the relative number of Mid-Cap I Fund shares
held by the shareholder on the effective date of the Merger. Similarly, under
the Plan, the shares of Total Return Fund would be converted into a number of
shares of Mid-Cap II Fund with a value equal to the value of the net assets of
Total Return Fund immediately prior to the effective time of the Merger. Each
shareholder of Total Return Fund would receive a pro rata number of these whole
and fractional shares of Mid-Cap II Fund based on the relative number of Total
Return Fund shares held by the Shareholder on the effective date of the Merger.
Mid-Cap I Fund, Mid-Cap II Fund and Total Return Fund are each portfolio
series of open-end management investment companies. The Mid-Cap II Fund has an
investment objective of long-term growth of capital. Mid-Cap I Fund has an
investment objective of long-term growth by investing in a wide range of equity
securities (stock) that will appreciate in value and generate a reasonable level
of current income. The Total Return Fund has an investment objective of high
total return from income and capital appreciation, consistent with reasonable
risk, by investing in income-producing equity and debt securities. Mid-Cap I
Fund and Total Return Fund employ Van Eck Associates Corporation as their
investment adviser. John A. Levin and Co., Inc. is the sub-adviser for both
Mid-Cap I Fund and Total Return Fund.
Mid Cap II will employ Van Eck Associates Corporation as its investment adviser
and John A. Levin and Co., Inc. as the sub-adviser. As used in this
Prospectus/Proxy Statement, the term "adviser" refers to Van Eck Associates
Corporation, as the context requires.
This Proxy Statement/Prospectus, which you should retain for future
reference, sets forth concisely the information that you should know about the
Mid-Cap I, Mid-Cap II, and the Total Return Fund, and the transactions
contemplated by the reorganization agreement, before you vote on the proposed
reorganization. As used in this Prospectus/Proxy Statement, the term "Funds"
refers to the Mid-Cap I Fund and Total Return Fund, collectively, and the term
"Company" refers to each of Van Eck I and Van Eck II. A copy of the form of
prospectus for Mid-Cap II Fund is attached to this Proxy Statement/Prospectus as
Exhibit B.
A Prospectus and a Statement of Additional Information for the Mid-Cap I
Fund and the Total Return Fund, dated May 1, 2001, as supplemented on May 1,
2001, September 24, 2001, December 12, 2001, January 1, 2002 and February 1,
2002 have been filed with the Securities and Exchange Commission ("SEC") and are
incorporated by reference in this Proxy Statement/Prospectus. Copies of the
above-referenced documents are available upon written or oral request and
without charge by contacting Van Eck Associates Corporation at 99 Park Avenue,
New York, New York, 10016, or by telephoning Van Eck Associates Corporation
toll-free at 1-800-826-1115.
A Statement of Additional Information, dated March ___, 2002 relating to
the proposed transactions described in this Proxy Statement/Prospectus has been
filed with the SEC and is incorporated by reference in this Proxy
Statement/Prospectus. Copies of this Statement of Additional Information, which
includes a form of Statement of Additional Information for Mid-Cap II Fund may
be obtained without charge by contacting Van Eck Associates Corporation at 99
Park Avenue, New York, New York, 10016, or by telephoning Van Eck Associates
Corporation toll-free at 1-800-826-1115.
The SEC maintains a web site (http://www.sec.gov) that contains the
Statement of Additional Information dated March ___, 2002 and other material
incorporated by reference, together with other information regarding the Mid-Cap
I, Total Return Fund and Mid-Cap II.
This Proxy Statement/Prospectus constitutes the proxy statement of the
Mid-Cap I Fund and Total Return Fund for the meeting and the prospectus for
shares of the Mid-Cap II Fund that have been registered with the SEC and are
being issued in connection with the Reorganization. This Proxy
Statement/Prospectus is expected to first be sent to shareholders on or about
March ___, 2002.
The following table identifies each proposal set forth in the Notice of
Special Meeting of Shareholders and the checkmark (X) indicates which
Fund's shareholders and classes are being solicited to approve which proposal.
PROPOSAL MID-CAP I TOTAL RETURN FUND
-------- --------- -----------------
1. a. Investment Management Agreement with
Van Eck Associates Corporation X
1. b. Investment Management Agreement with
Van Eck Associates Corporation X
2. a. Investment Sub-advisory Agreement with
John A. Levin & Co., Inc. X
2. b. Investment Sub-advisory Agreement with
John A. Levin & Co., Inc. X
3. Agreement and Plan of Reorganization X X
----------------
THE SECURITIES OF THE MID-CAP II FUND HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY/PROSPECTUS STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Proxy Statement/Prospectus is March ___, 2002.
TABLE OF CONTENTS
PAGE
SYNOPSIS .................................................................
PROPOSALS 1A AND 1B ......................................................
PROPOSALS 2A AND 2B ......................................................
PROPOSAL 3: THE REORGANIZATION ...........................................
PRINCIPAL RISK FACTORS ...................................................
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES .........................
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS .....................
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES ..........................
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS ............................
FISCAL YEAR ..............................................................
MANAGEMENT ...............................................................
VOTING INFORMATION .......................................................
ADDITIONAL INFORMATION ...................................................
OTHER MATTERS ............................................................
FINANCIAL HIGHLIGHTS .....................................................
Exhibit A Agreement and Plan of Reorganization
Exhibit B Articles of Merger
Exhibit C Form of Prospectus of Mid-Cap II Fund
Exhibit D Proposed Advisory Agreement with
Van Eck Associates Corporation
Exhibit E Proposed Sub-Advisory Agreement with
John A. Levin & Co., Inc.
Exhibit F Form Proxy
Total Return Fund
Exhibit G Form Proxy
Mid-Cap Value Fund
i
SYNOPSIS
Proposal 1(a), 1(b)
In August 2001, Chubb Asset Managers Inc. ("Chubb") informed Van Eck
Associates that it did not wish to continue to serve as investment adviser to
Mid-Cap I Fund and Total Return Fund after December 31, 2001. On December 12,
2001 the Board of Directors approved an interim Investment Management Agreement
dated January 1, 2002, (the "Existing Agreement") under which Van Eck Associates
would replace Chubb as investment adviser to Mid-Cap I and Total Return Fund.
The Existing Agreement was approved by the Board of Directors under Rule
15a-4(b)(1) of the Investment Company Act of 1940 (the "Investment Company
Act"), which permits the board of directors to approve an interim advisory
agreement with a term of up to 150 days without prior shareholder approval.
Under the Existing Agreement, the Funds pay Van Eck Associates at an annual rate
of .20% on assets of up to $200 million, .19% on the next $1.1 billion and .18%
on assets in excess of $1.3 billion. The compensation payable to Van Eck
Associates under the Existing Agreement is identical to the compensation that
was previously payable to Chubb under a prior advisory agreement. The Existing
Agreement will remain in effect until the earlier of (i) the effective date of
the Proposed Advisory Agreement (as defined below) and (ii) May 31, 2002.
At a regular meeting of the Board of Directors held on December 12, 2001,
the Directors, including the Directors who are not "interested persons" of the
Company ("Independent Directors") considered and unanimously approved the
Proposed Investment Advisory Agreement, the form of which is attached as Exhibit
D (the "Proposed Advisory Agreement"). In considering the approval of the
Proposed Advisory Agreement, the Directors, including the Independent Directors,
considered whether the approval of the Proposed Advisory Agreement was in the
best interests of the Funds and the shareholders of the Funds.
Under the Proposed Advisory Agreement, Van Eck Associates will be
compensated by Mid-Cap I Fund and Total Return Fund at an annual rate of .75 %
of each Fund's average net assets. There are no breakpoints in the proposed fee
structure.
If approved by shareholders the Proposed Advisory Agreement will take
effect on the first day of the first month following approval, which is expected
to be May 1, 2002.
Proposal 2(a), 2(b)
At a regularly schedule meeting of the Board held on December 12, 2001 a
majority of the Directors, including a majority of the Independent Directors,
approved an interim investment sub-advisory agreement (the "Existing
Sub-Advisory Agreement") with John A. Levin & Co., Inc., ("Levin"). A majority
of the Directors, including a majority of the Independent Directors, also
approved the proposed investment sub-advisory agreement with Levin, the form of
which is attached as Exhibit E (the "Proposed Sub-Advisory Agreement").
Under the Proposed Sub-Advisory Agreement Levin will be compensated by
Van Eck Associates at an annual rate of .375% of average net assets. Levin has
agreed to waive its sub-advisory fees through September 30, 2002. The Proposed
Sub-Advisory Agreement will remain in full force and effect until May 1, 2004
and will continue annually thereafter as long as its continuance is specifically
approved annually by vote of the majority of the outstanding voting securities
(as that term is defined in the Investment Company Act) of the Fund or by the
Board, including a majority of the non-interested Directors at a meeting called
for the purpose of voting on such approval. The other terms and conditions of
the Proposed Sub-Advisory Agreement are substantially identical to the terms and
conditions of the Existing Sub-Advisory Agreement.
If approved by shareholders the Proposed Advisory Agreement will take
effect on the first day of the first month following approval, which is expected
to be May 1, 2002.
If proposals 1(a) and (b) are passed, the Funds' expenses before
reimbursement will increase.
Proposal 3
The proposed Reorganization is the outcome of deliberations by the Boards
of Directors of the two Companies. Van Eck Associates Corporation, the adviser
to each of Van Eck I and Van Eck II, recommended that the Directors of each
Company consider the benefits that the shareholders would realize from the
Reorganization. After considering the specific reorganization proposal, the
Directors of Van Eck I and Van Eck II, including the Independent Directors, at
meetings held on January 31, 2002, respectively, unanimously approved the Plan.
Summary of the Proposed Reorganization
The Reorganization will be effected in accordance with the terms of an
Agreement and Plan of Reorganization (the "Plan"), a copy of which is attached
to this Proxy Statement/Prospectus as Exhibit A. The Plan provides for:
o the merger of Van Eck I with and into Van Eck II with Van Eck II the
surviving corporation and Van Eck I will be the accounting survivor
o the conversion of shares of Mid-Cap I Fund into shares of Mid-Cap II
Fund with an aggregate net asset value equal to the value of the net
assets of Mid-Cap I Fund immediately prior to the Reorganization with
shareholders of Mid-Cap I Fund receiving a pro rata number of such
shares of Mid-Cap II Fund based on their relative holdings of Mid-Cap
I Fund shares immediately prior to the Reorganization; and
o the conversion of shares of Total Return Fund into shares of Mid-Cap
II Fund with an aggregate net asset value equal to the value of the
net assets of Total Return Fund immediately prior to the
Reorganization with shareholders of Total Return Fund receiving a pro
rata number of such shares of Mid-Cap II Fund based on their relative
holdings of Total Return Fund immediately prior to the Reorganization.
The Reorganization is anticipated to occur on or about May 1, 2002.
The implementation of the Reorganization is subject to a number of
conditions set forth in the Plan. See "The Proposed Reorganization." Among the
significant conditions (which may not be waived) are:
o the receipt by each Company of an opinion of counsel as to the federal
income tax consequences of the Reorganization; and
o the approval of the Plan by the shareholders of Mid-Cap I Fund and
Total Return Fund.
o The approval of new Investment Management Agreement with Van Eck
Associates Corporation and a new Investment Sub-Advisory Agreement
with Levin by the shareholders of each of Mid-Cap I Fund and Total
Return Fund as described in this Proxy Statement.
1
The Plan provides that Mid-Cap I Fund and Total Return Fund will bear all
costs and expenses of the Reorganization, including the costs of the meeting,
the costs and expenses incurred in the preparation and mailing of this Proxy
Statement/Prospectus, and the solicitation of proxies.
Investment Objectives and Principal Investment Strategies
The investment objectives and principal investment strategies of Mid-Cap
I, Mid-Cap II Fund, and Total Return Fund are as follows:
o Mid-Cap II Fund has an investment objective of seeking long-term
growth of capital. Mid-Cap I Fund has an investment objective of
seeking long-term growth by investing in a wide range of equity
securities (stocks) that will appreciate in value and generate a
reasonable level of current income. The investment objective of the
Total Return Fund is to seek to produce high total return from income
and capital appreciation, consistent with reasonable risk, by
investing in income-producing equity securities.
o Under normal market conditions Mid-Cap I Fund invests at least 80% of
its total assets will be invested in common stocks, including
preferred stocks and securities convertible into common stocks of mid
cap companies. Mid-Cap I Fund has traditionally invested at least 50%
of its assets in securities that have paid interest or dividends in
the past 12 months. Mid-Cap I Fund focuses its investments on mid-cap
companies.
Under normal market conditions, Mid Cap II Fund invests at least o 80%
of its total assets in common stocks and other equity securities
including preferred stocks and securities convertible into common
stock of mid-cap companies. Mid cap companies are companies generally
having a market capitalization of greater than $1 billion and less
than $10 billion. Mid-Cap II Fund uses a value strategy. Mid-Cap II
Fund will not be subject to a strategy that requires a specified
percentage of investments in income-producing securities.
The principal strategy of the Total Return Fund is to invest between
30% and 70% of its assets in equity securities and other securities
that can be exchanged for or converted into common stocks. The balance
of the Total Return Fund is normally invested in U.S. government
securities and corporate bonds. As a result of the strategy, Total
Return Fund will under normal market conditions invest a minimum of
30% of its assets in fixed income securities. Consistent with its
investment objective and principal investment strategy, Total Return
Fund also focuses its investments in mid-cap companies.
After the merger the Mid-Cap II Fund will invest in mid cap companies
without an obligation to purchase income producing securities. Prior
to the merger Mid-Cap I and Total Return Fund were required to
maintain a percentage of their assets in income producing securities.
See "Principal Risk Factors" and "Comparison of Investment Objectives and
Policies" in the prospectus of Mid-Cap II, for further information on the
similarities and differences between the investment objectives, policies and
risks of the Mid-Cap II Fund and Mid-Cap I Fund and Total Return Fund. You can
also find additional information in the form of Mid-Cap II Fund prospectus
attached as an exhibit.
Distribution and Purchase Arrangements
Mid-Cap I Fund and Total Return Fund currently offer one class of shares:
Class A. Shares are offered to the public at a price equal to the net asset
value per share plus a sales charge of 5.75%.
Mid-Cap II Fund will offer one class of shares: Class A. The Class A
shares of Mid-Cap II Fund will be offered to the public under the same sales
charge arrangements as the Class A shares of Mid-Cap I Fund and Total Return
Fund. After the Reorganization, shareholders of Mid-Cap I Fund and Total Return
Fund will be shareholders of Mid-Cap II Fund, and therefore purchases of shares
of Mid-Cap II Fund following the Reorganization will be subject to the
applicable initial sales charge.
Van Eck I has adopted a reimbursement type Plan of Distribution pursuant
to Rule 12b-1 under the Investment Company Act. Under the Plan of Distribution,
Mid-Cap I Fund and Total Return Fund pay Van Eck Securities Corporation (the
"Distributor") a Rule 12b-1 fee at an annual rate of up to .50% of average daily
net assets. The Distributor uses a portion of the Rule 12b-1 fee for payments
to agents or brokers who service shareholder accounts of Mid-Cap I Fund and
Total Return Fund and the remainder for other actual promotional and
distribution expenses incurred by the Distributor. Any Rule 12b-1 fee accrued by
Mid-Cap I Fund and/or Total Return Fund in excess of payments to brokers and
agents and reimbursement to the Distributor for its actual expenses may not be
retained by the Distributor. The Plan of Distribution does not provide for the
payment of interest as a distribution expense or for the carry-forward of
reimbursable or payable amounts under the Plan of Distribution to subsequent
years. Van Eck II will adopt a Plan of Distribution for Mid-Cap II Fund that is
substantially identical to the Plan of Distribution for Van Eck I.
2
See "Comparative Information on Distribution Arrangements" for further
information on the distribution arrangements of Mid-Cap I Fund and Total Return
Fund and Mid-Cap II Fund. You can also find additional information on
distribution arrangements for Mid Cap II Fund in the form of prospectus of
Mid-Cap II Fund attached as an exhibit.
Dividends and Distributions
The dividend and distribution policies of Mid-Cap I Fund and Mid-Cap II
Fund are substantially identical.
o Mid-Cap I Fund and Mid-Cap II Fund distribute dividends and capital
gains, if any, at least annually.
o The Total Return Fund distributes dividends and short term capital
gains, if any, quarterly and distributes long term capital gains, if
any, at least annually.
All dividends and distributions of the Mid-Cap I, Mid-Cap II Fund and
Total Return Fund are paid in additional shares of the respective series unless
shareholders elect to receive cash. You can also find additional information on
the dividend and distributions policy of Mid-Cap II Fund in the form of
prospectus for Mid-Cap Value II Fund attached as Exhibit C.
Exchange Privileges
Shareholders of Total Return Fund and Mid-Cap I Fund may exchange shares,
at net asset value, for shares of the same class of any of the other Van Eck
Funds. Exchanges out of Mid-Cap I Fund and Total Return Fund will be accepted up
to the business day prior to the closing date of the Reorganization.
Van Eck II intends to continue the policy of limiting exchanges out of
Mid-Cap II Fund to six per calendar year. Van Eck II reserves the right to
terminate, modify or impose a fee in connection with the exchange privilege.
Redemption Procedures
Shareholders of Mid-Cap I, Mid-Cap II Fund and Total Return Fund may
redeem their Class A shares at a redemption price equal to the net asset value
of the shares as next determined following the receipt of a redemption order in
proper form. Redemption of shares of Mid-Cap I Fund and Total Return Fund will
be accepted up to the business day prior to the closing date of the
Reorganization. Shares may be redeemed by writing to DST Systems, Inc., P.O. Box
218407, Kansas City, Missouri 64121, each Fund's transfer agent, through the
shareholder's broker or agent (although they may charge a fee for their
services) or, if the shareholder has so elected, by contacting DST by telephone.
Federal Tax Consequences of Proposed Reorganization
At the closing of the Reorganization, Van Eck I and Van Eck II will
receive an opinion of counsel, subject to customary assumptions and
representations, that:
o shareholders of Mid-Cap I Fund and Total Return Fund should recognize
no gain or loss for federal income tax purposes on their receipt of
shares of the Mid-Cap II Fund;
o the aggregate tax basis of Mid-Cap II Fund shares, including any
fractional shares, received by each shareholder of the Mid-Cap I Fund
and Total Return Fund pursuant to the Reorganization should be the
same as the aggregate tax basis of the Mid-Cap I Fund and Total Return
Fund shares held by such shareholder immediately prior to the
Reorganization; and
o the holding period of the Mid-Cap II Fund shares, including fractional
shares, to be received by each shareholder of Mid-Cap I Fund and
Total Return Fund should include the period
3
during which the Mid-Cap I Fund and Total Return Fund shares exchanged
therefor were held by such shareholder (provided that the Mid-Cap I
Fund and Total Return Fund shares were held as a capital assets on the
date of the Reorganization).
See "The Proposed Reorganization--Federal Income Tax Consequences" for
more information.
Risk Factors
An investment in Mid-Cap II Fund is subject to specific risks arising
from the types of securities in which Mid-Cap II Fund invests and general risks
arising from investing in any mutual fund. Investors can lose money by investing
in Mid-Cap II Fund. There is no assurance that the Mid-Cap II Fund will meet its
investment objective. An investment in the Mid-Cap II Fund is subject to many of
the same risks as an investment in Mid-Cap Fund or Total Return Fund. See
"Principal Risk Factors" for the principal risks associated with an investment
in the Mid-Cap II Fund.
Mid-Cap Companies
Because each of Mid-Cap I Fund, Total Return Fund and Mid-Cap II Fund
invest in mid-cap companies, each fund is subject to certain risks associated
with mid-cap companies. Mid-cap companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences. In addition, mid-cap companies often have greater price volatility,
lower trading volume and less liquidity than larger more-established companies.
These companies tend to have smaller revenues, narrower product lines, less
management depth and experience, smaller shares of their product or service
markets, fewer financial resources, and less competitive strength than larger
companies.
Value Strategy
The principal risk of investing in value stocks is that they may never
reach what Mid-Cap II Fund believes is their full value or that they may even go
down in value. In addition, different types of stocks tend to shift in and out
of favor depending on market and economic conditions and therefore Mid-Cap II's
performance may be lower or higher than that of funds that invest in other types
of equity securities (such as those emphasizing growth stocks).
Foreign Securities
Since Mid-Cap II, Total Return Fund and Mid-Cap II Fund invest up to 20%
of their assets in foreign securities, any risks inherent in such investments
are applicable to all three Funds. Since investments in foreign companies will
frequently involve currencies of foreign countries, and since these Funds may
hold securities and funds in foreign currencies, these Funds may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, if any, and may incur costs in connection with conversions between
various currencies. Most foreign stock markets, while growing in volume of
trading activity, have less volume than the New York Stock Exchange, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies.
Management and Other Service Providers
Van Eck Associates serves as investment manager and administrator to Mid-Cap I
Fund and Total Return Fund. Levin serves as sub-adviser to each Fund. Investment
and trading decisions for Mid-Cap I Fund and Total Return Fund are made by
Levin. The portfolio managers for each Fund primarily responsible for the
day-to-day decisions are John W. Murphy and Daniel M. Theriault. Van Eck
Associates will also serve as investment manager and administrator to Mid-Cap II
Fund. Levin will also serve as sub-adviser to Mid-Cap II Fund.
Comparative Fee Tables
The tables below are designed to assist an investor in understanding the
various direct and indirect costs and expenses associated with an investment in
Class A shares of each fund. Each table also includes pro forma information for
Mid-Cap II Fund resulting from the Reorganization assuming the Reorganization
took place on January 11, 2002, and after adjusting such information to reflect
the Management Fees and Administration Fees that will be in effect immediately
prior to the Reorganization if stockholders approve the new investment
management agreement with Van Eck Associates and new investment sub-advisory
agreement with Levin. The expense information for Total Return Fund and Mid-Cap
I Fund is annualized based upon expenses for the 11 day period ended January 11,
2002.
SHAREHOLDER EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Pro Forma
Total Return Mid-Cap II
Mid-Cap I Fund Fund
Class A Class A Class A
--------- ------------ -------------
Maximum Sales Charge (imposed on
purchases as a percentage of
offering price) 5.75% 5.75% 5.75%
Maximum Deferred Sales Charge
(as a percentage) None None None
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Management Fees 0.90%(a) 0.90%(a) 0.90(a)
Distribution (12b-1 Fees) 0.50%(b) 0.50%(b) 0.50%(b)
Other Expenses 0.82% 0.88% 0.66%
TOTAL ANNUAL FUND OPERATING EXPENSES 2.22%(c) 2.28%(c) 2.06%(c)
4
(a) Reflects the Management Fee and Administration Fee that will apply if
proposals 1(a), 1(b), 2(a) and 2(b) are approved. Management Fees and
Administrative Fees for Mid-Cap I Fund and Total Return Fund are
currently 0.2% and 0.45% respectively for each Fund.
(b) Distribution (12b-1 Fees) represent an asset-based sales charge that, for
a long-term shareholder may be higher than the maximum front-end sales
charge permitted by the National Association of Securities Dealers, Inc.
(c) The adviser has voluntarily agreed to temporarily waive a portion of its
management fee and if necessary, to bear certain expenses associated with
operating each of Total Return Fund and Mid-Cap I Fund in order to limit
Total Annual Operating Expenses for each fund to an annual rate of 1.35%
of average net assets. The Adviser has voluntarily agreed to temporarily
waive a portion of its management fee and if necessary, to bear certain
expenses associated with operating Mid-Cap II Fund to an annual rate of
1.35% of average net assets plus 12b-1 reimbursements. These temporary
waivers and expense provisions may be discontinued at any time at the
discretion of the Adviser.
The following table shows the expenses you would pay on a hypothetical
$10,000 investment. The example presumes an average annual return of 5% with
redemption at the end of each time period. This illustration is hypothetical and
assumes that expenses remain the same and you reinvest your dividends and
distributions. In a real investment, your actual expenses may be higher or lower
than those shown.
EXPENSE EXAMPLE
WHAT A $10,000 INVESTMENT WOULD ACTUALLY COST
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Mid-Cap I [$787] [$1,229] [$1,696] [$2,982]
Total Return Fund [$793] [$1,246] [$1,725] [$3,040]
Pro Forma Mid-Cap II Fund [$772] [$1,184] [$1,620] [$2,827]
The purpose of the table above is to help the investor understand the
various costs and expenses that the investor will bear directly or indirectly.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE RETURNS
OR EXPENSES. ACTUAL RETURNS OR EXPENSES MAY BE GREATER OR LESS THAN SHOWN.
PROPOSALS 1A (FOR MID-CAP I FUND SHAREHOLDERS ONLY) AND 1B (FOR TOTAL RETURN
FUND SHAREHOLDERS ONLY)
APPROVAL OF NEW INVESTMENT MANAGEMENT AGREEMENT WITH VAN ECK ASSOCIATES
CORPORATION
In August 2001, Chubb Asset Managers Inc. ("Chubb") informed Van Eck
Associates Corporation ("Van Eck Associates") that it did not wish to continue
to serve as investment adviser to Mid-Cap I Fund and Total Return Fund effective
December 31, 2001. After December 12, 2001, the Board of Directors approved an
interim investment management agreement (the "Existing Agreement") under which
Van Eck Associates would replace Chubb as investment adviser to Mid-Cap I Fund
and Total Return Fund. The Existing Agreement was approved by the Board of
Directors under Rule 15a-4(b)(1) of the Investment Company Act, which permits
the board of directors to approve an interim advisory agreement with a term of
up to 150 days without prior shareholder approval. Under the Existing Agreement,
the Funds pay Van Eck Associates at an annual rate of .20% on assets of up to
$200 million, .19% on the next $1.1 billion and .18% on assets in excess of $1.3
billion. The compensation payable to Van Eck Associates under the Existing
Agreement is identical to the compensation that was previously payable to Chubb
under a prior advisory agreement. The Existing Agreement will remain in effect
until the earlier of (i) the effective date of the Proposed Advisory Agreement
(as defined below) and (ii) May 31, 2002.
The Existing Agreement provides that Van Eck Associates will not be
liable except for its willful misfeasance, bad faith or negligence in the
performance of its duties, reckless disregard of its obligations and duties
under the Existing Agreement or violation of any law.
INFORMATION REGARDING VAN ECK ASSOCIATES
Van Eck Associates, 99 Park Avenue 8th Floor, New York, New York 10016
has been an investment adviser since 1955. Van Eck Associates currently advises
9 portfolio series of registered
5
investment companies, as well as separate accounts and hedge funds. Van Eck
Associates is currently the administrator of the Funds. As of December 31, 2001
aggregate assets under management were approximately $900,000,000. Van Eck
Securities Corporation, a wholly-owned subsidiary of Van Eck Associates serves
as distributor of shares of the Funds and receives fees under the Distribution
Plan. For the fiscal year ended December 31, 2001, the Mid-Cap I Fund and Total
Return Fund paid Van Eck Associates $268,240 and $127,018 in administrative fees
and $298,044 and $141,131 fees under the Distribution Plan, respectively.
The name, address and principal occupation of the principal executive
officer and each director of Van Eck Associates is as follows:
DIRECTORS AND OFFICERS
----------------------
TERM OF PRINCIPAL NUMBER OF OTHER
OFFICE(2) AND OCCUPATIONS FUNDS IN DIRECTORSHIPS
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF DURING PAST FUND COMPLEX HELD BY
AND AGE WITH FUND TIME SERVED 5 YEARS TRUSTEE/OFFICER TRUSTEE/OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS*
John C. van Eck Chairman Since 1997 Chairman, Van Eck Van Eck Funds, Inc. Chairman of the
(86) and Associates Corporation (2); Van Eck Funds Board and President
Director and Van Eck Securities (6); Worldwide of two other invest-
Corporation Insurance Trust (4) ment companies
advised by the
Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT
DIRECTORS
Jeremy H. Biggs Director Since 1997 Vice Chairman, Director Van Eck Funds, Inc. Trustee/Director of
(65) and Chief Investment (2); Van Eck Funds two other investment
Officer, Fiduciary Trust (6); Worldwide companies advised
Company International Insurance Trust (4) by the Adviser;
Chairman, Davis Funds
Group; Treasurer and
Director, Royal Oak
Foundation; Director,
Union Settlement
Association; First
Vice President, Trustee
and Chairman, Finance
Committee, St. James
School
- ------------------------------------------------------------------------------------------------------------------------------------
David J. Olderman Director Since 1997 Private investor Van Eck Funds, Inc. Trustee/Director of
(66) (2); Van Eck Funds two other investment
(6); Worldwide companies advised
Insurance Trust (4) by the Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
Richard D. Stamberger Director Since 1997 President, SmartBrief. Van Eck Funds, Inc. Trustee of two other
(43) com (2); Van Eck Funds investment companies
(6); Worldwide advised by the Adviser;
Insurance Trust (4) Partner and Co-founder,
Quest Partners, LLC;
Executive Vice President,
Chief Operating Officer
and Director of NuCable
Resources Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
Richard Cowell*** Director Since 2002 Van Eck Funds Trustee of other
(74) (6); Worldwide investment companies
240 El Vedado Way Insurance Trust (4) advised by the Adviser;
Palm Beach, FL 33480 Private investor;
Director, West Indies &
Carribean Development
Ltd. (real estate)
- ----------------------------------------------------------------------------------------------------------------------------------
Philip D. DeFeo*** Director Since 2002 Van Eck Funds Trustee of other
(55) (6); Worldwide investment companies
301 Pine Street Insurance Trust (4) advised by the Adviser;
San Francisco, CA 94104 Chairman, Pacific Stock
Exchange; former
President, Van Eck
Associates Corporation
and Van Eck Securities
Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
Ralph F. Peters*** Director Since 2002 Van Eck Funds Trustee of other
(72) (6); Worldwide investment companies
1350 Beverly Road Insurance Trust (4) advised by the Adviser;
McLean, VA 22101 Director, Sun Life
Insurance and Annuity
Company of New York;
Director, U.S. Life
Income Fund.
- ----------------------------------------------------------------------------------------------------------------------------------
Jan F. van Eck*** Director Since 2002 Van Eck Funds Officer and Director,
(38) (6); Worldwide Van Eck Associates
99 Park Avenue Insurance Trust (4) Corporation, Van Eck
New York, NY 10016 Securities Corporation
and other affiliated
companies
- ----------------------------------------------------------------------------------------------------------------------------------
Derek S. van Eck*** Director Since 2002 Van Eck Funds Officer and Director,
(37) (6); Worldwide Van Eck Associates
99 Park Avenue Insurance Trust (4) Corporation, Van Eck
New York, NY 10016 Securities Corporation
and other affiliated
companies
TERM OF PRINCIPAL NUMBER OF OTHER
OFFICE(2) AND OCCUPATIONS FUNDS IN DIRECTORSHIPS
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF DURING PAST FUND COMPLEX HELD BY
AND AGE WITH FUND TIME SERVED 5 YEARS TRUSTEE/OFFICER TRUSTEE/OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Bruce J. Smith Vice President Since 1997 Senior Vice President Van Eck Funds, Inc. Officer of two other
(47) and Controller and Chief Financial (2); Van Eck Funds investment companies
Officer, Van Eck (6); Worldwide advised by the Adviser
Associates Corporation; Insurance Trust (4)
Senior Managing
Director, Van Eck
Securities Corporation
16
TERM OF PRINCIPAL NUMBER OF OTHER
OFFICE(2) AND OCCUPATIONS FUNDS IN DIRECTORSHIPS
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF DURING PAST FUND COMPLEX HELD BY
AND AGE WITH FUND TIME SERVED 5 YEARS TRUSTEE/OFFICER TRUSTEE/OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas H. Elwood Vice President Since 1998 Vice President, Secretary Van Eck Funds, Inc. Officer of two other
(54) and Secretary and General Counsel, (2); Van Eck Funds investment companies
Van Eck Associates (6); Worldwide advised by the
Corporation, Van Eck Insurance Trust (4) Adviser
Securities Corporation
and other affiliated
companies
- ------------------------------------------------------------------------------------------------------------------------------------
Alex Bogaenko Officer Since 1997 Director of Portfolio Van Eck Funds, Inc. Controller of two
(39) Administration, Van (2); Van Eck Funds other investment
Eck Associates (6); Worldwide companies advised
Corporation and Van Insurance Trust (4) by the Adviser
Eck Securities
Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Susan Lashley Officer Since 1997 Managing Director, Van Eck Funds, Inc. Vice President of
(47) Mutual Fund (2); Van Eck Funds another investment
Operations, Van Eck (6); Worldwide company advised
Securities Corporation Insurance Trust (4) by the Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------
(1) The address for each Director/Officer is 99 Park Avenue, 8th Floor, New
York, NY 10016.
(2) Each Director serves for an indefinite term, until his resignation, death
or removal. Officers are elected yearly by the Directors.
* John C. van Eck is an interested director as he owns shares and is on the
Board of Directors of the investment adviser.
*** To be elected to the Board prior to the Reorganization.
The following officers of the Company are also officers, employees,
directors or shareholders of Van Eck Associates:
- -------------------------- ----------------- -----------------------------------
Position with
Name and Address the Fund Position with Van Eck Associates
- -------------------------- ----------------- -----------------------------------
John C. Van Eck (86) Chairman Chairman of the Board
99 Park Avenue of the Board
New York, New York 10016
- -------------------------- ----------------- -----------------------------------
Bruce J. Smith (47) Vice President Chief Financial Officer of Van Eck
99 Park Avenue and Treasurer Associates, Senior Vice President
New York, New York 10016
- -------------------------- ----------------- -----------------------------------
Thomas H. Elwood (54) Vice President Vice President, General Counsel
99 Park Avenue and Secretary and Secretary
New York, New York 10016
- -------------------------- ----------------- -----------------------------------
Susan Lashley (47) Vice President Managing Director, Mutual Fund
99 Park Avenue Operations
New York, New York 10016
- -------------------------- ----------------- -----------------------------------
Alex Bogaenko (39) Controller Director of Portfolio
99 Park Avenue Administration
New York, New York 10016
- -------------------------- ----------------- -----------------------------------
The Van Eck family currently owns 100% of the shares of Van Eck
Associates. The outstanding securities of Van Eck Associates are held by John C.
van Eck; Sigrid van Eck; Jan van Eck and Derek van Eck, all of whom are
directors of Van Eck Associates and currently own in excess of 10% of the
outstanding voting securities of Van Eck Associates. The address for these
directors is 99 Park Avenue, New York, New York 10016.
PROPOSED ADVISORY AGREEMENT
At a regular meeting of the Board of Directors held on December 12,
2001, a majority of the Directors, including a majority of the Independent
Directors considered and unanimously approved the Proposed Investment Advisory
Agreement for both Funds, the form of which is attached as Exhibit D (the
"Proposed Advisory Agreement"). In considering the approval of the Proposed
Advisory Agreement, the Directors, including the non-interested Directors,
considered whether the approval of the Proposed Advisory Agreement was in the
best interests of the Funds and the shareholders of the Funds. At the meeting,
the Directors reviewed materials furnished by Van Eck Associates and met with
representatives of Van Eck Associates. Among other things, the Directors
considered the investment philosophy and style of Van Eck Associates its
relative performance record and its personnel.
The Directors noted that Van Eck Associates intended to engage Levin as
sub-adviser to the Funds, and that Levin intended to manage the Funds using a
mid-cap value strategy. At the meeting, the Board was presented with certain
comparative information on advisory fees paid by other mutual funds managed with
a mid-cap value strategy, which indicated that the advisory fees payable under
the Proposed Advisory Agreement would fall in the middle of the second quartile
(as ranked from highest to lowest fees). Van Eck Associates also informed the
Board that it intended but is not required to maintain the current fee waiver
and reimbursement arrangements that limit the total expenses of the Funds. Van
Eck Associates also informed the Directors that Van Eck
6
Associates would reduce the administrative fees payable by the Funds to Van Eck
Associates from an effective annual rate of .45% of average net assets to 0.15%
of average net assets if the Proposed Advisory Agreement is approved.
The table below sets forth the name of other mutual funds with similar
investment objectives to the Funds that are managed by Van Eck Associates, the
fee charged by Van Eck Associates as a percentage of average daily net assets
and the net assets of the mutual fund as of December 31, 2001.
ANNUAL RATE OF NET ASSETS AT
NAME OF MUTUAL FUND COMPENSATION 12/31/01
------------------- -------------- -------------
Asia Dynasty Fund 0.75% $ 15,442,103
Global Leaders Fund 0.75% $ 15,877,290
Worldwide Emerging
Markets Fund 1.00% $134,424,047
TERMS OF THE PROPOSED ADVISORY AGREEMENT
Under the Proposed Advisory Agreement, Van Eck Associates will be
compensated by Mid-Cap I Fund and Total Return Fund at an annual rate of .75 %
of the Fund's average net assets. There are no breakpoints in the proposed fee
structure.
The Proposed Advisory Agreement recognizes that Van Eck Associates and/or
Levin may, from time to time, engage sub-advisors to provide investment advisory
services to the Funds. Van Eck Associates is responsible for compensating
sub-advisers for services to the Funds.
Duration and Termination
The Proposed Advisory Agreement will remain in full force and effect
until May 1, 2004 and will continue thereafter as long as its continuance is
specifically approved at least annually by vote of a majority of the outstanding
voting securities (as that term is defined in the Investment Company Act) or by
the Board, including the approval by a majority of Independent Directors, at a
meeting called for the purpose of voting on such approval. The Proposed Advisory
Agreement may be terminated without the payment of any penalty by the vote of
the Board of Directors, or by the vote of a majority of the outstanding shares
of the Funds on 60 days written notice to Van Eck Associates. The Proposed
Advisory Agreement may also be terminated by Van Eck Associates on 60 days
written notice to the Fund. The Proposed Advisory Agreement will also terminate
automatically in the event of its assignment.
The Proposed Advisory Agreement provides that, in the absence of
willful misfeasance, bad faith, negligence in the performance of its duties, or
reckless disregard of its obligations and duties thereunder, Van Eck Associates
will not be liable for any act or omission in connection with its activities as
Investment Manager to the Funds.
The Proposed Advisory Agreement does not require Van Eck Associates to
provide administrative services to either Fund. Currently, the Funds separately
contract with Van Eck Associates to provide these services for a fee of .45% of
average net assets up to $200 million .41% of average net assets of the next
$1.1 billion and .37% of average net assets over $1.3 billion. Van Eck
Associates has agreed to reduce its fee for administrative services to an annual
rate of 0.15% of its average daily net assets if the Proposed Advisory Agreement
is approved by shareholders.
If the Proposed Advisory Agreement is approved, the Management and
Administrative fees payable by the Funds to Van Eck Associates will change as
follows:
7
Proforma
Mid-Cap I Total Return Mid-Cap II
--------- ------------ ----------
Up To $200 million 0.65% 0.65% 0.90%
Next $1.1 billion 0.60% 0.60% 0.90%
Over $1.3 billion 0.55% 0.55% 0.90%
As a percentage the new fees are an increase of 38%.
THE PROPOSED INVESTMENT ADVISORY AGREEMENT TO WHICH THIS PROXY MATERIAL
RELATES CONTAINS TERMS WHICH PROVIDE FOR HIGHER MANAGEMENT FEES THAN THE
EXISTING ADVISORY AGREEMENT.
If approved by shareholders the Proposed Advisory Agreement will take
effect on the first day of the first month following approval, which is expected
to be May 1, 2002. If the proposal is not approved by shareholders of a Fund,
the Board will consider what alternatives, including alternative advisory
arrangements, are in the best interests of the Funds and their shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSALS 2A (FOR MID-CAP I FUND SHAREHOLDERS ONLY) AND 2B (FOR TOTAL RETURN
SHAREHOLDERS ONLY)
APPROVAL OF NEW INVESTMENT SUB-ADVISORY AGREEMENT WITH JOHN A. LEVIN AND CO.
INC.
At a regularly scheduled meeting of the Board held on December 12, 2001
the Directors, including the Independent Directors, unanimously approved an
interim investment sub-advisory agreement for both Funds (the "Existing
Sub-Advisory Agreement") with John A. Levin & Co., Inc., ("Levin").
Under the Existing Sub-Advisory Agreement Van Eck Associates has agreed
to pay Levin a sub-advisory fee at an annual rate of .20% of the first $200
million of average daily net assets, .19% of the next $1.1 billion of average
daily net assets and .18% of assets in excess of $1.3 billion. Levin has agreed
to waive all sub-advisory fees through September 30, 2002. The Existing
Sub-Advisory Agreement will remain in effect until the earlier of (i) the
effective date of the Proposed Sub-Advisory Agreement (as defined below) and
(ii) May 31, 2002. The Existing Sub-Advisory Agreement provides that Levin is
not liable except for its willful misconduct, negligence, or bad faith in the
performance of its duties under the Existing Sub-Advisory Agreement.
The Existing Sub-Advisory Agreement for both Funds may be terminated
without payment of any penalty by the vote of the majority of the Board of
Directors or by the vote of a majority of the Fund's outstanding voting
securities on 10 days' written notice to Levin or by Van Eck Associates or Levin
at any time upon 60 days' notice to the other parties. The Existing Sub-Advisory
Agreement will terminate automatically in the event of its assignment.
Proposed Sub-Advisory Agreement
At a regular meeting of the Board of Directors held on December 12, 2001,
the Directors, including the Independent Directors, unanimously approved the
proposed investment sub-advisory agreement for both Funds with Levin, the form
of which is attached as Exhibit E (the "Proposed Sub-Advisory
8
Agreement"). In considering the approval of the Proposed Sub-Advisory Agreement,
the Directors reviewed materials furnished by Levin and met with a
representative of Levin. Among other things, a representative of Levin provided
an overview of Levin's experience, investment process and personnel. Levin also
provided the Directors with information on the performance of Levin's mid-cap
value composite, which has outperformed its benchmark index since its inception
in 1999.
Under the Proposed Sub-Advisory Agreement Levin will be compensated by
Van Eck Associates at an annual rate of .375% of average net assets. Levin has
agreed to waive its sub-advisory fees through September 30, 2002. The Proposed
Sub-Advisory Agreement will remain in full force and effect until May 1, 2004
and will continue annually thereafter as long as its continuance is specifically
approved annually by vote of the majority of the outstanding voting securities
(as that term is defined in the Investment Company Act) of each Fund or by the
Board, including a majority of the non-interested Directors at a meeting called
for the purpose of voting on such approval. The other terms and conditions of
the Proposed Sub-Advisory Agreement are substantially identical to the terms and
conditions of the Existing Sub-Advisory Agreement.
Levin, together with its predecessors, have provided investment advisory
services to clients since 1982. Levin is an indirect, wholly owned subsidiary of
BKF Capital Group, Inc. ("BKF"), a company listed on the New York Stock Exchange
(the "NYSE"). Clients of Levin include U.S. and foreign individuals, trusts,
non-profit organizations, registered investment funds, investment partnerships,
endowments, and pension and profit sharing funds. Levin currently manages
approximately $12.6 billion in assets for its clients.
The table below sets forth the names of other mutual funds with similar
investment objectives to the Fund for which Levin serves as adviser or
sub-adviser, the fees charged by Levin as a percentage of average daily net
assets and the net assets of the Fund as of December 31, 2001:
- --------------------------------------------------------------------------------
Approximate
Annual Rate of Adviser or Net Assets as of
Name of Mutual Fund Compensation Sub-Adviser December 31, 2001
- --------------------------------------------------------------------------------
Levco Equity Value Fund 0.85% Adviser $24.2 million
- --------------------------------------------------------------------------------
Vanguard Equity Income Fund 0.437% Adviser $490.5 million
- --------------------------------------------------------------------------------
Mainstay Research Value Fund 0.425% Sub-Adviser $57.7 million
- --------------------------------------------------------------------------------
Large company Stock Value
Fund of Charter Funds Series
of CIGNA Funds Group 0.30% Sub-Adviser $415.9 million
- --------------------------------------------------------------------------------
CIF Core Equity Fund
of Common fund
Institutional Funds 0.375% Sub-Adviser $25.4 million
- --------------------------------------------------------------------------------
The following sets forth the name, title and principal occupations of the
principal executive officers and each director of Levin.
- --------------------------------------- -----------------------
Name Title at Levin
- ---------------------------------------------------------------
John A. Levin* Chairman and CEO
- ---------------------------------------------------------------
Gregory T Rogers* Chief Operating Officer, Executive
Vice President
- ---------------------------------------------------------------
Glenn A. Aigen* Senior Vice President and Chief
Financial Officer
- ---------------------------------------------------------------
Norris Nissim Vice President and General Counsel
- ---------------------------------------------------------------
* Directors at John A. Levin & Co., Inc.
9
If approved by shareholders, the Proposed Sub-Advisory Agreement will
take effect on the first day of the first month following approval, which is
expected to be May 1, 2002. If the proposal is not approved by shareholders of
the Funds the Board will consider what alternatives, including alternative
sub-advisory arrangements are in the best interests of the Fund and its
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 3 THE REORGANIZATION
The following is a summary of the significant terms of the Plan which has
been considered and approved by the Directors of the Company at a meeting held
on January 31, 2002. A copy of the Plan is attached to this Proxy
Statement/Prospectus as Exhibit A. This summary is qualified in its entirety by
reference to the Plan.
Under the Plan, Van Eck I will be merged with and into Van Eck II, with
Van Eck II the surviving corporation. The shares of Mid-Cap I Fund will be
converted into a number of Class A shares of Mid-Cap II Fund with a net asset
value equal to the value of the net assets of Mid-Cap I Fund computed
immediately after the close of business of the New York Stock Exchange on the
closing date of the Reorganization (the "Valuation Time"). Under the Plan, each
shareholder of Mid-Cap I Fund would receive a pro rata number of the shares of
Mid-Cap II Fund based on the relative number of Mid-Cap I Fund shares held by
the shareholder on the closing date of the Reorganization. Similarly, under the
Plan, the Class A shares of Total Return Fund would be converted into a number
of shares of Mid-Cap II Fund with a net asset value equal to the value of the
net assets of Total Return Fund on the closing date of the Reorganization. Each
shareholder of Total Return Fund would receive a pro rata number of these whole
and fractional shares of Mid-Cap II Fund based on a relative number of Total
Return Fund shares held by the shareholder on the closing date of the
Reorganization.
The value of the net assets of Total Return Fund and Mid-Cap I Fund and
the net asset value of the shares of Mid-Cap II Fund will be determined at the
Valuation Time using the valuation procedures set forth in Mid-Cap II's then
current prospectus and statement of additional information.
No sales charge or fee of any kind will be charged to the shareholders of
Mid-Cap I Fund or Total Return Fund in connection with the Reorganization. The
closing of the Reorganization will occur on the first Friday following
satisfaction (or waiver) of the conditions to closing set forth in the Plan
(currently anticipated to occur on or about May 1, 2002), or such other date as
the parties may agree.
At or prior to the closing date of the Reorganization, each of Mid-Cap I
Fund and Total Return Fund will declare a dividend or dividends which, together
with all previous such dividends, will have the effect of distributing to the
shareholders of each Fund all of the Fund's investment company taxable income
for all taxable years ending at or prior to the closing date (computed without
regard to any deduction for dividends paid) and all of its net capital gains
realized (after reduction for any capital loss carry-forward) in all taxable
years ending at or prior to the closing date.
All of the expenses of the Reorganization, including without limitation,
legal and printing expenses and expenses of holding the Meeting (such as proxy
tabulation and expense of a solicitor, if any) will be borne by Mid-Cap I Fund
and Total Return Fund. [Expenses that are directly attributable to a particular
Fund be borne by the Fund. Expenses that are not directly attributable to a Fund
will be allocated pro rata based on the respective net assets of each Fund at
the Valuation Time.] All fees payable by any party as described herein shall be
payable by such party regardless of whether the transactions contemplated hereby
are consummated.
Approval of the Plan requires approval of a majority of the outstanding
shares of each of Mid-Cap I Fund and Total Return Fund.
The Plan authorizes Van Eck Associates, as the sole shareholder of
Mid-Cap II Fund prior to the Reorganization to:
o elect John C. van Eck, Jeremy H. Biggs, Richard Stamberger, Richard Cowell,
Philip DeFeo, Ralph Peters, Jan van Eck, Derek van Eck and David J. Olderman
as the directors of the Maryland Corporation; and
o approve an investment management agreement with Van Eck Associates; and
o approve an investment subadvisory agreement with Levin; and
o ratify the selection of Ernst & Young as the independent accountants for
Mid-Cap II Fund.
The terms and conditions of the investment management agreement and investment
subadvisory agreement to be approved by the sole shareholder are identical to
those described in proposals 1a and 1b and 2a and 2b.
The Plan may be amended at any time prior to the closing date with
respect to any of the terms therein except that, following the meeting of the
shareholders of Mid-Cap I Fund or Total Return Fund, no
10
such amendment may have the effect of changing the provisions of the Plan
determining the number of Mid-Cap II Fund shares to be issued to Mid-Cap I Fund
or Total Return Fund shareholders to their detriment without their further
approval. The obligations of Mid-Cap II, Total Return Fund and Mid-Cap II Fund
are subject to various conditions, including approval of the new investment
management agreement with Van Eck Associates and new investment sub-advisory
agreements with Levin by shareholders of Mid-Cap I Fund and Total Return Fund as
described in this Proxy Statement/Prospectus, approval of the Plan by the
shareholders of Mid-Cap I Fund and Total Return Fund, and receipt of an opinion
from Goodwin Procter LLP regarding the federal income tax consequences of the
Reorganization.
Reasons for the Reorganization
The proposed Reorganization is the outcome of deliberations by the Boards
of Directors of the Companies. Van Eck Associates, the adviser to each of the
Funds, recommended that the Directors of each Company consider the benefits that
shareholders would realize if Mid-Cap I Fund were to be combined with the Total
Return Fund. Management noted that both Mid Cap I Fund and Total Return Fund
have experienced slow sales in recent years and that the net assets of both
Funds have declined. Further, the net assets of each Fund significantly declined
in January 2002 when the Chubb Corporation redeemed its holdings in each Fund,
which represented in excess of 50% of the then outstanding shares of each Fund.
Management believes that combining the two Funds would offer an improved
opportunity to market the combined fund to additional investors and produce
potential economies of scale that will benefit shareholders of both Funds.
In the course of their review of the proposed Reorganization, the Boards
of Directors noted that the Reorganization would be a means of combining two
Funds with the same adviser and sub-adviser and would permit the shareholders of
each Fund to pursue their investment goals in a larger fund. In reaching this
conclusion, the Boards of Directors considered a number of additional factors,
including the following:
o the total expense ratio of the combined Mid Cap II Fund following the
Reorganization is projected to be lower than the current total expense
ratio of each of Mid-Cap I Fund and Total Return Fund;
o the Reorganization provides for continuity of advisory, distribution
and shareholder servicing arrangements;
o the Reorganization should not result in the recognition of any gain or
loss for federal income tax purposes either to the Mid-Cap I Fund or
the Total Return Fund or to the shareholders of either of the Funds;
and
o the Reorganization could result in economies of scale through the
spreading of fixed costs over a larger asset base. At only $20,084,782
and $11,681,765 million in net assets (as of January 22, 2002), the
fixed costs of the Mid-Cap I Fund and Total Return Fund are spread
over that relatively small asset base.
After considering these and other factors, the Board of Directors of Van
Eck I, including the Independent Directors, unanimously concluded at a meeting
held on January 31, 2002 that the Reorganization would be in the best interests
of the Mid-Cap I, Total Return Fund and their shareholders and that the
interests of existing shareholders of each Fund will not be diluted as a result
of the transactions contemplated by the Reorganization. The Board of Directors
of Van Eck I then unanimously voted to approve the Plan and authorize the
officers of each Fund to submit the Plan to shareholders for consideration.
At a meeting held on January 31, 2002, the Board of Directors of Van Eck
II, including the Independent Directors, also unanimously concluded that the
reorganization would be in the best interests of Mid-Cap II Fund. The Board of
Directors of Van Eck II unanimously voted to approve the Plan.
11
Federal Income Tax Consequences
As a condition to closing, Goodwin Procter LLP counsel to Mid-Cap I,
Mid-Cap II Fund and Total Return Fund must opine to the effect that, subject to
customary assumptions and representations, on the basis of the existing
provisions of the Internal Revenue Code (the "Code"), the Treasury Regulations
promulgated thereunder and current administrative and judicial interpretations
thereof, for federal income tax purposes:
(1) Reorganization, consisting of the merger of Van Eck I (the
portfolio series of which are Mid-Cap I Fund and Total Return
Fund) with and into Van Eck II (the sole portfolio series of which
is Mid-Cap II Fund) should constitute one or more
"reorganizations" within the meaning of Section 368(a) of the
Code; Mid-Cap I Fund, Total Return Fund and Mid-Cap II Fund should
each be a "party to a reorganization" within the meaning of
Section 368(b) of the Code;
(2) no gain or loss should be recognized by Mid-Cap I Fund and Total
Return Fund as a result of the Reorganization;
(3) the tax basis of Mid-Cap I Fund and Total Return Fund's former
assets should be the same to Mid-Cap II Fund as the tax basis of
such assets to Mid-Cap I Fund and Total Return Fund immediately
prior to the Reorganization, and the holding period of the former
assets of Mid-Cap I Fund and Total Return Fund in the hands of the
Mid-Cap II Fund should include the period during which those
assets were held by Mid-Cap I Fund and Total Return Fund;
(4) no gain or loss should be recognized by Mid-Cap II Fund as a
result of the Reorganization;
(5) no gain or loss should be recognized by shareholders of Mid-Cap
I Fund and Total Return Fund upon the receipt of Mid-Cap II Fund
shares by such shareholders, provided such shareholders receive
solely Mid-Cap II Fund shares (including fractional shares) in
exchange for their Mid-Cap I Fund and Total Return Fund shares;
and
(6) the aggregate tax basis immediately after the Reorganization of
the Mid-Cap II Fund shares, including any fractional shares,
received by each shareholder of Mid-Cap I Fund and Total Return
Fund pursuant to the Reorganization should be the same as the
aggregate tax basis of Mid-Cap I Fund and Total Return Fund shares
held by such shareholder immediately prior to the Reorganization,
and the holding period of the Mid-Cap II Fund shares, including
fractional shares, to be received by each shareholder of Mid-Cap I
Fund and Total Return Fund should include the period during which
Mid-Cap I Fund and Total Return Fund shares exchanged therefor
were held by such shareholder (provided that the Mid-Cap I Fund
and Total Return Fund shares were held as a capital assets on the
date of the Reorganization).
The receipt of such an opinion is a condition to the consummation of the
Reorganization. The Companies have not obtained an Internal Revenue Service
("IRS") private letter ruling regarding the federal income tax consequences of
the Reorganization, and the IRS is not bound by advice of counsel. If
reorganizations under the Code, each Mid-Cap I Fund and Total Return Fund
shareholder generally will recognize gain or loss equal to the difference
between the value of the Mid-Cap II Fund shares such shareholder acquires and
the tax basis of such shareholder's Mid-Cap I Fund or Total Return Fund shares
exchanged therefor.
12
Shareholders of each Fund should consult their tax advisers regarding the
effect, if any, of the reorganization in light of their individual
circumstances. Since the foregoing discussion relates only to the federal income
tax consequences of the reorganization, shareholders of the funds should also
consult their tax advisers as to state and local tax consequences, if any, of
the reorganization.
Capitalization
The following table sets forth the capitalization of the Mid-Cap I, and
Total Return Fund, and on a pro forma basis for the Mid-Cap II Fund as of
January 18, 2002 giving effect to the proposed Reorganization.
The following table sets forth, as of January 18, 2002, the
capitalization of Total Return Fund and Mid-Cap I Fund (Class A shares).
PRO FORMA
Total Return REORGANIZATION
Fund Mid-Cap I Mid-Cap II
------------ ----------- --------------
Total Net Assets $11,801,786 $20,236,117 $32,037,903
Shares Outstanding 862,577 1,157,556 1,832,641
Net Asset Value Per Share $13.68 $17.48 $17.48
The table set forth above should not be relied on to determine the number
of Mid-Cap II Fund shares to be received in the Reorganization. The actual
number of shares to be received will depend upon the net asset value and number
of shares outstanding of the Mid-Cap I Fund and Total Return Fund at the time of
the Reorganization.
Historical Performance Information
The following table sets forth the average annual total return of the
Class A shares of Mid-Cap I Fund and Total Return Fund for the periods
indicated.
Average Annual Total Returns for
Periods Ending 12/31/01(a)
FUND NAME 1 YEAR 5 YEARS 10 YEARS
--------- ------ ------- --------
Mid Cap I Fund
Return Before Taxes (14.31)% 2.23% 8.12%
Return After Taxes on
Distribution (18.23)% (0.14)% 89.72%
Return After Taxes on
Distributions and Sale of
Fund Shares (11.71)% 5.16% 89.03%
Total Return Fund
Return Before Taxes (5.80)% 6.12% 9.12%
Return After Taxes on
Distribution (12.57)% 11.60% 92.74%
Return After Taxes on
Distributions and Sale of
Fund Shares (6.50)% 18.52% 97.77%
S&P 500 Index
Return Before Taxes (%) (b) (11.88%) 10.69% 12.91%
Returns indicate past performance, which is not predictive of future
performance. Investment return and net asset value will fluctuate, so that
shares, when redeemed, may be worth more or less than the original cost.
(a) The average annual return for Mid-Cap I Fund and Total Return Fund
in the table above reflect the deduction of the maximum sales charge for an
investment in Class A shares.
(b) The S&P 500 Index consists of 500 widely held common stocks,
covering four broad sectors (industrials, utilities, financial, and
transportation). It is a market-value weighted index (stock price
13
times shares outstanding), with each stock affecting the Index in proportion to
its market value. Construction of the S&P 500 Index proceeds from industry group
to the whole. Since some industries are characterized by companies of relatively
small stock capitalization, the Index is not comprised of the 500 largest
companies on the New York Stock Exchange. This Index, calculated by Standard &
Poor's, is a total return index with dividends reinvested.
The S&P 500 Index is an unmanaged index and includes the reinvestment of
all dividends, but does not reflect the payment of transaction costs, advisory
fees or expenses that are associated with an investment in the Fund. The Index's
performance is not illustrative of the Fund's performance. Indices are not
securities in which investments can be made.
After-tax returns are calculated using the historical highest individual federal
marginal income tax rate and do not reflect the impact of state and local taxes.
Actual after-tax returns depend on an investor's tax situation and may differ
from those shown, and after-tax returns shown are not relevant to investors who
hold their fund shares through tax-deferred arrangements, such as 401(k) plans
or individual retirement accounts.
PRINCIPAL RISK FACTORS
The following highlights the principal similarities and differences
between the principal risk factors associated with an investment in the Mid-Cap
II Fund as contrasted with those associated with the Mid-Cap I Fund and Total
Return Fund and is qualified in its entirety by the more extensive discussion of
risk factors in the Prospectus and Statement of Additional Information of the
Mid-Cap Fund I and Total Return Fund and the form of Prospectus and Statement of
Additional Information of Mid-Cap II.
General
An investment in the Mid-Cap II Fund is subject to specific risks arising
from the types of securities in which the Mid-Cap II Fund invests and general
risks arising from investing in any mutual fund. You can lose money by investing
in the Mid-Cap II Fund. There is no assurance that the Mid-Cap II Fund will meet
its investment objective.
Mid-Cap Companies
Because each of Mid-Cap I Fund, Total Return Fund and Mid-Cap II Fund
invest in mid-cap companies, each fund is subject to certain risks associated
with mid-cap companies. Mid-cap companies are often subject to less analyst
coverage and may be in early and less predictable periods of their corporate
existences. In addition, mid-cap companies often have greater price volatility,
lower trading volume and less liquidity than larger more-established companies.
These companies tend to have smaller revenues, narrower product lines, less
management depth and experience, smaller shares of their product or service
markets, fewer financial resources, and less competitive strength than larger
companies.
Value Strategy
The principal risk of investing in value stocks is that they may never
reach what Mid-Cap II Fund believes is their full value or that they may even go
down in value. In addition, different types of stocks tend to shift in and out
of favor depending on market and economic conditions and therefore Mid-Cap II's
performance may be lower or higher than that of funds that invest in other types
of equity securities (such as those emphasizing growth stocks).
Foreign Securities
Since Mid-Cap II, Total Return Fund and Mid-Cap II Fund invest up to 20%
of their assets in foreign securities, any risks inherent in such investments
are applicable to all three Funds. Since investments in foreign companies will
frequently involve currencies of foreign countries, and since these Funds may
hold securities and funds in foreign currencies, these Funds may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, if any, and may incur costs in connection with conversions between
various currencies. Most foreign stock markets, while growing in volume of
trading activity, have less volume than the New York Stock Exchange, and
securities of some foreign companies are less liquid and more volatile than
securities of comparable domestic companies.
14
Similarly, volume and liquidity in most foreign bond markets are less than in
the United States and at times volatility of price can be greater than in the
United States. Fixed commissions on foreign securities exchanges are generally
higher than negotiated commissions on United States exchanges, although these
Funds endeavor to achieve most favorable net results on their portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, broker and listed companies in foreign countries than in
the United States. In addition, with respect to certain foreign countries, there
is the possibility of exchange control restrictions, expropriation or
confiscatory taxation, political, economic or social stability, which could
affect investments in those countries. Foreign securities such as those
purchased by these Funds may be subject to foreign government taxes, higher
custodian fees and dividend collection fees, which could reduce the yield on
such securities.
Portfolio Turnover
Due to its trading strategies, Mid-Cap II Fund may experience a portfolio
turnover rate of over 100%. Funds with high turnover rates (over 100%) often
have higher transactions costs (which are paid by the Fund) and may generate
short-term capital gains (on which a shareholder will pay taxes, even if the
shareholder does not sell any shares by year-end).
See "Risk Factors" in the Mid-Cap I Fund and Total Return Fund Prospectus
and the Form of Prospectus for Mid-Cap II Fund and "Investment Objectives and
Policies" in the Mid-Cap I Fund and Total Return Fund Statement of Additional
Information and the the Form of Statement of Additional Information for Mid-Cap
II Fund for a more detailed discussion of the risks involved with each Fund's
investment practices and strategies.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion summarizes some of the more significant
similarities and differences in the investment objectives, policies and
restrictions of Mid-Cap I Fund and Total Return Fund and Mid-Cap II Fund. The
discussion below is qualified in its entirety by the discussion elsewhere in
this Proxy Statement/Prospectus, and in each fund's Prospectus and Statement of
Additional Information.
Investment Objectives and Policies
The investment objectives of Mid-Cap I Fund and Total Return Fund are
fundamental. A fundamental investment objective requires the approval of a
majority of the outstanding voting securities of the Fund (within the meaning of
the Investment Company Act) to be amended or changed. The investment objective
for Mid-Cap II Fund is not fundamental and therefore would not require a
shareholder vote to be changed.
In addition, in accordance with SEC rules, Mid-Cap II Fund states in its
prospectus that its investment strategy which requires it to invest at least 80%
of its assets in common stocks, including preferred stocks and securities
convertible into common stock, of mid-cap companies is not a fundamental policy
and, therefore, may be changed without shareholder approval. The change must be
approved by Mid-Cap's Board of Directors and all shareholders must receive 60
days' notice of such change.
Under normal market conditions, Mid-Cap II Fund and Mid-Cap I Fund invest
at least 80% of their total assets in common stocks, including preferred stocks
and securities convertible into common stock of mid-cap companies using a value
approach. Mid-Cap I Fund has traditionally invested at least 50% of its assets
in securities that have paid interest or dividends in the past 12 months.
Mid-Cap II Fund will not be subject to an equivalent strategy. The principal
strategy of the Total Return Fund is to invest between 30% and 70% of its assets
in equity securities and other securities that can be exchanged for or converted
into common stocks. The balance of the Total Return Fund is normally invested in
U.S. government securities and corporate bonds. As a result of the strategy,
Total Return Fund will under normal market conditions invest a minimum of 30% of
its assets in fixed income securities. Consistent with its investment objective
and principal investment strategy, Total Return Fund also focuses its
investments in mid-cap companies using a value approach.
15
Certain Investment Restrictions
Mid-Cap I Fund, Total Return Fund and Mid-Cap II Fund are all subject to
certain investment restrictions that restrict the scope of their investments.
Fundamental investment restrictions may not be changed without the affirmative
vote of the holders of a majority of the outstanding securities (as defined in
the Investment Company Act) of the fund. However, investment restrictions that
are not fundamental may be changed by the Board of Directors without shareholder
approval.
Mid-Cap II Fund has substantially similar fundamental and non-fundamental
investment restrictions as Mid-Cap I Fund and Total Return Fund.
COMPARATIVE INFORMATION ON DISTRIBUTION ARRANGEMENTS
Mid-Cap I Fund and Total Return Fund currently offer one class of shares:
Class A. Shares are offered to the public at a price equal to the net asset
value per share plus a sales charge of 5.75%.
Mid-Cap II Fund will offer one class of shares: Class A. The Class A
shares of Mid-Cap II Fund are offered to the public under the same sales charge
arrangements as the Class A shares of Mid-Cap I Fund and Total Return Fund.
After the Reorganization, shareholders of Mid-Cap I Fund and Total Return Fund
will be shareholders of Mid-Cap II Fund, and therefore subsequent purchases of
shares of Mid-Cap II Fund will be subject to the applicable initial sales
charge.
Van Eck I has adopted a reimbursement type Plan of Distribution pursuant
to Rule 12b-1 under the Investment Company Act. Under the Plan of Distribution,
Mid-Cap I Fund and Total Return Fund Class A pay Van Eck Securities Corporation
(the "Distributor") a Rule 12b-1 Fee at an annual rate of up to .50% of average
daily net assets. The Distributor uses a portion of the Rule 12b-1 Fee for
payments to agents or brokers who service shareholder accounts of Mid-Cap I Fund
and Total Return Fund and the remainder of which is used for other actual
promotional and distribution expenses incurred by the Distributor. Any Rule
12b-1 Plan fee accrued by Mid-Cap I Fund and/or Total Return Fund in excess of
payments to brokers and agents and reimbursement to the Distributor for its
actual expenses may not be retained by the Distributor. The Plan of Distribution
does not provide for the payment of interest as a distribution expense or for
the carry-forward of reimbursable or payable amounts under the Plan of
Distribution to subsequent years. Van Eck II will adopt a Plan of Distribution
for Mid-Cap II Fund that is substantially identical to the Plan of Distribution
for Van Eck I.
COMPARATIVE INFORMATION ON SHAREHOLDER SERVICES
Purchase Procedures/Sales Charges
Shares of Mid-Cap I Fund, Total Return Fund and Mid-Cap II Fund are all
subject to the same purchase procedures and sales charges. After the
Reorganization, shareholders of Mid-Cap I Fund and Total Return Fund will be
shareholders of Mid-Cap II Fund, and therefore subsequent purchases of shares of
Mid Cap II Fund will be subject to the applicable initial sales charge as
described in "Synopsis-Shareholder Transaction Expenses" above.
Class A shares of Total Return Fund were closed to new sales on February
8, 2002. Prior to the Reorganization, shares of Mid-Cap I Fund will be offered
continuously for sale by the Distributor or by brokers and agents that have
entered into selling group or selling agency agreements with the Distributor, 99
Park Avenue, New York, New York 10016. Shares of Mid-Cap II Fund will not be
available for sale until after the reorganization is complete. After the
Reorganization the purchase procedures for shares of Mid-Cap II Fund will be
exactly the same as currently in effect with Mid-Cap I Fund and Total Return
Fund.
Exchange Privileges
Exchanges out of Mid-Cap I Fund and Total Return Fund will be accepted up
to the business day prior to the closing date of the Reorganization, as defined
in "The Reorganization."
Shareholders of Total Return Fund, Mid-Cap I and Mid-Cap II Funds may
exchange shares, at net asset value, for shares of the same class of any of the
other Van Eck Funds.
16
Van Eck II intends to continue the Van Eck I policy of generally limiting
exchanges to six per calendar year.
Redemption Procedures
Shareholders of Mid-Cap I Fund, Mid-Cap II Fund and Total Return Fund may
redeem their shares at a redemption price equal to the net asset value of the
shares (minus any applicable contingent deferred sales charge) as next
determined following the receipt of a redemption order in proper form. While
shares of each Fund will be redeemed on the day on which proper instructions are
received by its transfer agent, redemption procedures for Total Return Fund are
not identical to those for Mid-Cap I Fund. See "Comparative Information on
Shareholder Services" for more information. You can also find additional
information on redemption procedures in the form of Mid-Cap II Fund's
Prospectus.
Redemption of shares of Total Return Fund will be accepted up to the
business day prior to the Valuation Date. Redemptions may generate a taxable
event. Shares may be redeemed by writing to DST Systems, Inc., P.O. Box 218407,
Kansas City, Missouri 64121, the Fund's transfer agent, through the
shareholder's broker or agent (although they may charge a fee for their
services) or, if the shareholder has so elected, by contacting DST by telephone.
See also "Redemption of Shares" in the form of Mid-Cap II Funds Prospectus for
more information.
Dividends and Distributions
The dividend and distribution policies for Mid-Cap I Fund and Mid-Cap II
Fund are to distribute dividends and capital gains, if any, at least annually.
The Total Return Fund distributes dividends and short term capital gains, if
any, quarterly and distributes long term capital gains, if any, at least
annually.
All dividends and distributions of the Mid-Cap I Fund, Mid-Cap II Fund
and Total Return Fund are paid in additional shares of the respective series
unless shareholders elect to receive cash. You can also find additional
information on dividends and distributions in the form of Mid-Cap II Fund's
Prospectus.
Net Asset Value
The net asset values of Mid-Cap I Fund, Total Return Fund and Mid-Cap II
Fund are determined at the close of business on each day the New York Stock
Exchange is open for trading. Each Fund computes net asset value by dividing the
value of its securities, plus cash and other assets (including interest and
dividends accrued but not yet received), less all liabilities (including accrued
expenses), by the number of shares outstanding. Expenses, including fees paid to
the Adviser and/or Van Eck Associates, are accrued daily for the Funds.
COMPARATIVE INFORMATION ON SHAREHOLDER RIGHTS
The following is a summary of certain provisions of the Articles of
Incorporation of the Van Eck I and Van Eck II.
Form of Organization
The Mid-Cap I Fund and Total Return Fund are series of Van Eck I. Van Eck
I is organized as a Maryland corporation pursuant to Articles of Incorporation
dated April 24, 1988, as amended. The operations of Mid-Cap I Fund and Total
Return Fund are governed by Amended and Restated Articles of Incorporation,
By-laws and by Maryland law. The Mid-Cap II Fund is a series of Van Eck II. Van
Eck II is organized as a Maryland corporation pursuant to Articles of
Incorporation dated January 31, 2002. The operations of Mid-Cap II Fund are
governed by its Articles of Incorporation, By-laws and by Maryland law. Both Van
Eck I and Van Eck II are or will be registered with the SEC as open-end
management investment companies and are subject to the provisions of the
Investment Company Act and the rules and regulations of the SEC thereunder.
17
Shares
The total number of shares of stock of all classes which Van Eck II has
authority to issue is eight hundred million (800,000,000) shares of common
stock, par value of $.001 per share, of which 800,000,000 shares have been
designated Class A shares of Mid-Cap II Fund. The total number of shares of all
classes which Van Eck I has authority to issue is one billion (1,000,000,000)
shares of common stock, par value of $.01 per share, of which 100,000,000 shares
have been designated as Class A shares of Mid-Cap I Fund and 100,000,000 shares
have been designated as Class A shares of Total Return Fund.
Van Eck I currently has two series outstanding: the Mid-Cap I Fund and
the Total Return Fund. Van Eck II currently has one series outstanding: the
Mid-Cap II Fund. In addition to the currently existing series, Van Eck II may
organize other series in the future.
Mid-Cap I Fund, Mid-Cap II Fund and Total Return Fund currently offer
only Class A shares. When issued, the shares are fully paid and non-assessable
by the Companies, have no preference, preemptive or similar rights unless
designated by the Directors, and are freely transferable. The assets and
proceeds received by each Company from the issue or sale of shares of a series
or class are allocated to that series and class and constitute the rights of
that series or class, subject only to the rights of creditors. Any underlying
assets of a series or class are required to be segregated on the books of
account of the Companies. These assets are to be used to pay the expenses of the
series or class as well as a share of the general expenses of each relevant
Company.
Meetings
A majority of the Directors of each Company may call shareholder meetings
at any time. Under the Investment Company Act, Directors are required to call
shareholder meetings upon the written request of shareholders holding ten
percent or more of the outstanding shares having voting rights. Generally, the
presence of holders of a majority of the outstanding shares, in person or by
proxy, constitutes a quorum at a shareholder meeting.
Shareholder Liability
Under Maryland law, the shareholders of Mid-Cap I, Mid-Cap II Fund and
Total Return Fund have no personal liability for the corporate acts and
obligations of their respective Fund. The Maryland General Corporation Law does
not have any provision pertaining to shareholder responsibility for unpaid
corporate liabilities in the event of dissolution.
Liability of Directors, Trustees and Officers
The By-Laws of each Company each provide that the Company will indemnify
Directors and officers of the Company against liabilities and expenses incurred
in connection with litigation in which they may be involved because of their
positions with the Company to the extent permitted by Maryland law. Each Company
is only required under its By-laws to indemnify or advance expenses to any
person other than a Director to the extent specifically approved by resolution
adopted by the Board of Directors. Nothing in the Articles of Incorporation or
the By-laws of the Companies, however, protects or indemnifies a Director or
officer against any liability to which such person would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's office.
Voting Rights.
Shareholders of Mid-Cap II, Total Return Fund and Mid-Cap I Fund are
entitled to one vote for each share and a fractional vote for each fractional
share held with respect to the election of Directors and other matters submitted
to a vote of shareholders. For each of Mid-Cap I Fund, Mid-Cap II Fund and Total
Return Fund, Rule 12b-1 Plans may not be amended to increase
18
materially the amount of expenditures unless such amendment is approved by a
vote of the majority of the outstanding voting securities of that Fund. A
Director may be removed with or without cause by vote of a majority of the
outstanding shares of the Company.
Shareholder Inquiries
Shareholder inquiries with respect to Mid-Cap I Fund, Total Return Fund
or Mid-Cap II Fund should be addressed to the Funds by telephone at (800)
826-2333 or in writing at the address set forth on the first page of the Proxy
Statement/Prospectus.
FISCAL YEAR
Each of Mid-Cap I Fund, Mid-Cap II Fund and Total Return Fund operate on
a fiscal year which ends December 31.
MANAGEMENT
Directors. The management of the business and affairs of Mid-Cap II,
Mid-Cap I Fund and Total Return Fund are the responsibility of their Boards of
Directors. The Board of Directors of Van Eck II (of which Mid-Cap II Fund is a
series), and Van Eck I (of which Mid-Cap I Fund and Total Return Fund are
series) consists of [John C. van Eck, Jeremy H. Biggs, Richard Stamberger and
David J. Olderman]. The management of the business and affairs of Mid-Cap II
fund is the responsibility of the Board of Directors of Van Eck II.
Investment Manager and Administrator. Van Eck Associates, 99 Park Avenue,
8th Floor, New York, New York 10016, serves as the investment manager and
administrator to Total Return Fund and to Mid-Cap I Fund, and will serve in the
same capacity to Mid-Cap II Fund.
Sub Adviser. John A. Levin & Co., Inc. One Rockefeller Plaza, New York,
New York 10020, serves as sub-adviser to Total Return Fund and to Mid-Cap I
Fund, and will serve in the same capacity to Mid-Cap II Fund.
Under the Investment Management Agreements and Sub- Advisory Agreements
applicable to Mid-Cap II, Mid-Cap I Fund and Total Return Fund, Levin under the
supervision of the Van Eck Associates provides Mid-Cap II, Mid-Cap I Fund and
Total Return Fund with a continuous investment program which includes
determining which securities should be bought, sold or held. Van Eck Associates
also manages the business and affairs of Mid-Cap II Fund, Mid-Cap I Fund and
Total Return Fund.
Mid-Cap II Fund, Mid-Cap I Fund and Total Return Fund pay advisory fees
at the rates indicated under "Synopsis-Investment Advisory Fees" above. For
additional information, see "Management" in the Mid-Cap I Fund and Total Return
Fund Prospectus and "Investment Advisory Services" in the Mid-Cap I Fund and
Total Return Fund Statement of Additional Information.
Portfolio Managers. John W. Murphy and Daniel Theriault are the Portfolio
Managers of Mid-Cap I Fund and Total Return Fund and are expected to also be the
portfolio manager of Mid-Cap II Fund. Mr. Murphy has been a portfolio manager
with Levin for six years and has 10 years investment experience. Mr. Theriault
has been a portfolio manager with Levin for 4 years, he was previously a
portfolio manager with T. Rowe Price Financial Services and has 15 years of
investment experience.
Transfer Agent. The Transfer Agent and Dividend Paying Agent for Mid-Cap
I Fund and Total Return Fund is DST Systems, Inc., P.O. Box 218407, Kansas City,
Missouri 64121 and is expected to provide the same services to Mid-Cap II Fund.
Control. As of March 1, 2002, there were no persons who exercised
"control" over Mid-Cap II Fund, Mid-Cap I Fund or Total Return Fund as "control"
is defined in the Investment Company Act. Since Mid-Cap II
19
Fund will have no shareholders prior to the merger it would be necessary to hold
sufficient shares of either or both Mid-Cap I Fund or Total Return Fund to
exercise control of Mid-Cap II Fund upon the Reorganization.
VOTING INFORMATION
Quorum and Voting Requirements
This Proxy Statement/Prospectus is being furnished to the shareholders of
Mid-Cap I Fund and Total Return Fund in connection with the solicitation by the
Board of Directors of Van Eck I of proxies to be used at the meeting.
Shareholders of record of the close of business on February 11, 2002 are
entitled to notice of and to vote at the Meeting and any adjournments thereof.
As of February 11, 2002, the record date, there were 1,178,171.052 Class A
shares of Mid-Cap I Fund and 846,601.482 Class A shares of Total Return Fund
outstanding. Each shareholder of Mid-Cap I Fund and Total Return Fund will be
entitled to one vote for each share and a fractional vote for each fractional
share held on the record date. It is expected that the mailing of this proxy
statement will commence on or about March 14, 2002. The shareholders of each
series must individually approve each proposal for that proposal to become
effective. The holders of a majority of the shares entitled to vote shall
constitute a quorum for the meeting. Approval of Proposals 1(a) and 2(a) require
the vote of a majority of the outstanding voting securities of Mid-Cap I Fund as
defined in the Investment Company Act. This means an affirmative vote of the
lesser of (1) more than 50% of the outstanding voting shares of Mid-Cap I Fund
or (2) 67% or more of the shares of Mid-Cap I Fund present at the Meeting if
more than 50% of the outstanding shares of Mid-Cap are present or represented by
proxy. Approval of Proposals 1(b) and 2(b) require the vote of a majority of the
outstanding voting securities of Total Return Fund as defined in the Investment
Company Act. This means an affirmative vote of the lesser of (1) more than 50%
of the outstanding voting shares of Total Return Fund or (2) 67% or more of the
shares of Total Return Fund present at the Meeting if more than 50% of the
outstanding shares of Total Return Fund are present or represented by proxy.
Abstentions and broker "non-votes" (that is, a proxy from a broker or
nominee indicating that such person has not received instructions from the
beneficial owner or other person entitled to vote shares on the particular
matter with respect to which the broker or nominee does not have discretionary
power) will be considered present at the Special Meeting for purposes of
determining the existence of a quorum for the transaction of business for that
proposal but will be deemed not cast with respect to each such proposal. For
this purpose, abstentions and broker "non-votes" have the effect of a negative
vote on each of the proposals.
In the event a quorum is not present at the Meeting or in the event that
a quorum is present but sufficient votes to approve one or more proposals are
not received, the persons named as proxies may propose one or more adjournments
of such Meeting to permit further solicitation of proxies provided that such
persons determine that an adjournment and additional solicitation is reasonable
and in the interests of shareholders after consideration of all relevant
factors, including the nature of the relevant proposals, the percentage of votes
then cast, the percentage of negative votes then cast and the nature of the
reasons for such further solicitation. Any such adjournment will require the
affirmative vote of a majority of the shares of the Fund represented at the
Meeting in person or by proxy. The persons named as proxies will vote those
proxies that they are entitled to vote in such manner as they determine to be in
the best interest of shareholders with respect to any proposal to adjourn the
Meeting. A shareholder vote may be taken on one or more proposals prior to such
adjournment if sufficient votes have been received for approval. If the Meeting
is adjourned to another time or place, notice need not be given of the adjourned
meeting at which the adjournment is taken, unless a new record date of the
adjourned meeting is fixed or unless the adjournment is for more than [one
hundred twenty (120) days] from the original record date, in which case the
Directors shall set a new record date and provide notice of the adjourned
meeting. At any
20
adjourned meeting, Van Eck I may transact any business which might have been
transacted at the original meeting.]
The enclosed form of proxy, if properly executed and returned, will be
voted in accordance with the choice specified thereon. The proxy will be voted
in favor of each proposal unless a choice is indicated to vote against the
proposal. All shares represented by properly executed proxies, unless such proxy
has been previously revoked, will be voted at the Meeting in accordance with the
directions on the proxies; if no direction is indicated, the shares will be
voted "For" the approval of the proposal.
The proxy may be revoked at any time prior to the voting thereof by
executing a superseding proxy, by giving written notice to the Secretary of the
Company at the address listed on the first page of this Proxy
Statement/Prospectus or by voting in person at the Meeting.
A shareholder executing and returning a proxy has the power to revoke it
at any time prior to its exercise by executing a superseding proxy or by
submitting a notice of revocation to the Secretary of the Company at 99 Park
Avenue, 8th Floor, New York, New York 10016. Although mere attendance at the
Meeting will not revoke a proxy, a shareholder present at the Meeting may
withdraw his or her proxy and vote in person.
Solicitation of Proxies
In addition to solicitation of proxies by mail, officers of Van Eck I and
officers and regular employees of Van Eck Associates Corporation, affiliates of
Van Eck Associates Corporation, or other representatives of Van Eck I may also
solicit proxies by telephone or telegram or in person. Van Eck I may also use a
proxy solicitation firm to assist with the mailing and tabulation effort and any
special, personal solicitation of proxies.
In addition to the solicitation of proxies by mail, proxies may be
solicited by officers and/or employees of the Company, the Adviser, DST Systems,
Inc., the Funds' transfer agent and dividend paying agent (the "Transfer Agent"
or "DST"), and/or MIS Corporation, a proxy solicitation firm, personally or by
telephone, telegraph, facsimile or other means. Brokerage houses, banks and
other fiduciaries will be requested to forward soliciting material to the
beneficial owners of the shares of each Fund and to obtain authorization for the
execution of proxies.
Ownership of Voting Securities
The table below sets forth the Funds' net asset value and number of
outstanding shares as of January 18, 2002.
NET ASSET SHARES OUTSTANDING
VALUE AT JANUARY 18, 2002
Mid-Cap I Fund $17.48 1,157,482
Total Return Fund $13.68 862,577
In addition, as of February 11, 2002, all Directors and officers of the
Company as a group owned less than 1% of Mid-Cap I Fund and less than 1% of
Total Return Fund. Van Eck Associates owned 0% and 0% of Mid-Cap I Fund and
Total Return Fund's shares, respectively as of that date.
21
To the knowledge of Mid-Cap I Fund and Total Return Fund, as of February
11, 2002, no shareholder owned of record or beneficially 5% or more of the
outstanding shares of either Fund.
ADDITIONAL INFORMATION
This Proxy Statement/Prospectus and the related Statement of Additional
Information do not include all the information set forth in the registration
statements and exhibits relating thereto which Van Eck Funds, Inc. has filed
with the Securities and Exchange Commission, Washington, DC 20549, under the
Securities Act of 1933 and the Investment Company Act of 1940, to which
reference is hereby made.
Reports, proxy statements, registration statements and other information
filed by Van Eck Funds II, Inc. can be inspected and copied at the public
reference facilities of the Securities and Exchange Commission in Washington, DC
and Regional Offices of the Commission located at 233 Broadway, Suite 1300, New
York, New York 10279 and Suite 1400, 500 West Madison Street, Chicago, Illinois
60621. Copies of such material can also be obtained by mail from the Public
Reference Branch, Office of Consumer Affairs and Information Services,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, DC 20549
and its public reference facilities in New York, New York and Chicago, Illinois,
at prescribed rates.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
OTHER MATTERS
It is not anticipated that any matters other than the proposals described
above will be brought before the Meeting. If, however, any other business is
properly brought before the Meeting, proxies will be voted in accordance with
the judgment of the persons designated on such proxies.
VAN ECK FUNDS, INC.
FINANCIAL HIGHLIGHTS
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 or
distributions). Financial highlights information has been audited by Ernst &
Young LLP, whose report, along with the Fund's financial statements are included
in the Fund's annual report which is available upon request.
For a share outstanding throughout each year:
VAN ECK MID CAP VALUE FUND (MID CAP I)
------------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Net Asset Value, Beginning of Year ........... $21.17 $27.73 $23.96 $24.56 $21.04
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) ............ (0.050) (0.123) (0.030) 0.110 0.096
Net Gains (Losses) on Investments
(both Realized and Unrealized) ........ (2.980) (5.377) 7.080 (0.156) 5.286
------ ------ ------ ------ ------
Total from Investment Operations ........ (3.030) (5.500) 7.050 (0.046) 5.382
------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from Net Investment Income .... -- -- -- (0.111) (0.096)
Dividends in Excess of Net Investment
Income ................................ -- -- -- -- (0.004)
Dividends from Net Realized Gains ....... -- (1.060) (3.280) (0.443) (1.762)
------ ------ ------ ------ ------
Total Distributions ..................... -- (1.060) (3.280) (0.554) (1.862)
------ ------ ------ ------ ------
Net Asset Value, End of Year ................. $18.14 $21.17 $27.73 $23.96 $24.56
====== ====== ====== ====== ======
Total Return(A) .............................. (14.31%) (19.83%) 29.42% (0.18%) 25.85%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(B) ....................... 1.44% 1.38% 1.50% 1.57% 1.49%
Net Expenses ............................ 1.35% 1.35% 1.32% 1.25% 1.25%
Net Investment Income (Loss)(C) ......... (0.25%) (0.46%) (0.16%) 0.44% 0.49%
Portfolio Turnover Rate ...................... 62.69% 124.93% 133.63% 43.42% 21.02%
Net Assets, At End of Year (000) ............. $54,396 $69,091 $94,840 $67,478 $66,762
- ----------
(A) Total return assumes reinvestment of all distributions during the year
and does not reflect deduction of sales charge. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth
more or less than the original cost
(B) Had fees not been waived and expenses not been assumed.
(C) Ratios would have been (0.34%), (0.49%), (0.34%), 0.12%, and 0.25%,
respectively, had the Investment Manager not waived fees and had expenses
not been assumed.
22
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of March 14, 2002
(the "Agreement") by and between Van Eck Funds, Inc., a Maryland corporation
("Van Eck" or the "Dissolving Corporation"), on behalf of Van Eck Mid Cap Value
Fund (formerly Van Eck Growth and Income Fund) ("Mid-Cap I Fund"), and Van Eck
Total Return Fund ("Total Return Fund"), each a portfolio series of Van Eck, and
Van Eck Funds II, Inc., a Maryland corporation ("Van Eck II" or the "Surviving
Corporation"), on behalf of Mid-Cap Value Fund, the sole portfolio series of Van
Eck II ("Mid-Cap II Fund"). Van Eck and Van Eck II are each referred to herein
as a "Company" and together the "Companies".
All references in this Agreement to action taken by Mid-Cap II Fund and,
each of Mid-Cap I Fund and Total Return Fund shall be deemed to refer to action
taken by the Surviving Corporation and the Dissolving Corporation, respectively,
on behalf of their respective portfolio series.
This Agreement is intended to be and is adopted as a plan of
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Companies and their respective Boards of Directors
deem it advisable and to the advantage of the Companies and their respective
stockholders that Van Eck be merged with and into Van Eck II, with Van Eck II
being the Surviving Corporation, under and pursuant to the laws of the State of
Maryland on the terms and conditions herein contained (the "Reorganization").
WHEREAS, Van Eck and Van Eck II are each open-end, registered investment
companies of the management type;
WHEREAS, the Board of Directors of Mid-Cap I Fund and Total Return Fund
have each determined that the Merger is advisable and in the best interests of
Mid-Cap I Fund and Total Return Fund and that the interests of the existing
shareholders of Mid-Cap I Fund and Total Return Fund would not be diluted as a
result of this transaction; and
WHEREAS, Van Eck II and Mid-Cap II Fund have been formed solely to
facilitate the Reorganization, and prior to the Reorganization have no
operations or assets.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. THE MERGER OF THE DISSOLVING FUND WITH AND INTO THE SURVIVING FUND.
1.1 Subject to the satisfaction of each of the conditions to the
obligations of the respective Companies hereunder (or the waiver thereof by the
party entitled to the benefit thereof), Van Eck and Van Eck II agree that at the
Effective Time, as defined in Section 1.2 below, Van Eck shall be merged with
and into Van Eck II, and Van Eck II shall be the Surviving Corporation and shall
be governed by the laws of the State of Maryland.
1.2 Subject to the satisfaction of each of the conditions to the
obligations of the respective Companies hereunder (or the waiver thereof by the
party entitled to the benefit thereof), the Companies shall execute, file and
record as provided under the laws of Maryland Articles of Merger substantially
in the form set forth as "Exhibit A," with such changes thereto as shall be
approved by the respective Companies in accordance with Maryland law. The Merger
shall become effective on or after the filing of such Articles of Merger at the
time and on the date set forth herein. The date and time when the Merger shall
become effective are referred to herein as the "Effective Time."
A-1
1.3 The Articles of Incorporation of Van Eck II in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation, until amended in the manner provided in such Articles of
Incorporation or in the Bylaws of the Surviving Corporation and in the Maryland
General Corporation Law.
1.4 The Bylaws of Van Eck in effect immediately prior to the Effective
Time shall be the Bylaws of the Surviving Corporation, until amended in the
manner provided in such Bylaws and in the Maryland General Corporation Law.
1.5 The following persons shall constitute the Board of Directors of
the Surviving Corporation upon the Effective Time and shall hold office until
their respective successors are elected and qualified: John C. van Eck, Jeremy
Biggs, Richard Stamberger, and David Olderman.
1.6 The persons who were elected as the officers of Van Eck II to
serve as such as of the Effective Time shall be the officers of the Surviving
Corporation.
1.7 At the Effective Time, the separate existence of Van Eck shall
cease, except to the extent, if any, continued by statute, and all the assets,
rights, privileges, powers and franchises of Van Eck and all debts due on
whatever account to it, shall be taken and deemed to be transferred to and
vested in Van Eck II without further act or deed, and all such assets, rights,
privileges, powers and franchises, and all and every other interest of Van Eck,
shall be thereafter effectively the property of Van Eck II as they were of Van
Eck; and the title to and interest in any real estate vested by deed, lease or
otherwise, unto either of Companies, shall not revert or be in any way impaired.
Except as otherwise specifically set forth in this Agreement, the identity,
existence, purposes, powers, franchises, rights, immunities and liabilities of
Van Eck II shall continue unaffected and unimpaired by the Reorganization.
1.8 Immediately prior to the Effective Time, Van Eck Associates
Corporation, as sole shareholder of Mid-Cap II Fund, shall (i) elect as
directors of Van Eck II the persons who then serve as directors of Van Eck; (ii)
approve an Investment Management Agreement between Van Eck II, on behalf of
Mid-Cap II Fund and Van Eck Associates Corporation (the "Investment Manager");
(iii) approve an Investment Sub-advisory Agreement by and among Van Eck II, the
Investment Manager, on behalf of Mid-Cap II Fund, and John A. Levin and Co.,
Inc.; (iv) ratify the selection of Ernst & Young LLP as the independent
accountants of Mid-Cap II Fund.
2. MANNER OF CONVERTING SHARES; VALUATION
2.1 The manner and basis of converting the issued and outstanding
Class A shares of Mid-Cap I Fund and Total Return Fund into the Class A shares
of Mid-Cap II Fund shall be as hereinafter set forth in this Article II.
2.2 The whole and fractional Class A shares of Mid-Cap I Fund issued
and outstanding immediately prior to the Valuation Time (as defined below)
shall, as of the Valuation Time and without further act, be converted into, and
become a number of whole and fractional Class A shares of Mid-Cap II Fund, with
a net asset value equal to the value of the net assets of Mid-Cap I Fund
computed immediately after the close of business of the New York Stock Exchange
on the Closing Date (the "Valuation Time"), using the valuation procedures set
forth in Van Eck II's Articles of Incorporation and then-current prospectus and
statement of additional information of Mid Cap II Fund. Each shareholder of
record of Mid-Cap I Fund will be credited with a pro rata number of such shares
of Mid-Cap II Fund received in the Merger based on the number of Mid-Cap I Fund
shares held by such shareholder at the Valuation Time relative to the total
number of issued and outstanding Mid-Cap I Fund shares at the Valuation Time.
2.3 The whole and fractional Class A shares of Total Return Fund
issued and outstanding immediately prior to the Valuation Time shall, as of the
Valuation Time and without further act, be converted into, and become a number
of whole and fractional Class A shares of Mid-Cap II Fund, with a net asset
value equal to the value of the net assets of Total Return Fund computed at the
Valuation Time, using the valuation procedures set forth in Van Eck II's
Articles of Incorporation and then-current
A-2
prospectus and statement of additional information of Mid-Cap II Fund. Each
shareholder of record of Total Return Fund will be credited with a pro rata
number of such shares of Mid-Cap II Fund received in the Merger based on the
number of Total Return Fund shares held by such shareholder at the Valuation
Time relative to the total number of issued and outstanding Total Return Fund
shares at the Valuation Time.
2.4 All computations of net asset value shall be made in accordance
with the valuation procedures set forth in the Mid-Cap II Fund prospectus and
statement of additional information.
2.5 Van Eck shall cause Citibank, N.A. ("Citibank"), as custodian for
Mid-Cap I Fund and Total Return Fund, to deliver to Van Eck II at the Effective
Time a certificate of an authorized officer of Citibank stating that (1) Mid-Cap
I Fund and Total Return Fund's respective portfolio securities, cash and any
other assets have been transferred in proper form to Mid-Cap II Fund as of the
Effective Time and (2) all necessary taxes, if any, have been paid, or provision
for payment has been made, in conjunction with the transfer of portfolio
securities.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be the next Friday that is a full business
day following satisfaction (or waiver as provided herein) of all of the
conditions set forth in Articles 6, 7, and 8 of this Agreement (other than those
conditions which may by their terms be satisfied only at the Closing), or such
later date as the parties may agree to in writing. All acts taking place at the
Closing shall be deemed to take place simultaneously as of immediately after the
close of business on the Closing Date unless otherwise agreed to by the parties.
The close of business on the Closing Date shall be as of 4:00 p.m. New York
Time. The Closing shall be held at the offices of Van Eck, 99 Park Avenue, 8th
Floor, New York, New York 10016, or at such other place as the parties many
agree.
3.2 Van Eck shall cause DST Systems, Inc. (the "Transfer Agent"),
transfer agent of the Dissolving Company, to deliver at the Closing a
certificate of an authorized officer stating that its records contain the names
and addresses of the Mid-Cap I Fund and Total Return Fund shareholders and the
number and percentage ownership of outstanding shares of each class owned by
each such shareholder immediately prior to the Closing. Van Eck II shall issue
and deliver a confirmation evidencing the Mid-Cap II Fund shares to be credited
on the Closing Date to the Secretary of Van Eck or provide evidence satisfactory
to Van Eck that such Mid-Cap II Fund shares have been credited to the Mid-Cap I
Fund and Total Return Fund shareholders accounts on the books of the Mid-Cap II
Fund. At the Closing, each party shall deliver to the other such bills of sales,
checks, assignments, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 Van Eck, on behalf of Mid-Cap I Fund and Total Return Fund
represents and warrants to Van Eck II as follows:
(a) Van Eck is a corporation duly organized and validly
existing under the laws of the State of Maryland.
(b) Van Eck is a registered investment company classified as a
management company of the open-end type, and its registration with the
Securities and Exchange Commission (the "Commission"), as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), and the registration of its shares under the Securities Act of
1933, as amended (the "1933 Act"), are in full force and effect.
(c) Van Eck is not, and the execution, delivery and performance
of this Agreement will not result, in violation of any provision of the
Articles of Incorporation or By-Laws of Van Eck or of any material
agreement, indenture, instrument, contract, lease or other undertaking to
which Van Eck is a party or by which Van Eck is bound;
A-3
(d) Mid-Cap I Fund and Total Return Fund have no material
contracts or other commitments (other than this Agreement) which will be
terminated with liability to Mid-Cap I Fund or Total Return Fund prior to
the Closing Date.
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against Mid-Cap I Fund or Total
Return Fund or any of their properties or assets. Van Eck knows of no
facts which might form the basis for the institution of such proceedings
and is not a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the
transactions herein contemplated.
(f) The Statement of Assets and Liabilities of Mid-Cap I Fund
and Total Return Fund at December 31, 2001 have been audited by Ernst &
Young LLP, independent auditors, and is in accordance with accounting
principles generally accepted in the United States consistently applied
and such statement (copies of which have been furnished to Van Eck II,)
fairly reflects the financial condition of Mid-Cap I Fund and Total
Return Fund as of such date, and there are no known contingent
liabilities of Mid-Cap I Fund and Total Return Fund Van Eck as of such
date not disclosed therein.
(g) Since December 31, 2001, there has not been any material
adverse change in the financial condition, assets, liabilities or
business of Mid-Cap I Fund or Total Return Fund other than changes
occurring in the ordinary course of business, or any incurrence by
Mid-Cap I Fund or Total Return Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred. For the purposes
of this subparagraph (g), a decline in net asset value per share of
Mid-Cap I Fund or Total Return Fund, the discharge of Mid-Cap I Fund or
Total Return Fund liabilities, or the redemption of Mid-Cap I Fund or
Total Return Fund shares by Mid-Cap I Fund or Total Return Fund
shareholders shall not constitute a material adverse change.
(h) All Federal and other tax returns and reports of Van Eck
Mid-Cap I Fund and Total Return Fund required by law to have been filed
have been filed and are correct, and all Federal and other taxes shown as
due or required to be shown as due on said returns and reports have been
paid or provision has been made for the payment thereof, and to the best
of the Van Eck's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns.
(i) For each taxable year of its operation, Mid-Cap I Fund or
Total Return Fund have met the requirements of Subchapter M of the Code
for qualification as a regulated investment company and have elected to
be treated as such.
(j) All issued and outstanding shares of Mid-Cap I Fund or
Total Return Fund are duly and validly issued and outstanding, fully paid
and non-assessable by Van Eck. Van Eck does not have outstanding any
options, warrants or other rights to subscribe for or purchase any of the
Mid-Cap I Fund or Total Return Fund shares, nor is there outstanding any
security convertible into any of the Mid-Cap I Fund or Total Return Fund
shares.
(k) The execution, delivery and performance of this Agreement
has been duly authorized prior to the Closing Date by all necessary
action on the part of the Board of Directors of Van Eck, and, subject to
the approval of the Mid-Cap I Fund and Total Return Fund shareholders,
this Agreement constitutes a valid and binding obligation of Van Eck
enforceable in accordance with its terms, subject as to enforcement, to
bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights, and to general equity
principles.
4.2 Van Eck II, on behalf of Mid-Cap II Fund represents and warrants
to Van Eck as follows:
A-4
(a) Van Eck II is a corporation duly organized and validly
existing under the laws of the State of Maryland.
(b) Van Eck II is a registered investment company classified as
a management company of the open-end type, and its registration with the
Commission, as an investment company under the 1940 Act is in full force
and effect, and the registration of its shares under the 1933 Act will
be, at or prior to the Closing Date, in full force and effect.
(c) The prospectus and statement of additional information of
Mid-Cap II Fund in effect at the Closing Date will conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission thereunder and
will not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not materially misleading.
(d) Van Eck II is not, and the execution, delivery and
performance of this Agreement will not result, in violation of any
provision of the Articles of Incorporation or By-Laws of Van Eck II or of
any material agreement, indenture, instrument, contract, lease or other
undertaking to which Van Eck II is a party or by which Van Eck II is
bound;
(e) The execution, delivery and performance of this Agreement
has been fully authorized prior to the Closing Date by all necessary
action, if any, on the part of the Board of Directors of Van Eck II and
this Agreement constitutes a valid and binding obligation of the Van Eck
II enforceable in accordance with its terms, subject as to enforcement,
to bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors rights, and to general equity
principles.
(f) The Mid-Cap II Fund Shares to be issued and delivered to
the Mid-Cap I and Total Return Fund shareholders, pursuant to the terms
of this Agreement at the Closing Date have been duly authorized.
5. COVENANTS OF VAN ECK, AND VAN ECK II
5.1 Van Eck and Van Eck II each will operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that such ordinary course of business will include the declaration
and payment of customary dividends and distributions, the dividends contemplated
by Section 8.6 hereof, and any other distribution that may be advisable.
5.2 Van Eck will assist Van Eck II in obtaining such information as
Van Eck II reasonably requests concerning the beneficial ownership of Mid-Cap I
Fund or Total Return Fund shares.
5.3 Subject to the provisions of this Agreement, Van Eck II and Van
Eck will each take, or cause to be taken, all action, and do or cause to be
done, all things reasonably necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement.
5.4 Van Eck will provide Van Eck II with information reasonably
necessary for the preparation of a registration statement on Form N-14 of Van
Eck II (the "Registration Statement"), such Registration Statement to consist
of, without limitation, a prospectus (the "Prospectus") that includes a proxy
statement of Van Eck (the "Proxy Statement").
5.5 Van Eck II agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act, and such of
the state blue sky or securities laws as may be necessary in order to continue
the operations of Van Eck II after the Closing Date.
A-5
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF VAN ECK
The obligations of Van Eck to consummate the transactions provided for
herein shall be subject, at its election, to the performance by Van Eck II and
Mid-Cap II Fund of all the obligations to be performed by them hereunder on or
before the Closing Date, and, in addition thereto, to the following further
conditions:
6.1 All representations and warranties of Van Eck II contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
6.2 Van Eck II shall have delivered to Van Eck a certificate executed
in its name by its President or Vice President and its Treasurer or Assistant
Treasurer, in a form reasonably satisfactory to Van Eck, and dated as of the
Closing Date, to the effect that the representations and warranties of Van Eck
II made in this Agreement are true and correct in all material respects at and
as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement and as to such other matters as Van Eck shall
reasonably request.
6.3 The Mid-Cap II Fund Shares to be issued and delivered for the
account of Mid-Cap I Fund and Total Return Fund shareholders when so issued and
delivered, shall be duly and validly issued, and shall be fully paid and
non-assessable by Van Eck II;
6.4 The Proxy Statement and Prospectus (only insofar as they relate to
Van Eck II), on the effective date of the Registration Statement and on the
Closing Date, (i) shall comply in all material respects with the applicable
provisions of the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act") and the 1940 Act and the regulations thereunder and (ii) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statement herein in light
of the circumstances under which such statements were made, not materially
misleading.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF VAN ECK II
The obligations of Van Eck II to complete the transactions provided for
herein shall be subject, at its election, to the performance by Van Eck and
Mid-Cap I Fund and Total Return Fund of all of the obligations to be performed
by them hereunder on or before the Closing Date and, in addition thereto, to the
following conditions:
7.1 All representations and warranties of Van Eck contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date.
7.2 Van Eck shall have delivered to Van Eck II a statement of Mid-Cap
I Fund and Total Return Fund's assets and liabilities, as of the Closing Date,
certified by the Treasurer of Mid-Cap I Fund and Total Return Fund; and
7.3 Van Eck shall have delivered to Van Eck II on the Closing Date a
certificate executed in its name by its President or Vice President and its
Treasurer or Assistant Treasurer, in form and substance satisfactory to Van Eck
II, and dated as of the Closing Date, to the effect that the representations and
warranties of Van Eck made in this Agreement are true and correct in all
material respects at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other matters
as Van Eck II shall reasonably request.
7.4 The Proxy Statement and Prospectus (other than information therein
that relates to Van Eck II or Mid-Cap II Fund), on the effective date of the
Registration Statement and on the Closing Date (i)
A-6
shall comply in all material respects with the applicable provisions of the 1933
Act, the 1934 Act, the 1940 Act and the regulations thereunder and (ii) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF VAN ECK AND VAN ECK II
The obligations of Van Eck and Van Eck II to consummate the transactions
contemplated by this Agreement shall be subject, at their election (except as
provided in paragraphs 8.1 and 8.5 below) to the following conditions:
8.1 The Agreement and the transactions contemplated herein shall have
been approved by the affirmative vote if a majority of the outstanding shares of
each of Mid-Cap I Fund and Total Return Fund in accordance with the provisions
of Maryland law and the Articles of Incorporation and By-Laws of Van Eck and
certified copies of the resolutions evidencing such approval shall have been
delivered to Van Eck II. Notwithstanding anything herein to the contrary,
neither Van Eck II nor Van Eck may waive the conditions set forth in this
paragraph 8.1;
8.2 On the Closing Date, no action, suit or other proceeding shall be
threatened or pending before any court or governmental agency in which it is
sought to restrain or prohibit, or to obtain damages or other relief in
connection with this Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
Van Eck II or Van Eck to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where failure
to obtain any such consent order or permit would not involve a risk of a
material adverse effect on the assets or properties of Van Eck II or Van Eck.
8.4 The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5 The parties shall have received an opinion from the law firm of
Goodwin Procter LLP addressed to Van Eck II and Van Eck substantially to the
effect that the transaction contemplated by this Agreement should constitute one
or more tax-free reorganizations for Federal income tax purposes. The delivery
of such opinion is conditioned upon receipt by the law firm of Goodwin Procter
LLP of representations it shall request of Van Eck II and Van Eck.
Notwithstanding anything herein to the contrary, neither Van Eck II nor Van Eck
may waive the condition set forth in this paragraph 8.5.
8.6 At or immediately prior to the Closing, Mid-Cap I Fund and Total
Return Fund shall have declared and paid a dividend or dividends which, together
with all previous such dividends, shall have the effect of distributing to the
Mid-Cap I Fund and Total Return Fund shareholders all of such Mid-Cap I Fund and
Total Return Fund's investment company taxable income for taxable years ending
at or prior to the Closing and all of its net capital gain, if any, realized in
taxable years ending at or prior to the Closing (after reduction for any capital
loss carry-forward).
8.7 Shareholders of each of Mid-Cap I Fund and Total Return Fund shall
have approved new investment manager agreement into Van Eck Associates
Corporation as contemplated by the Proxy Statement and a new investment
sub-advisory agreement with Levin as contemplated by the Proxy Statement.
9. BROKERAGE FEES AND EXPENSES
9.1 Van Eck II and Van Eck each represents and warrants to the other
that there are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
A-7
9.2 All of the expenses of the Merger, including without limitation,
legal and printing expenses and expenses of holding the meeting of shareholders
of Mid-Cap I Fund and Total Return Fund (such as proxy tabulation and the
expense of a solicitor, if any) will be borne by Mid-Cap I Fund and Total Return
Fund. [Expenses that are directly attributable to either series shall be borne
by such series. Expenses that are nor directly attributable to a specific series
shall be allocated pro rata based on the respective net assets as Mid-Cap I Fund
and Total Return Fund at the Valuation Time.] All fees payable by any party as
described herein shall be payable by such party regardless of whether the
transactions contemplated hereby are consummated.
10. ENTIRE AGREEMENT
Van Eck II and Van Eck agree that neither party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11. TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by either party by resolution of the party's Board of Directors,
at any time prior to the Closing Date, if circumstances should develop that, in
the opinion of such Board, make proceeding with the Agreement inadvisable. In
the event of any such termination, there shall be no liability for damages on
the part of either Van Eck II or Van Eck, or their respective Directors or
officers, to the other party.
12. AMENDMENTS
This agreement may be amended, modified or supplemented in such manner
as may be mutually agreed upon in writing by the authorized officers of Van Eck
and Van Eck II; provided, however, that following the meeting of Mid-Cap I Fund
and Total Return Fund Shareholders called by Van Eck pursuant to paragraph 8.1
of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of the Mid-Cap II Fund shares to be issued
to the Mid-Cap I Fund and Total Return Fund shareholders under this Agreement to
the detriment of such shareholders without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the parties hereto at their
principal place of business.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF
LIABILITY
14.1 The Article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts each
of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance
with the laws of the State of Maryland.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
A-8
14.5 The sole remedy of a party hereto for a breach of any
representation or warranty made in this Agreement by the other party shall be an
election by the non-breaching party not to complete the transactions
contemplated herein as set forth in Paragraph [6.1] and [7.1].
A-9
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on behalf of its constituent Fund as of the date first set forth
above by their duly authorized representatives.
VAN ECK FUNDS, INC., on behalf of Mid-Cap I Fund
By:__________________________________________________
Name:
VAN ECK FUNDS, INC., on behalf of Total Return Fund
By:__________________________________________________
Name:
VAN ECK FUNDS II, INC., on behalf of Mid-Cap II Fund
By:__________________________________________________
Name:
EXHIBIT B
ARTICLES OF MERGER
BETWEEN
VAN ECK FUNDS, INC.
(a Maryland corporation)
AND
VAN ECK FUNDS II, INC.
(a Maryland corporation)
Van Eck Funds, Inc., a corporation duly organized and existing under the
laws of the State of Maryland ("Van Eck"), and Van Eck Funds II, Inc., a
corporation duly organized and existing under the laws of the State of Maryland
("Van Eck II"), do hereby certify that:
FIRST: Van Eck and Van Eck II agree to merge pursuant to the Agreement
and Plan of Reorganization attached hereto as Exhibit A (the "Reorganization"),
which Agreement and Plan of Merger has been approved by the respective Boards of
Directors of Van Eck and Van Eck II for the Merger of Van Eck with and into Van
Eck II.
SECOND: The name and place of incorporation of each party to these
Articles are Van Eck Funds, Inc., a Maryland corporation, and Van Eck Funds II,
Inc., a Maryland corporation. The date of incorporation of Van Eck in the State
of Maryland is August 19, 1987. Van Eck II shall survive the Merger and shall
continue under the name "Van Eck Funds, Inc.," as a corporation of the State of
Maryland.
THIRD: Van Eck and Van Eck II each have their principal office in the
State of New York in New York County. Neither Van Eck nor Van Eck II owns an
interest in land in the State of Maryland.
FOURTH: The terms and conditions of the transaction set forth in these
Articles were advised, authorized, and approved by each party to the Articles in
the manner and by vote required by its charter and the laws of the State of
Maryland. The manner of approval was as follows:
(a) (i) The Board of Directors of Van Eck at a meeting held on
February 12, 2002, adopted resolutions approving the Agreement and Plan of
Reorganization, subject to the approval of shareholders of the Mid-Cap II Fund
("Mid-Cap I") and Total Return Fund ("Total Return Fund"), each a portfolio
series of Van Eck, which resolutions declared that the proposed Merger was
advisable on substantially the terms and conditions set forth or referred to in
the resolutions and directed that the proposed Merger be submitted for
consideration at special meetings of the shareholders of the Mid-Cap I Fund and
Total Return Fund.
(ii) The Board of Directors of Van Eck II at a meeting held on
January 31, 2002, adopted resolutions approving the Agreement and Plan of
Reorganization, which resolutions declared that the proposed Merger was
advisable on substantially the terms and conditions set forth or referred to in
the resolutions.
(b) Notice which stated that a purpose of the meeting was to act on
the proposed Reorganization was given by Van Eck to the shareholders of Mid-Cap
I Fund and Total Return Fund as required by law.
B-1
(c) The proposed Reorganization was approved by the shareholders of
the Mid-Cap I Fund and Total Return Fund at special meetings of the shareholders
held on April 26, 2002, by the affirmative vote of at least a majority of the
outstanding shares of each portfolio series.
FIFTH: No amendment to the charter of Van Eck II is to be effected as
part of the Merger.
SIXTH: The total number of shares of stock of all classes which Van Eck
II has authority to issue is eight hundred million (800,000,000) shares of
common stock, par value of $.001 per share, of which 800,000,000 shares have
been designated Class A shares of Mid-Cap II Fund ("Mid-Cap II"). The aggregate
par value of all shares of all classes of Van Eck II is $800,000.00. The total
number of shares of all classes which Van Eck has authority to issue is one
billion (1,000,000,000) shares of common stock, par value of $.01 per share, of
which 100,000,000 shares have been designated as Class A shares of Mid-Cap I
Fund and 100,000,000 shares have been designated as Class A shares of Total
Return Fund. The aggregate par value of all classes of Van Eck is $1,000,000.
SEVENTH: The Merger does not increase the authorized stock of Van Eck II.
EIGHTH: The manner and basis of converting or exchanging issued stock of
the merging corporations into different stock of a corporation, or other
consideration, and the treatment of any issued stock of the merging corporations
not to be converted or exchanged are as follows:
(a) The whole and fractional shares of Mid-Cap I Fund issued and
outstanding immediately prior to the Valuation Time (as defined below) shall, as
of the Valuation Time and without further act, be converted into, and become a
number of whole and fractional shares of Mid-Cap II, equal to the value of the
net assets of Mid-Cap I Fund computed immediately after the close of business of
the New York Stock Exchange on ___________, 2002 (the "Valuation Time"), using
the valuation procedures set forth in Mid-Cap II's Articles of Incorporation and
then-current prospects and statement of additional information. Each shareholder
of record of Mid-Cap I Fund will be credited with a pro rata number of such
shares of Mid-Cap II Fund received in the Merger based on the number of Mid-Cap
I Fund shares held by such shareholder at the Valuation Time relative to the
total number of issued and outstanding Mid-Cap I Fund shares at the Valuation
Time. Each such share of Class A shares of Van Eck issued pursuant to this
paragraph shall be fully paid and non-assessable.
The whole and fractional shares of Total Return Fund issued and
outstanding immediately prior to the Valuation Time shall, as of the Valuation
Time and without further act, be converted into, and become a number of whole
and fractional shares of Mid-Cap II, equal to the value of the net assets of
Total Return Fund computed at the Valuation Time, using the valuation procedures
set forth in Mid-Cap II's Articles of Incorporation and then-current prospects
and statement of additional information. Each shareholder of record of Total
Return Fund will be credited with a pro rata number of such shares of Mid-Cap II
Fund received in the Merger based on the number of Total Return Fund shares held
by such shareholder at the Valuation Time [relative] to the total number of
issued and outstanding Total Return Fund shares at the Valuation Time. Each such
share of Class A shares of Van Eck issued pursuant to this paragraph shall be
fully paid and non-assessable.
NINTH: The Merger shall become effective for both Van Eck and Van Eck II
at the Valuation Time.
B-2
IN WITNESS WHEREOF, Van Eck Funds, Inc., a Maryland corporation, and Van
Eck Funds II, Inc., a Maryland corporation, have caused these presents to be
signed in the irrespective names and on their respective behalves by their
respective President or Vice President and witnessed by their respective
Secretary on _______________ ___, 2002.
VAN ECK FUNDS, INC.
Attest:
By: ________________________________ By: ________________________________
VAN ECK FUNDS II, INC.
Attest:
By: ________________________________ By: ________________________________
OFFICER'S CERTIFICATE
THE UNDERSIGNED, ____________________ of Van Eck Funds, Inc., a Maryland
corporation, who executed on behalf of the Corporation the foregoing Articles of
Merger of which this certificate is made a part, hereby acknowledges in the name
and on behalf of said Corporation the foregoing Articles of Merger to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
By: _____________________
Title:____________________
THE UNDERSIGNED, ____________________ of Van Eck Funds II, Inc., a
Maryland corporation, who executed on behalf of the Corporation the foregoing
Articles of Merger of which this certificate is made a part, hereby acknowledges
in the name and on behalf of said Corporation the foregoing Articles of Merger
to be the corporate act of said Corporation and hereby certifies that to the
best of his knowledge, information and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
By: _____________________
Title:___________________
B-3
EXHIBIT C
YOUR INVESTMENT DEALER IS:
FOR MORE DETAILED INFORMATION,
SEE THE STATEMENT OF
ADDITIONAL INFORMATION (SAI),
which is incorporated by VAN ECK FUNDS II, INC.,
reference into this ------------------------
prospectus.
FOR FREE COPIES OF SAIS,
ANNUAL OR SEMI-ANNUAL REPORTS
OR OTHER INQUIRIES...
PROSPECTUS
o Call Van Eck at [May 1, 2002]
1-800-826-1115, or visit the
Van Eck website at
www.vaneck.com.
o Go to the Public Reference
Room of the Securities and
Exchange Commission.
o Call the SEC at 1-202-942-8090, MID CAP VALUE FUND
or write to them at the Public
Reference Room, Washington, D.C.
20549-0102, and ask them to send
you a copy. There is a duplicating
fee for this service.
These securities have not been
o Download documents from the approved or disapproved either by the
SEC's website at www.sec.gov Securities and Exchange Commission
or by electronic request at (SEC) or by any State Securities
the following E-mail Commission. Neither the SEC nor any
address: publicinfo@sec.gov. State Commission has endorsed the
accuracy or adequacy of prospectus.
C-1
o The Fund's annual report Any claim to the contrary is against
includes a discussion of the law.
market conditions and
investment strategies that
significantly affected the
Funds' performance last
year.
[Graphic]
Transfer Agent: DST Systems, Inc.
P.O. Box 218407
Kansas City, Missouri 64121-8407
1-800-544-4653
SEC registration number: 811-
......................................
C-2
TABLE OF CONTENTS
I. A PROFILE OF THE MID CAP VALUE FUND; ITS INVESTMENT STYLE AND
PRINCIPAL RISKS; AND EXPENSES.
II. ADDITIONAL INVESTMENT STRATEGIES OTHER INVESTMENTS, INVESTMENT
POLICIES, INVESTMENT TECHNIQUES AND RISKS.
III. SHAREHOLDER INFORMATION HOW TO BUY, SELL, EXCHANGE, OR TRANSFER
SHARES; AUTOMATIC SERVICES; MINIMUM PURCHASE AND ACCOUNT SIZE;
YOUR PRICE PER SHARE; SALES CHARGES; HOUSEHOLDING; RETIREMENT
PLANS; TAXES; AND MANAGEMENT OF THE FUND.
IV. FINANCIAL HIGHLIGHTS TABLES THAT SHOW PER SHARE EARNINGS,
EXPENSES, AND PERFORMANCE OF THE FUND.
C-3
I. THE FUND
- --------------------------------------------------------------------------------
INCLUDES A PROFILE OF THE FUND, ITS INVESTMENT STYLE AND PRINCIPAL
RISKS; AND EXPENSES.
VAN ECK MID CAP VALUE FUND PROFILE
OBJECTIVE
The Mid Cap Value Fund seeks long-term growth of capital.
PRINCIPAL STRATEGIES
Under normal market conditions, the Mid Cap Value Fund (the
"Fund") invests at least 80% of its total assets in common stocks
and other equity securities, including preferred stocks and
securities convertible into common stock of mid-cap companies.
Mid-cap companies are companies with a market capitalization of
$1.0 billion to $10 billion. The Adviser uses a value strategy of
attempting to identify securities that appear to be trading below
their true worth.
The Fund invests primarily in the United States. The Fund may
sometimes invest up to 20% of its assets in foreign equity
including exchange-traded and over-the counter foreign issues,
American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs), and Global Depositary Receipts (GDRs). These securities
may be traded either in the U.S. or in foreign markets.
PRINCIPAL RISKS
The prices of the securities in the Fund are subject to the risk
associated with investing in the stock market, including sudden
and unpredictable drops in value. An investment in the Fund may
lose money.
Because the Fund invests in mid-cap companies, it is subject to
certain risks associated with mid-cap companies. Mid-cap companies
are often subject to less analyst coverage and may be in early and
less predictable periods of their corporate existences. In
addition, mid-cap companies often have greater price volatility,
lower trading volume and less liquidity than larger
more-established companies. These companies tend to have smaller
revenues, narrower product lines, less management depth and
experience, smaller shares of their
C-4
product or service markets, fewer financial resources, and less
competitive strength than larger companies.
The principal risk of investing in value stocks is that they may never
reach what the Fund believes is their full value or that they may even go
down in value. In addition, different types of stocks tend to shift in
and out of favor depending on market and economic conditions and
therefore the Fund's performance may be lower or higher than that of
funds that invest in other types of equity securities (such as those
emphasizing growth stocks).
8 VAN ECK FUNDS II PROSPECTUS
C-5
I. THE FUND / MID-CAP VALUE
- --------------------------------------------------------------------------------
VAN ECK MID-CAP VALUE FUND PERFORMANCE
- --------------------------------------------------------------------------------
On May 1, 2002, Van Eck Total Return Fund and Van Eck Mid-Cap Value Fund
(formerly Van Eck Growth & Income Fund) (the "Predecessor Funds") were combined
to create the Fund. Since January 1, 2002, Van Eck Associates Corporation has
served as investment adviser to the Fund and John A. Levin & Co. has served as
the Fund's sub-adviser. Performance results of the Predecessor Funds for periods
prior to January 1, 2002, during which the Fund was advised by another
investment adviser, are not shown.
- --------------------------------------------------------------------------------
C-6
- --------------------------------------------------------------------------------
VAN ECK FUNDS II MID-CAP VALUE FUND EXPENSES
- --------------------------------------------------------------------------------
This table shows certain fees and expenses you will incur as the Fund investor,
either directly or indirectly if you buy and hold shares.
VAN ECK FUNDS II MID-CAP VALUE FUND
SHAREHOLDER EXPENSES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A
Maximum Sales Charge (imposed on purchases as
a percentage of offering price) 5.75%
Maximum Deferred Sales Charge
(as a percentage) 0.00%
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT
ARE DEDUCTED FROM FUND ASSETS)
Management 0.75%
Administration Fees 0.15%
Distribution (12b-1 Fees) 0.50%
Other Expenses 0.66%
TOTAL ANNUAL FUND OPERATING EXPENSES* 2.06%
* The Adviser has voluntarily agreed to temporarily waive a
portion of the management fee and if necessary to bear certain
expenses associated with operating the Fund in order to limit
Total Annual Fund Operating Expenses to 1.35% plus 12b-1
reimbursements. This temporary waiver and expense provision may be
discontinued at any time at the discretion of the Adviser.
The adjacent table shows the expenses you would pay on a
hypothetical $10,000 investment. The example presumes an average
annual return of 5% with redemption at the end of each time
period. This illustration is hypothetical and assumes that
expenses remain the same and you reinvest your dividends and
distributions. In a real investment, your actual expenses may be
higher or lower than those shown.
C-7
EXPENSE EXAMPLE
WHAT A $10,000 INVESTMENT WOULD ACTUALLY COST
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
Class A 772 1,184 1,620 2,827
10 VAN ECK FUNDS II PROSPECTUS
C-8
INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
II. ADDITIONAL INVESTMENT STRATEGIES
- --------------------------------------------------------------------------------
OTHER INVESTMENTS, INVESTMENT POLICIES,
INVESTMENT TECHNIQUES
AND RISKS.
MARKET RISK
An investment in the Fund involves "market risk"--the risk that
securities prices may go up or down.
OTHER INVESTMENT TECHNIQUES AND RISK
CREDIT RISK
RISK The chance that an issuer will fail to repay interest and
principal in a timely manner.
VAN ECK FUNDS II PROSPECTUS 17
C-9
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DERIVATIVES
DEFINITION A derivative is a security that derives its current value from the
current value of another security. It can also derive its value
from a commodity, a currency, or a securities index. The Funds use
derivatives, either on their own, or in combination with other
derivatives, to offset other investments with the aim of reducing
risk-- that is called "hedging." The Fund also invest in
derivatives for their investment value.
RISKS Derivatives bear special risks, by their very nature. First, the
Fund must correctly predict the price movements, during the life
of a derivative, of the underlying asset in order to realize the
desired results from the investment. Second, the price swings of
an underlying security tend to be magnified in the price swing of
its derivative. If the Fund invests in a derivative with
"leverage"--by borrowing--an unanticipated price move might result
in the Fund losing more than its original investment. Derivatives
may not move in concert with the underlying security.
For a complete discussion of the kinds of derivatives the Fund
uses, and of their risks, please see the SAI.
18 VAN ECK FUNDS II PROSPECTUS
C-10
II. INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FOREIGN SECURITIES, DEPOSITARY RECEIPTS
DEFINITION Securities issued by foreign companies, traded in foreign
currencies, or issued by companies with most of their business
interests in foreign countries. Depositary Receipts--obligations
traded on more established exchanges, denominated in larger
currencies, representing foreign issues--are considered foreign
securities.
RISK Foreign investing involves exchange rate fluctuations and exchange
controls; less publicly available information; more volatile or
less liquid securities markets; and the possibility of
expropriation, confiscatory taxation, or political, economic or
social instability. Foreign accounting can be less revealing than
American accounting practice. Foreign regulation may be inadequate
or irregular.
Some of these risks may be reduced when Funds invest indirectly in
foreign issues via American Depositary Receipts (ADRs), European
Depositary Receipts (EDRs), American Depositary Shares (ADSs),
Global Depositary Shares (GDSs), and otherwise which are traded on
larger, recognized exchanges and in stronger, more recognized
currencies.
INTEREST RATE RISK
RISK The chance that bond prices will decline due to rising interest
rates.
C-11
VAN ECK FUNDS II PROSPECTUS 19
C-12
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
20 VAN ECK FUNDS II PROSPECTUS
C-13
II. INVESTMENT POLICIES AND RISKS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
RESTRICTED SECURITIES
DEFINITION Securities with restrictions on resale because they are not
registered under the Securities Act of 1933, ("the Act"),
including securities that are sold only to "qualified
institutional buyers" under Rule 144A under the Act ("Rule 144A
securities").
RISK Because these securities are not registered or priced via regular
exchanges, the Fund may not be able to sell them when it wants to,
or may have to sell them for a reduced price.
VAN ECK FUNDS II PROSPECTUS 21
C-14
- --------------------------------------------------------------------------------
III. SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
HOW TO BUY, SELL, EXCHANGE, OR TRANSFER SHARES; AUTOMATIC
SERVICES; MINIMUM PURCHASE AND ACCOUNT SIZE, YOUR PRICE PER SHARE;
SALES CHARGES; HOUSEHOLDING; RETIREMENT PLANS; DIVIDENDS AND
CAPITAL GAINS; TAXES; AND MANAGEMENT OF THE FUNDS. (SEE THE SAI
FOR ADDITIONAL INFORMATION.)
1. HOW TO BUY, SELL, EXCHANGE OR TRANSFER SHARES
THROUGH A BROKER OR AGENT
We recommend that you use a broker or agent to buy, sell, exchange, or transfer
shares for you. The applicable sales charge will be the same, whether you buy
indirectly through a broker or agent or directly through the transfer agent.
Contact your broker or agent for details.
THROUGH THE TRANSFER AGENT,
DST SYSTEMS, INC. (DST)
You may buy (purchase), sell (redeem), exchange, or transfer ownership of shares
directly through DST by mail or telephone, as stated below.
The Fund's mailing address at DST is:
VAN ECK GLOBAL
P.O. BOX 218407
KANSAS CITY, MO 64121-8407
For overnight delivery:
VAN ECK GLOBAL
210 W. 10TH ST., 8TH FL.
KANSAS CITY, MO 64105-1802
To telephone the Fund at DST, call Van Eck's Account Assistance at
1-800-544-4653.
PURCHASE BY MAIL
C-15
To make an initial purchase, complete the Van Eck Account Application and
mail it with your check made payable to Van Eck Funds II. Subsequent
purchases can be made by check with the remittance stub of your account
statement. You cannot make a purchase by telephone. We cannot accept
third party checks, checks drawn on a foreign bank, or checks not in U.S.
Dollars. There are separate applications for Van Eck retirement accounts
(see "Retirement Plans" for details). For further details, see the
application or call Account Assistance.
TELEPHONE REDEMPTION--PROCEEDS BY CHECK
1-800-345-8506
If your account has the optional Telephone Redemption Privilege, you can
redeem up to $50,000 per day. The redemption check must be payable to the
registered owner(s) at the address of record (which cannot have been
changed within the past 30 days). You automatically get the Telephone
Redemption Privilege (for eligible accounts) unless you specifically
refuse it on your Account Application, on broker/agent settlement
instructions, or by written notice to DST. All accounts are eligible for
the privilege except those registered in street, nominee, or corporate
name and custodial accounts held by a financial institution, including
Van Eck sponsored retirement plans.
22 VAN ECK FUNDS II PROSPECTUS
C-16
- --------------------------------------------------------------------------------
III. SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
EXPEDITED REDEMPTION--PROCEEDS BY WIRE
1-800-345-8506
If your account has the optional Expedited Redemption Privilege, you can
redeem a minimum of $1,000 or more per day by telephone or written
request with the proceeds wired to your designated bank account. This
privilege must be established in advance by Application. For further
details, see the Application or call Account Assistance.
WRITTEN REDEMPTIONS
o Your written redemption (sale) request must include:
o Fund and account number.
o Number of shares or dollar amount to be redeemed, or a request to sell "all
shares."
o Signatures of all registered account holders, exactly as those names appear on
the account registration, including any additional documents concerning
authority and related matters in the case of estates, trusts, guardianships,
custodianships, partnerships and corporations, as requested by DST.
o Special instructions, including bank wire information or special payee or
address.
A signature guarantee for each account holder will be required if:
o The redemption is for $50,000 or more.
o The redemption amount is wired.
o The redemption amount is paid to someone other than the registered owner.
o The redemption amount is sent to an address other than the address of record.
o The address of record has been changed within the past 30 days.
C-17
Institutions eligible to provide signature guarantees include banks, brokerages,
trust companies, and some credit unions.
TELEPHONE EXCHANGE 1-800-345-8506
If your account has the optional Telephone Exchange Privilege, you can
exchange between the Fund and Class A shares of other Van Eck Funds
without any additional sales charge. (Shares originally purchased into
the Van Eck U.S. Government Money Fund, which paid no sales charge, may
pay an initial sales charge the first time they are exchanged into
another Class of another Van Eck Fund.)
All accounts are eligible except for those registered in street name and
certain custodial retirement accounts held by a financial institution
other than Van Eck. For further details regarding exchanges, please see
the application, "Market Timing Limits" and "Unauthorized Telephone
Requests" below, or call Account Assistance.
VAN ECK FUNDS II PROSPECTUS 23
C-18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WRITTEN EXCHANGES
Written requests for exchange must include:
o The fund and account number to be exchanged out of.
o The fund to be exchanged into.
o Directions to exchange "all shares" or a specific number of shares or dollar
amount.
o Signatures of all registered account holders, exactly as those names appear on
the account registration, including any additional documents concerning
authority and related matters in the case of estates, trusts, guardianships,
custodianships, partnerships and corporations, as requested by DST.
For further details regarding exchanges, please see the applicable information
in "Telephone Exchange" on the preceding page.
TRANSFER OF OWNERSHIP
Requests must be in writing and provide the same information and legal
documentation necessary to redeem and establish an account, including the social
security or tax identification number of the new owner.
LIMITS AND RESTRICTIONS
MARKET TIMING LIMITS
Van Eck has a policy of discouraging short-term trading, particularly by
market-timers, and may limit or reject purchase orders and exchanges at its
discretion. Shareholders are limited to six exchanges per calendar year.
Although not generally imposed, the Fund has the ability to redeem its shares
"in kind" by making payment in securities instead of dollars. For further
details, contact Account Assistance.
UNAUTHORIZED TELEPHONE REQUESTS
Like most financial organizations, Van Eck, the Fund and DST may only be liable
for losses resulting from unauthorized transactions if reasonable
C-19
procedures designed to verify the caller's identity and authority to act on the
account are not followed.
If you do not want to authorize the Telephone Exchange or Redemption privilege
on your eligible account, you must refuse it on the Account Application,
broker/agent settlement instructions, or by written notice to DST. Van Eck, the
Fund, and DST reserve the right to reject a telephone redemption, exchange, or
other request without prior notice either during or after the call. For further
details, contact Account Assistance.
24 VAN ECK FUNDS II PROSPECTUS
C-20
III. SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AUTOMATIC SERVICES
AUTOMATIC INVESTMENT PLAN
You may authorize DST to periodically withdraw a specified dollar amount from
your bank account and buy shares in your Fund account. For further details and
to request an Application, contact Account Assistance.
AUTOMATIC EXCHANGE PLAN
You may authorize DST to periodically exchange a specified dollar amount for
your account from one Fund to another Van Eck Fund. For further details and to
request an Application, contact Account Assistance.
AUTOMATIC WITHDRAWAL PLAN
You may authorize DST to periodically withdraw (redeem) a specified dollar
amount from your Fund account and mail a check to you for the proceeds. Your
Fund account must be valued at $10,000 or more at current offering price to
establish the Automatic Withdrawal Plan. For further details and to request an
Application, contact Account Assistance.
MINIMUM PURCHASE AND ACCOUNT SIZE
An initial purchase of $1,000 and subsequent purchases of $100 dollars or more
are required for non-retirement accounts. There are no minimums for any
retirement or pension plan account, for any account using the Automatic
Investment Plan, or for any other periodic purchase program.
If the size of your account falls below 50 shares after the initial purchase,
the Fund reserves the right to redeem your shares after 30 days' notice to you.
This does not apply to accounts exempt from purchase minimums as described
above.
HOW FUND SHARES ARE PRICED
The Fund buys or sells its shares at its net asset value, or NAV, per share. The
Fund calculates NAV every day the New York Stock Exchange (NYSE) is open, as of
the close of the NYSE, which is normally 4:00 p.m. Eastern Time. There
C-21
are some exceptions, including these:
o You may enter a buy or sell order when the NYSE is closed for weekends or
holidays. If that happens, your price will be the NAV calculated on the next
available open day of the NYSE.
o The Fund has certain securities which are listed on foreign exchanges that
trade on weekends or other days when the Fund does not price its shares, as a
result, the net asset value of the Fund's shares may change on days when
shareholders will not be able to purchase or redeem.
The Fund generally values its assets using market quotations, other than
short-term debt securities maturing in less than 60 days, which are valued using
amortized cost. If market quotations are not readily available or do not
accurately reflect fair value for a security, (for example, if a security's
value has been materially affected by events occurring after the close of the
exchange or market on which the security is principally traded) that security
may be valued by another method that the Board of Directors believes accurately
reflects fair value.
VAN ECK FUNDS II PROSPECTUS 25
C-22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. SALES CHARGES
SALES CHARGES
MID-CAP VALUE FUND-A
SALES CHARGE AS A PERCENTAGE OF
OFFERING NET AMOUNT PERCENTAGE
TO
DOLLAR AMOUNT OF PURCHASE PRICE INVESTED
BROKERS OR AGENTS*
Less than $25,000 5.75% 6.10% 5.00%
$25,000 to $50,000 5.00% 5.30% 4.25%
$50,000 to $100,000 4.50% 4.70% 3.90%
$100,000 to $250,000 3.00% 3.10% 2.60%
$250,000 to $500,000 2.50% 2.60% 2.20%
$500,000 to $1,000,000 2.00% 2.00% 1.75%
$1,000,000 and over None**
* Brokers or Agents who receive substantially all of the sales charge for
shares they sell may be deemed to be statutory underwriters.
** For any single purchase of $1 Million or more of Class A shares, the
Distributor may pay a finder's fee to eligible brokers and agents. For
details, contact the Distributor.
26 VAN ECK FUNDS II PROSPECTUS
C-23
III. SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REDUCED OR WAIVED SALES CHARGES You may qualify for a reduced or waived sales
charge as stated below, or under other appropriate circumstances. You (or your
broker or agent) must notify DST or Van Eck at the time of each purchase or
redemption whenever a reduced or waived sales charge is applicable. The term
"purchase" refers to a single purchase by an individual (including spouse and
children under age 21), corporation, partnership, trustee, or other fiduciary
for a single trust, estate, or fiduciary account. The value of shares owned by
an individual in Class A, B and C of each of the Van Eck Funds (except for the
Van Eck U.S. Government Money Fund) may be combined for a reduced sales charge
in Class A shares only.
RIGHT OF ACCUMULATION When you buy shares, the amount you purchase will be
combined with the value, at current offering price, of any existing Fund shares
you own. This total will determine the sales charge level you qualify for.
COMBINED PURCHASES The combined amounts of your multiple purchases in the Fund
on a single day determines the sales charge level you qualify for.
LETTER OF INTENT If you plan to make purchases in the Fund within a 13 month
period that total an amount equal to a reduced sales charge level, you can
establish a Letter of Intent (LOI) for that amount. Under the LOI, your initial
and subsequent purchases during that period receive the sales charge level
applicable to that total amount. For escrow provisions and details, see the
Application.
GROUP PURCHASES If you are a member of a "qualified group," you may purchase
shares of the Fund at the reduced sales charge applicable to the group as a
whole. A qualified group (1) has more than 10 members, (2) has existed over six
months, (3) has a purpose other than acquiring fund shares at a discount, (4)
and has satisfied certain other criteria, including the use of the Automatic
Investment Plan. For details, contact the Distributor.
PERSONS AFFILIATED WITH VAN ECK Directors, Trustees, officers, and full-time
employees (and their families) of the Fund, Adviser or Distributor may buy
without a sales charge. Also, employees (and their spouses and children under
age 21) of a brokerage firm or bank that has a selling agreement with Van Eck,
and other affiliates and agents, may buy without a sales charge.
INVESTMENT ADVISERS, FINANCIAL PLANNERS AND BANK TRUST
C-24
DEPARTMENTS Investment advisers, financial planners and bank trust departments
that meet certain requirements and are compensated by asset-based fees may buy
without a sales charge on behalf of their clients.
FOREIGN FINANCIAL INSTITUTIONS Certain foreign financial institutions that have
agreements with Van Eck may buy shares with a reduced or waived sales charge for
their omnibus accounts on behalf of foreign investors.
INSTITUTIONAL RETIREMENT PROGRAMS Certain financial institutions who have
agreements with Van Eck may buy shares without a sales charge for their omnibus
accounts on behalf of investors in retirement plans and deferred compensation
plans other than IRAs.
BUY-BACK PRIVILEGE You have the one-time right to reinvest proceeds of a
redemption from the Fund into the Fund or another Van Eck Fund within 30 days
without a sales charge, excluding the Van Eck U.S. Government Money Fund.
Reinvestment into the same Fund within 30 days is considered a "wash sale" by
the IRS and cannot be declared as a capital loss or gain for tax purposes.
MOVING ASSETS FROM ANOTHER MUTUAL FUND GROUP You may purchase shares without a
sales charge with the proceeds of a redemption made within three months from
another mutual fund group not managed by Van Eck or its affiliates. The shares
redeemed must have paid an initial sales charge in a Class of the fund. Also,
the financial representative of record must be the same on the Van Eck Fund
account as for the other mutual fund redeemed.
VAN ECK FUNDS II PROSPECTUS 27
C-25
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3. HOUSEHOLDING OF REPORTS AND PROSPECTUSES
If more than one member of your household is a Van Eck Global shareholder,
beginning in 2001, new regulations allow us to mail single copies of your
shareholder reports, prospectuses and prospectus supplements to a shared address
for multiple shareholders. For example, a husband and wife with separate
accounts in the same fund who have the same shared address generally receive two
separate envelopes containing the same report or prospectus. Under the new
system, known as "householding," only one envelope containing one copy of the
same report or prospectus will be mailed to the shared address for the
household. This new system will not affect the delivery of individual
transaction confirmations, account statements, and annual tax information, which
will continue to be mailed separately to each shareholder. You may benefit from
this new system in two ways, a reduction in mail you receive and a reduction in
fund expenses due to lower fund printing and mailing costs. However, if you
prefer to continue to receive separate shareholder reports and prospectuses for
each shareholder living in your household now or at any time in the future,
please call Account Assistance at 1-800-544-4653.
4. RETIREMENT PLANS
Fund shares may be invested in tax-advantaged retirement plans sponsored by Van
Eck or other financial organizations. Retirement plans sponsored by Van Eck use
State Street Bank and Trust Company (formerly known as Investors Fiduciary Trust
Company) as custodian and must receive investments directly by check or wire
using the appropriate Van Eck retirement plan application. Confirmed trades
through a broker or agent cannot be accepted. To obtain applications and helpful
information on Van Eck retirement plans, contact your broker or agent or Account
Assistance.
RETIREMENT PLANS SPONSORED BY VAN ECK:
IRA
Roth IRA
Education IRA
SEP IRA
403(b)(7)
Qualified (Pension and Profit Sharing) Plans
C-26
5. TAXES
TAXATION OF DIVIDEND OR CAPITAL GAIN DISTRIBUTIONS YOU RECEIVE
For tax-reportable accounts, distributions are normally taxable even if they are
reinvested. Distributions of dividends and short-term capital gains are taxed as
ordinary income. Distributions of long-term capital gains are taxed at capital
gain rates.
TAXATION OF SHARES YOU SELL
For tax-reportable accounts, when you redeem your shares you may incur a capital
gain or loss on the proceeds. The amount of gain or loss, if any, is the
difference between the amount you paid for your shares (including reinvested
distributions) and the amount you receive from your redemption. Be sure to keep
your regular statements; they contain the information necessary to calculate the
capital gain or loss. If you redeem shares from an eligible account, you will
receive an Average Cost Statement in February to assist you in your tax
preparations.
An exchange of shares from one Fund to another will be treated as a sale of Fund
shares. It is, therefore, a taxable event.
NON-RESIDENT ALIENS
Distributions of dividends and short-term capital gains, if any, made to
non-resident aliens are subject to a 30% withholding tax (or lower tax treaty
rates for certain countries). The Internal Revenue Service considers these
distributions U.S. source income. Currently, the Fund are not required to
withhold tax from long-term capital gains or redemption proceeds.
VAN ECK FUNDS II PROSPECTUS
C-27
III. SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
6. DIVIDENDS AND CAPITAL GAINS
If declared, dividend and capital gain distributions are generally paid
on the last business day of the month of declaration. Short-term capital
gains are treated like dividends and follow that schedule. Occasionally,
a distribution may be made outside of the normal schedule.
DIVIDEND AND CAPITAL GAIN SCHEDULE
FUND DIVIDENDS AND SHORT-TERM LONG-TERM
CAPITAL GAINS CAPITAL GAINS
Mid-Cap Value Fund-A December December
DIVIDEND AND CAPITAL GAIN REINVESTMENT PLAN
Dividends and/or capital gains are automatically reinvested into your
account without a sales charge, unless you elect a cash payment. You may
elect cash payment either on your original Account Application, or by
calling Account Assistance at 1-800-544-4653.
DIVMOVE
You can have your cash dividends from the Fund automatically invested in
another Van Eck fund. Dividends are invested on the payable date, without
a sales charge. For details and an Application, call Account Assistance.
VAN ECK FUNDS II PROSPECTUS 29
C-28
- --------------------------------------------------------------------------------
7. MANAGEMENT OF THE FUND
INVESTMENT MANAGER AND ADMINISTRATOR
Van Eck Associates Corporation,
99 Park Avenue, New York, NY
10016, serves as Adviser and administrator
to the Fund under an
Investment Management
and an Administration Agreement with
VAN ECK FUNDS II, INC.
|
|
\|/
INDEPENDENT THE COMPANY INVESTMENT SUB-ADVISER
AUDITORS
Ernst & Young LLP, 787 Van Eck Funds II, Inc. John A. Levin & Co., Inc.,
Seventh Avenue, New York, is incorporated in the One Rockefeller Center
NY 10019, provides audit state of Maryland and New York, NY 10021, a
services, consultation > consists of the < wholly owned subsidiary
and advice with respect Van Eck Mid-Cap of BKF Capital Group Inc.,
to financial information Value Fund Series serves as investment
in the Company's filings (the "Fund"). The Board of sub-adviser to the Fund.
with the SEC, consults Directors manages the The Sub-Adviser works
with the Company on Fund's business and under the
accounting and financial affairs. supervision of Van Eck
reporting matters, and -------- and the Board
prepares the Company's of Directors.
tax returns.
------------ / | \
/ | \
/ | \
C-29
\/- | -\/
|
DISTRIBUTOR | TRANSFER AGENT
Van Eck Securities Corporation, | DST Systems, Inc.,
99 Park Ave., New York, NY 10016 | 210 West 10th Street,
distributes the Fund and is | 8th Floor, Kansas City, MO 64105,
wholly owned by the Administrator. | serves as the Fund's transfer agent.
\|/
CUSTODIAN
Citibank, N.A.,
111 Wall Street,
New York, NY 10043,
holds Fund securities
and settles trades.
30 VAN ECK FUNDS II PROSPECTUS
C-30
- --------------------------------------------------------------------------------
III. SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
INFORMATION ABOUT FUND MANAGEMENT
INVESTMENT MANAGER
VAN ECK ASSOCIATES CORPORATION 99 Park Avenue 8th Floor, New York, New York
10016 (Van Eck") has been an investment adviser since 1955. Van Eck currently
advises 9 portfolio series of registered investment companies, as well as
separate accounts and hedge funds. Van Eck is currently the administrator of the
Fund. The Van Eck family currently owns 100% of the shares of Van Eck. As of
December 31, 2001 aggregate assets under management were approximately
$900,000,000.
FEES PAID TO THE ADVISER The Fund pays a monthly advisory fee at the annual rate
of 0.75% of average daily net assets,
INVESTMENT SUB-ADVISER
John A. Levin &co., Inc., ("Levin") is an indirect, wholly owned subsidiary of
BKF Capital Group, Inc. ("BKF"), a company listed on the New York Stock Exchange
(the "NYSE"). Clients of Levin include U.S. and foreign individuals, trusts,
non-profit organizations, registered investment funds, investment partnerships,
endowments, and pension and profit sharing funds. Levin currently manages
approximately $8.7 billion in assets for its clients.
PORTFOLIO MANAGERS
MID-CAP VALUE FUND Portfolio Managers. Mr. John W. Murphy and Daniel Theriault
are the Portfolio Managers of the Fund. Mr. Murphy has been with Levin for six
years and has 10 years of investment experience. Mr. Theriault has been with
Levin for 4 years, he was previously with T. Rowe Price Financial Services and
has 15 years of investment experience.
ADMINISTRATOR
Van Eck Associates Corporation, 99 Park Avenue, New York, NY 10016 serves as
Administrator to the Fund. The Administrator performs accounting and
administrative services for the Fund. For these services, the Fund pays the
Administrator a monthly fee at the rate of 0.15% per year of the average daily
net assets.
VAN ECK FUNDS II PROSPECTUS 31
C-31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLAN OF DISTRIBUTION (12B-1 PLAN)
The Fund has adopted a Plan of Distribution pursuant to Rule 12b-1 under the
Act. The Board of Directors has determined it will reimburse the Distributor for
expenses incurred in distributing the Fund as follows: 0.25% per year of the net
assets of the Fund's shares will be used to finance sales or promotional
activities, and will be considered an asset-based sales charge. Further, 0.25%
per year of the net assets of the Fund will be paid to securities dealers and
others as a service fee. Because these fees are paid out of the Fund's assets on
an on-going basis over time these fees may cost you more than paying other types
of sales charges.
For a complete description of the Plan of Distribution, please see "Plan of
Distribution" in the SAI.
Van Eck FUNDS II Annual 12b-1 Schedule
expressed in basis points (bps)*
FUND FEE PAYMENT
TO DEALER
MID-CAP VALUE FUND-A 50 bps 25 bps
* A basis point (bp) is a unit of measure in the financial industry. One bp
equals .01 of 1% (1% = 100 bps).
THE COMPANY
For more information on the Company, the Directors and the Officers of the
Company, see "The Company" and "Directors and Officers" in the SAI.
EXPENSES The Fund bears all expenses of its operations other than those
incurred by the Adviser or its affiliate under the Advisory Agreement
with the Company. Many of these expenses are shown in tables in Chapter
I, "The Fund," or in Chapter IV, "Financial Highlights." For a more
complete description of Fund expenses, please see "Expenses" in the SAI.
32 VAN ECK FUNDS II PROSPECTUS
C-32
VAN ECK FUNDS II MID-CAP VALUE FUND
FINANCIAL HIGHLIGHTS
IV. FINANCIAL HIGHLIGHTS
THE FINANCIAL HIGHLIGHTS TABLE ATTACHED IS THAT OF THE PREDECESSOR
FUND FORMERLY GROWTH AND INCOME FUND. THE TABLE IS INTENDED TO
HELP YOU UNDERSTAND THE PREDECESSOR 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 INFORMATION HAS BEEN
AUDITED BY ERNST & YOUNG LLP, WHOSE REPORT, ALONG WITH THE FUND'S
FINANCIAL STATEMENTS ARE INCLUDED IN THE FUND'S ANNUAL REPORT
WHICH IS AVAILABLE UPON REQUEST.
VAN ECK FUNDS, INC.
FINANCIAL HIGHLIGHTS
For a share of the Predecessor Fund outstanding throughout each year:
VAN ECK MID-CAP VALUE FUND
------------------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Net Asset Value, Beginning of Year ........... $21.17 $27.73 $23.96 $24.56 $21.04
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) ............ (0.050) (0.123) (0.030) 0.110 0.096
Net Gains (Losses) on Investments
(both Realized and Unrealized) ........ (2.980) (5.377) 7.080 (0.156) 5.286
------ ------ ------ ------ ------
Total from Investment Operations ........ (3.030) (5.500) 7.050 (0.046) 5.382
------ ------ ------ ------ ------
LOST DISTRIBUTIONS TO SHAREHOLDERS
Dividends from Net Investment Income .... -- -- -- (0.111) (0.096)
Dividends in Excess of Net Investment
Income ................................ -- -- -- -- (0.004)
Dividends from Net Realized Gains ....... -- (1.060) (3.280) (0.443) (1.762)
------ ------ ------ ------ ------
Total Distributions ..................... -- (1.060) (3.280) (0.554) (1.862)
------ ------ ------ ------ ------
Net Asset Value, End of Year ................. $18.14 $21.17 $27.73 $23.96 $24.56
====== ====== ====== ====== ======
Total Return(A) .............................. (14.31%) (19.83%) 29.42% (0.18%) 25.85%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(B) ....................... 1.44% 1.38% 1.50% 1.57% 1.49%
Net Expenses ............................ 1.35% 1.35% 1.32% 1.25% 1.25%
Net Investment Income (Loss)(C) ......... (0.25%) (0.46%) (0.16%) 0.44% 0.49%
Portfolio Turnover Rate ...................... 62.69% 124.93% 133.63% 43.42% 21.02%
Net Assets, At End of Year (000) ............. $54,396 $69,091 $94,840 $67,478 $66,762
- ----------
(A) Total return assumes reinvestment of all distributions during the year
and does not reflect deduction of sales charge. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth
more or less than the original cost
(B) Had fees not been waived and expenses not been assumed.
(C) Ratios would have been (0.34%), (0.49%), (0.34%), 0.12%, and 0.25%,
respectively, had the Investment Manager not waived fees and had expenses
not been assumed.
C-33
FOR MORE INFORMATION
Additional information for the Fund, including the Statement of Additional
Information, is available to you without charge and may be requested as follows:
By Telephone: 1-800-826-1115
By Mail: [Van Eck Associates Corporation
99 Park Avenue
New York, New York 10016]
On the Internet: Electronic copies are available on our website at
http://www.vaneck.com
A current Statement of Additional Information is on file with the Securities and
Exchange Commission and is incorporated by reference (is legally part of this
prospectus). Text-only copies are also available on the EDGAR database of the
SEC's website at http://www.sec.gov, and copies of this information may be
obtained, after paying a duplicating fee, by electronic request at the following
E-mail address: PUBLICINFO@SEC.GOV, or by writing the SEC's Public Reference
Section, Washington, D.C. 20549-6009, 202-942-8090. Information about the Fund
may also be reviewed and copied at the SEC's Public Reference Room.
INVESTMENT COMPANY ACT REGISTRATION NUMBER 811-__________
VAN ECK FUNDS II PROSPECTUS 35
C-34
EXHIBIT D
FORM OF
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of this 1st day of MAY, 2002 between VAN ECK ASSOCIATES
CORPORATION, a corporation organized under the laws of the State of Delaware and
having its principal place of business in New York, New York (the "Investment
Manager"), and VAN ECK FUNDS, INC., Mid Cap Value Fund [Total Return Fund]
series of a Maryland Corporation (the "Fund") having its principal place of
business in New York, New York (the "Fund").
WHEREAS, the Fund is engaged in business as an open-end investment
company and is so registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Investment Manager is engaged principally in the business of
rendering investment management services and is registered under the Investment
Advisers Act of 1940, as amended; and
WHEREAS, the Fund is authorized to issue shares of capital stock in
separate series, each representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to offer its shares ("Shares") in and invest
the proceeds in securities, the Fund desires to retain the Investment Manager to
render investment Management services hereunder and with respect to which the
Investment Manager is willing so to do;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
15. APPOINTMENT OF INVESTMENT MANAGER
The Fund hereby appoints the Investment Manager to act as Investment
Manager to the Fund for the period and on the terms herein set forth. The
Investment Manager accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
16. DUTIES OF INVESTMENT MANAGER
The Investment Manager, at its own expense, shall be responsible for
furnishing the following services and facilities to the Fund:
(a) INVESTMENT PROGRAM
The Investment Manager will (i) furnish continuously an investment
program for the Fund (ii) determine (subject to the overall supervision and
review of the Board of Directors of the Fund) what investments shall be
purchased, held, sold or exchanged and what portion, if any, of the assets of
the Fund shall be held uninvested, and (iii) make changes on behalf of the Fund
in the investments. The Investment Manager also will manage, supervise and
conduct such other affairs and business of the Fund and matters incidental
thereto, as the Investment Manager and the Fund agree, subject always to the
control of the Board of Directors of the Fund and to the provisions of the
Articles of Incorporation of the Fund, the Fund's By-Laws and the 1940 Act.
D-1
(b) OFFICE SPACE AND FACILITIES
The Investment Manager will arrange to furnish the Fund office space in
the offices of the Investment Manager, or in such other place or places as may
be agreed upon from time to time, and all necessary office facilities, simple
business equipment, supplies, utilities and telephone service required for
managing the investments of the Fund.
(c) PERSONNEL
The Investment Manager shall provide executive and clerical personnel for
managing the investments of the Fund, and shall compensate officers and
Directors of the Fund if such persons are also employees of the Investment
Manager or its affiliates, except as otherwise provided herein.
(d) PORTFOLIO TRANSACTIONS
The Investment Manager shall place all orders for the purchase and sale
of portfolio securities for the account of the Fund with brokers or dealers
selected by the Investment Manager, although the Fund will pay the actual
brokerage commissions on portfolio transactions in accordance with Paragraph
3(d). In executing portfolio transactions and selecting brokers or dealers, the
Investment Manager will use its best efforts to seek on behalf of the Fund the
best overall terms available. In assessing the best overall terms available for
any transaction, the Investment Manager shall consider all factors it deems
relevant, including, without limitation, the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any (for the specific transaction and on a continuing basis). In evaluating the
best overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Investment Manager may also consider the brokerage
and research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund and/or the other accounts
over which the Investment Manager or an affiliate of the Investment Manager
exercises investment discretion. The Investment Manager is authorized to pay to
a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Investment Manager determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised by the Investment Manager or its affiliates. Nothing in this
Agreement shall preclude the combining of orders for the sale or purchase of
securities or other investments with other accounts managed by the Investment
Manager or its affiliates provided that the Investment Manager does not favor
any account over any other account and provided that any purchase or sale orders
executed contemporaneously shall be allocated in a manner the Investment Manager
deems equitable among the accounts involved.
(e) RIGHT TO RECEIVE ADVICE
(i) ADVICE OF FUND If the Investment Manager shall be in doubt
as to any action to be taken or omitted by it, it may request, and shall
receive, from the Fund directions or advice.
(ii) ADVICE OF COUNSEL If the Investment Manager or the Fund
shall be in doubt as to any question of law involved in any action to be taken
or omitted by the Investment Manager, it may request advice at the Fund's cost
from counsel of its own choosing (which may be counsel for the Investment
Manager or the Fund, at the option of the Investment Manager).
(iii) PROTECTION OF THE INVESTMENT MANAGER The Investment Manager
shall be protected in any action or inaction which it takes in reliance on any
directions or advice received pursuant to subsections (i) or (ii) of this
paragraph which the Investment Manager, after receipt of any such directions or
advice in, good faith believes to be consistent with such directions or advice
as the case may be. However, nothing in this paragraph shall be construed as
imposing upon the Investment Manager any obligation (i) to seek such directions
or advice or (ii) to act in accordance with such directions or advice when
received.
D-2
Nothing in this subsection shall excuse the Investment Manager when an action or
omission on the part of the Investment Manager constitutes willful misfeasance,
bad faith, gross negligence or reckless disregard by the Investment Manager of
its duties under this Agreement.
17. EXPENSES OF FUND
The Investment Manager shall not bear the responsibility for or expenses
associated with operational, accounting or administrative services on behalf of
the Fund not expressly assumed by the Investment Manager hereunder. The expenses
to be borne by the Fund include, without limitation:
(a) charges and expenses of any registrar, stock, transfer or dividend
disbursing agent, custodian, depository or other agent appointed by the Fund for
the safekeeping of the Fund's cash, portfolio securities and other property;
(b) general operational, administrative and accounting costs, such as
the costs of calculating the Fund's net asset value, the preparation of the
Fund's tax filings with relevant authorities and of compliance with any and all
regulatory authorities;
(c) charges and expenses of auditors and outside accountants;
(d) brokerage commissions for transactions in the portfolio securities
of the Fund;
(e) all taxes, including issuance and transfer taxes, and corporate
fees payable by the Fund to Federal, state or other U.S. or foreign governmental
agencies;
(f) the cost of stock certificates representing shares of the Fund;
(g) expenses involved in registering and maintaining registrations of
the Fund and of its shares with the Securities and Exchange Commission and
various states and other jurisdictions, if applicable;
(h) all expenses of shareholders' and Directors' meetings, including
meetings of committees, and of preparing, setting in type, printing and mailing
proxy statements, quarterly reports, semi-annual reports, annual reports and
other required communications to shareholders;
(i) all expenses of preparing and setting in type offering documents,
and expenses of printing and mailing the same to shareholders (but not expenses
of printing and mailing offering documents and literature used for any
promotional purposes);
(j) compensation and travel expenses of Directors who are not
"interested persons" of the Investment Manager within the meaning of the 1940
Act;
(k) the expense of furnishing, or causing to be furnished, to each
shareholder statements of account;
(l) charges and expenses of legal counsel in connection with matters
relating to the Fund, including, without limitation, legal services rendered in
connection with the Fund's corporate and financial structure, day to day legal
affairs of the Fund and relations with its shareholders, issuance of Fund
shares, and registration and qualification of securities under Federal, state
and other laws;
(m) the expenses of attendance at professional and other meetings of
organizations such as the Investment Company Institute and other trade groups by
officers and Directors of the Fund, and the membership or association dues of
such organizations;
(n) the cost and expense of maintaining the books and records of the
Fund;
D-3
(o) the expense of obtaining and maintaining a fidelity bond as
required by Section 17(g) of the 1940 Act and the expense of obtaining and
maintaining an errors and omissions policy;
(p) interest payable on Fund borrowing;
(q) postage; and
(r) any other costs and expenses incurred by the Investment Manager
for Fund operations and activities, including but not limited to the
organizational costs of the Fund if initially paid by the Investment Manager.
18. COMPENSATION
For the services and facilities to be provided to the Fund by the
Investment Manager as provided in Paragraph 2 hereof, the Fund shall pay the
Investment Manager a fee at the annual rate set forth in Schedule A ("Annual
Fee"). The Fund shall pay such amounts monthly, based on the Fund's average
daily net assets, as reflected in the books and records of the Fund in
accordance with procedures established from time to time by or under the
direction of the Board of Directors of the Fund.
19. SUB-INVESTMENT ADVISERS
(a) APPOINTMENT OF SUB-INVESTMENT ADVISERS - Subject to the terms of
the Agreement, the Articles of Incorporation and the 1940 Act, the Investment
Manager at its expense, may select and contract with investment advisers
("Sub-Investment Advisers") to provide all or a portion of the investment
management services to be furnished by the Investment Manager hereunder. Any
contract with a Sub-Adviser shall be subject to the written approval of the
Fund.
(b) RESPONSIBILITY OF THE ADVISER - So long as the Sub-Investment
Adviser serves as Investment Adviser to all or a portion of the Fund's assets,
the obligation of the Investment Manager under this Agreement shall be, subject
in any event to the control of the Board of Directors of the Fund to determine
and review with the Sub-Investment Adviser investment policies of the Fund with
respect to the assets managed by the Sub-Investment Adviser and the
Sub-Investment Adviser shall have the obligation of furnishing continuously an
investment program and making investment decisions for the Fund, adhering to
applicable policies and restrictions and of placing all orders for the purchase
and sale of portfolio securities for the fund with respect to such assets. The
Investment Manager shall compensate any Sub-Investment Manager to the Fund for
its services to the Fund.
(c) TERMINATION OF SUB-INVESTMENT ADVISORY AGREEMENT - The Fund or the
Investment Manager may terminate the services of the Sub-Investment Adviser at
any time in its sole discretion and at such time the Investment Manager shall
assume the responsibilities of the Sub-Investment Adviser unless or until a
successor Sub-Investment Adviser is selected.
20. FUND TRANSACTIONS
The Investment Manager agrees that neither it nor any of its officers,
directors, employees or agents will take any long- or short-term position in the
shares of the Fund; provided, however, that such prohibition shall not prevent
the purchase of shares of the Fund by any of the persons above described for
their account and for investment at the price (net asset value) at which such
shares are available to the public at the time of purchase or as part of the
initial capital of the Fund.
21. RELATIONS WITH FUND
Subject to and in accordance with the Articles of Incorporation and
By-Laws of the Fund and the Articles of Incorporation and By-Laws of the
Investment Manager, respectively, it is understood (i) that Directors, officers,
agents
D-4
and shareholders of the Fund are or may be interested in the Investment Manager
(or any successor thereof) as directors, officers or otherwise; (ii) that
Directors, officers, agents and shareholders of the Investment Manager are or
may be interested in the Fund as Directors, officers, shareholders or otherwise;
and (iii) that the Investment Manager (or any such successor) is or may be
interested in the Fund as a shareholder or otherwise and that the effect of any
such adverse interests shall be governed by said Articles of Incorporation and
By-Laws.
22. LIABILITY OF INVESTMENT MANAGER AND OFFICERS AND DIRECTORS OF FUND
Neither the Investment Manager nor its officers, directors, employees,
agents or controlling persons or assigns shall be liable for any error of
judgment or law, or for any loss suffered by the Fund or its shareholders in
connection with the matters to which this Agreement relates, except that no
provision of this Agreement shall be deemed to protect the Investment Manager or
such persons against any liability to the Fund or its shareholders to which the
Investment Manager might otherwise be subject by reason of any willful
misfeasance, bad faith or gross negligence in the performance of its duties or
the reckless disregard of its obligations and duties under this Agreement.
23. DURATION AND TERMINATION OF AGREEMENT
(a) DURATION
This Agreement shall become effective on the date hereof for the Fund.
Unless terminated as herein provided, this Agreement shall remain in full force
and effect until May 1, 2004 and shall continue in full force and effect for
periods of one year thereafter so long as such continuance is approved at least
annually (i) by either the Directors of the Fund or by vote of a majority of the
outstanding voting shares (as defined in the 1940 Act) of the Fund, and (ii) in
either event by the vote of a majority of the Directors of the Fund who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of voting
on such approval.
(b) TERMINATION
This Agreement may be terminated at any time, without payment of any
penalty, by vote of the Directors of the Fund or by vote of a majority of the
outstanding shares (as defined in the 1940 Act) of the Fund, or by the
Investment Manager, on sixty (60) days written notice to the other party.
(c) AUTOMATIC TERMINATION
This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
(d) NAME
It is understood that the name "Van Eck" or any derivative thereof or
logo associated with that name is the valuable property of the Investment
Manager and its affiliates, and that the Company and Sub-Adviser have the right
to use such name (or derivative or logo) only with the approval of the Adviser
and only so long as the Investment Manager is Adviser to the Fund. Upon
termination of the Investment Advisory and Management Agreement between the
Company and the Investment Manager, the Company and the Sub-Adviser shall
forthwith cease to use such name (or derivative or logo).
24. PRIOR AGREEMENT SUPERSEDED
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties.
D-5
25. SERVICES NOT EXCLUSIVE
The services of the Investment Manager to the Fund hereunder are not to
be deemed exclusive, and the Investment Manager shall be free to render similar
services to others and to engage in other activities.
26. MISCELLANEOUS
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(b) If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
D-6
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
[SEAL] VAN ECK FUNDS, INC.
Attest: By:
------------------------------ -------------------------------------
------------------------------ -------------------------------------
Secretary Vice President
[SEAL] VAN ECK ASSOCIATES
CORPORATION
Attest: By:
------------------------------ -------------------------------------
------------------------------ -------------------------------------
Secretary President
D-7
SCHEDULE A
VAN ECK FUNDS, INC.
For the services and facilities to be provided
to the Fund by the Adviser the Fund shall pay
the Adviser a fee, payable monthly, at the
annual rate of .75 of 1% of the Fund's average
daily net assets, as determined by the Company
or its third party administrator in accordance
with procedures established, from time to
time, by or under the direction of the Board
of Directors of the Company.
1
EXHIBIT E
VAN ECK FUNDS, INC.
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of the day of , 2001 by and among JOHN A. LEVIN and
CO., Inc. a Corporation organized under the laws of the having its principal
place of business in New York, New York (the "Sub-Adviser") and VAN ECK
ASSOCIATES CORPORATION, a corporation organized under the laws of the State of
Delaware and having its principal place of business in New York, New York (the
"Investment Manager" or the "Adviser") and VAN ECK FUNDS, INC., a Maryland
Corporation having its principal place of business in New York, New York (the
"Company").
WHEREAS, the Company is engaged in business as an open-end investment
company and is so registered under the Investment Company Act of 1940 ("1940
Act"); and
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment management services and is registered under the Investment
Advisers Act of 1940 ("Advisers Act"); and
WHEREAS, the Company is authorized to issue shares of common stock in
separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Company has retained the Investment Manager to render
management and advisory services for the series of the Company known as the Van
Eck Mid Cap Value Fund and the Total Return Fund (together the "Fund"); and
WHEREAS, the Investment Manager has retained the Sub-Adviser to render
investment advisory and other services hereunder to the Fund; and
WHEREAS, the Sub-Adviser is willing to furnish services to the Fund under
this investment sub-advisory agreement; and
WHEREAS, the Investment Manager wishes to retain the Sub-Adviser to
furnish investment advisory services to the Fund and the Sub-Adviser is willing
to furnish such services.
NOW, THEREFORE, WITNESSETH:
That it is hereby agreed among the parties hereto as follows:
APPOINTMENT OF SUB-ADVISER
The Investment Manager hereby appoints the Sub-Adviser to act as
investment adviser to the Fund for the period and on the terms set forth herein.
The Sub-Adviser accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided. So long as the
Sub-Adviser serves as investment adviser to the Fund pursuant to this Agreement
the obligation of the Investment Manager under this Agreement with respect to
the Fund shall be, subject in any event to the control of the Directors of the
Company, to determine and review with Sub-Adviser investment policies of the
Fund and the Sub-Adviser shall have the obligation of furnishing continuously an
investment program and making investment decisions for the Fund, adhering to
applicable investment objectives, policies and restrictions and placing all
orders for the purchase and sale of portfolio securities for the Fund and such
other services set forth in Section 2 hereof. The Investment Manager will
compensate the Sub-Adviser of the Fund for its services to the Fund. The
Investment Manager or the Fund, subject to the terms of this
E-1
Agreement, may terminate the services of the Sub-Adviser at any time in their
sole discretion, and the Investment Manager shall at such time assume the
responsibilities of the Sub-Adviser unless and until a successor investment
adviser is selected.
DUTIES OF SUB-ADVISER
The Sub-Adviser, at its own expense, shall furnish the following services
and facilities to the Company:
INVESTMENT PROGRAM. The Sub-Adviser will (i) furnish continuously an
investment program for the Fund, (ii) determine (subject to the overall
supervision and review of the Board of Directors of the Company and the
Investment Manager) what investments shall be purchased, held, sold or exchanged
and what portion, if any, of the assets of the Fund shall be held un-invested,
and (iii) make changes on behalf of the Fund in the investments. The Sub-Adviser
will provide the services hereunder in accordance with the Fund's investment
objectives, policies and restrictions as stated in the then-current prospectus
and statement of additional information which is part of the Company's
Registration Statement filed with the Securities and Exchange Commission, as
amended from time to time, copies of which shall be sent to the Sub-Adviser by
the Investment Manager. The Sub-Adviser also will manage, supervise and conduct
such other affairs and business of the Company and matters incidental thereto as
the Sub-Adviser and the Company agree, subject always to the control of the
Board of Directors of the Company and to the provisions of the Articles of
Incorporation of the Company, and the Company's By-laws and the 1940 Act. The
Sub-Adviser will manage the Fund so that it will qualify as a regulated
investment company under sub-chapter M of the Internal Revenue Code of 1986, as
it may be amended from time to time; and, with respect to the services provided
by the Sub-Adviser under this Agreement, it shall be responsible for compliance
with all applicable laws, rules and regulations. Sub-Adviser will adopt
procedures reasonably designed to ensure compliance.
OFFICE SPACE AND FACILITIES. The Sub-Adviser will arrange to furnish
office space, all necessary office facilities, simple business equipment,
supplies, utilities, and telephone services required for managing the
investments of the Fund.
PERSONNEL. The Sub-Adviser shall provide executive and clerical personnel
for managing the investments of the Fund, and shall compensate officers and
Directors of the Fund for services provided to the Fund (but not any other
series of the Company) if such persons are also employees of the Sub-Adviser or
its affiliates, except as otherwise provided herein.
PORTFOLIO TRANSACTIONS. The Sub-Adviser shall place all orders for the
purchase and sale of portfolio securities for the account of the Fund with
brokers or dealers selected by the Sub-Adviser, although the Fund will pay the
actual transaction costs, including without limitation brokerage commissions on
portfolio transactions in accordance with this Paragraph 3(d). In executing
portfolio transactions and selecting brokers or dealers, the Sub-Adviser will
use its best efforts to seek on behalf of the Fund the best overall terms
available. In assessing the best overall terms available for any transaction,
the Sub-Adviser shall consider all factors it deems relevant, including, without
limitation, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). In evaluating the best overall terms
available, and in selecting the broker or dealer to execute a particular
transaction, the Sub-Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) provided to Sub-Adviser or an affiliate of the Sub-Adviser in
respect of accounts over which it exercises investment discretion. The
Sub-Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Sub-Adviser
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of that particular transaction or in terms of all of the
accounts over which investment discretion is so exercised by the Sub-Adviser or
its affiliates. Nothing in this agreement shall preclude the combining of orders
for the sale or purchase of securities or
E-2
other investments with other accounts managed by the Sub-Adviser or its
affiliates provided that the Sub-Adviser does not favor any account over any
other account and provided that any purchase or sale orders executed
contemporaneously shall be allocated in an equitable manner among the accounts
involved in accordance with procedures adopted by the Sub-Adviser.
In connection with the purchase and sale of securities for the Fund, the
Sub-Adviser will arrange for the transmission to the custodian and record
keeping agent for the Company on a daily basis, such confirmation, trade
tickets, and other documents and information, including, but not limited to,
Cusip, Sedol, or other numbers that identify securities to be purchased or sold
on behalf of the Fund, as may be reasonably necessary to enable the custodian
and record keeping agent to perform its administrative and record keeping
responsibilities with respect to the Fund. With respect to portfolio securities
to be purchased or sold through the Depository Trust Company, the Sub-Adviser
will arrange for the automatic transmission of the confirmation of such trades
to the Fund's custodian and record keeping agent.
The Sub-Adviser will monitor on a daily basis the determination by the
custodian and record-keeping agent for the Fund of the valuation of portfolio
securities and other investments of the Fund. The Sub-Adviser will assist the
custodian and record keeping agent for the Fund in determining or confirming,
consistent with the procedures and policies stated in the Registration Statement
for the Company, the value of any portfolio securities or other assets of the
Fund for which the custodian and record keeping agent seeks assistance from, or
identifies for review by, the Sub-Adviser. The Sub-Adviser shall assist the
Board in determining fair value of such securities or assets for which market
quotations are not readily available.
The Sub-Adviser will provide the Company or the Investment Manager with
copies of all of the Fund's investment records and ledgers maintained by the
Sub-Adviser (which shall not include the records and ledgers maintained by the
custodian and record keeping agent for the Company) as are necessary to assist
the Company and the Investment Manager to comply with requirements of the 1940
Act and the Advisers Act as well as other applicable laws. The Sub-Adviser will
furnish to regulatory authorities having the requisite authority any
information, reports or investment records and ledgers maintained by the
Sub-Adviser in connection with such services which may be requested in order to
ascertain whether the operations of the Company are being conducted in a manner
consistent with applicable laws and regulations.
The Sub-Adviser will provide reports to the Company's Board of Directors
for consideration at meetings of the Board on the investment program for the
Fund and the issues and securities represented in the Fund's portfolio, and will
furnish the Company's Board of Directors with respect to the Fund such periodic
and special reports as the Directors or the Investment Manager may reasonably
request.
EXPENSES OF THE COMPANY
Except as provided in Paragraph 2(d) above, the Sub-Adviser shall assume
and pay all of its own costs and expenses related to providing an investment
program for the Fund.
4. COMPENSATION
(a) As compensation for the services provided and expenses assumed by the
Sub-Adviser under this Agreement, the Investment Manager will pay to the
Sub-Adviser at the end of each calendar month an advisory fee as set forth in
Schedule A hereto.
5. REPRESENTATIONS AND COVENANTS
The Investment Manager hereby represents and warrants as follows:
That it is registered in good standing with the Securities and Exchange
Commission as an investment adviser under the Advisers Act, and such
registration is current, complete and in full compliance with all applicable
provisions of the Advisers Act and the rules and regulations thereunder;
E-3
That it has all the requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement; and
Its performance of its obligations under this Agreement does not conflict
with any law, regulation or order to which it is subject.
The Investment Manager hereby covenants and agrees that, so long as this
Agreement shall remain in effect:
It shall maintain its registration in good standing as an investment
adviser under the Advisers Act, and such registration shall at all times remain
current, complete and in full compliance with all applicable provisions of the
Advisers Act and the rules and regulations thereunder;
Its performance of its obligations under this Agreement does not conflict
with any law, regulation or order to which it is subject; and
It shall at all times fully comply with the Advisers Act, the 1940 Act,
all applicable rules and regulations under such Acts and all other applicable
law; and
It shall promptly notify the Sub-Adviser upon occurrence of any event
that might disqualify or prevent it from performing its duties under this
Agreement.
The Sub-Adviser hereby represents and warrants as follows:
That it is registered in good standing with the Securities and Exchange
Commission as an investment adviser under the Advisers Act, and such
registration is current, complete and in full compliance with all applicable
provisions of the Advisers Act and the Rules and regulations thereunder;
That is has all the requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement; and
Its performance of its obligations under this Agreement does not conflict
with any law, regulation or order to which it is subject.
The Sub-Adviser hereby covenants and agrees that, so long as this
Agreement shall remain in effect:
It shall maintain its registration in good standing as an investment
adviser under the Advisers Act, and such registration shall at all times remain
current, complete and in full compliance with all applicable provisions of the
Advisers Act and the rules and regulations thereunder; Its performance of its
obligations under this Agreement does not conflict with any law, regulation or
order to which it is subject;
It shall at all times fully comply with the Advisers Act, the 1940 Act,
all applicable rules and regulations under such Acts and all other applicable
law; and
It shall promptly notify the Investment Manager upon occurrence of any
event that might disqualify or prevent it from performing its duties under this
Agreement.
6. COMPANY TRANSACTIONS
The Investment Manager and Sub-Adviser each agrees that neither it nor
any of its officers, directors, employees or agents will take any long or
short-term position in the shares of the Company; provided, however, that such
prohibition shall not prevent the purchase of shares of the Company by any
E-4
of the persons above described for their account and for investment at the price
(net asset value) at which such shares are available at the time of purchase or
as part of the initial capital of the Company.
7. RELATIONS WITH COMPANY
Subject to and in accordance with the Declaration of Company and By-Laws
of the Company and the Articles of Incorporation and By-Laws of the Investment
Manager and Sub-Adviser it is understood (i) that Directors, officers, agents
and shareholders of the Company are or may be interested in the Sub-Adviser (or
any successor thereof) as directors, officers, or otherwise; (ii) that
directors, officers, agents and shareholders of the Sub-Adviser are or may be
interested in the Company as Directors, officers, shareholders or otherwise; and
(iii) that the Sub-Adviser (or any such successor) is or may be interested in
the Company as a shareholder or otherwise and that the effect of any such
adverse interests shall be governed by said Declaration of Company and By-laws.
8. LIABILITY OF INVESTMENT MANAGER, SUB-ADVISER AND OFFICERS AND DIRECTORS
OF THE COMPANY
Neither the Investment Manager, Sub-Adviser nor any of their officers,
directors, employees, agents or controlling persons or assigns or Directors or
officers of the Company shall be liable for any error of judgment or law, or for
any loss suffered by the Company or its shareholders in connection with the
matters to which this Agreement relates, except that no provision of this
Agreement shall be deemed to protect the Investment Manager, Sub-Adviser or such
persons against any liability to the Company or its shareholders to which the
Investment Manager or Sub-Adviser might otherwise be subject by reason of any
willful misconduct, gross negligence or actions taken in bad faith in the
discharge of its respective obligations and performance of its respective duties
under this Agreement.
9. INDEMNIFICATION
Notwithstanding Section 8 of the Agreement, the Investment Manager
agrees to indemnify and hold harmless the Sub-Adviser, any affiliated person of
the Sub-Adviser (except the Company), and each person, if any, who, within the
meaning of Section 15 of the Securities Act of 1933 ("1933 Act") controls
("controlling person") the Sub-Adviser (all of such persons being referred to as
"Sub-Adviser Indemnified Persons") against any and all losses, claims, damages,
liabilities (excluding salary charges of employees, officers or partners of the
Sub-Adviser), or litigation (including legal and other) expenses to which a
Sub-Adviser Indemnified Person may become subject under the 1933 Act, the 1940
Act, the Advisers Act, any other statute, common law or otherwise, arising out
of the Investment Manager's responsibilities to the Company which (1) may be
based upon any untrue statement or alleged untrue statement of a material fact
supplied by, or which is the responsibility of, the Investment Manager and
contained in the Registration Statement or prospectus or statement of additional
information covering the shares of the Fund or any other series, or any
amendment thereof or any supplement thereto, or the omission or alleged omission
or failure to state therein a material fact known or which should have been
known to the Investment Manager and was required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon information furnished to the Investment
Manager or the Company or to any affiliated person of the Investment Manager by
a Sub-Adviser Indemnified Person in writing for inclusion in the Registration
Statement or prospectus or statement of additional information; or (2) may be
based upon a failure by the Investment Manager to comply with, or a breach of,
any provision of this Agreement or any other agreement with the Fund; or (3) may
be based upon misfeasance or negligence by the Investment Manager in the
discharge of its duties and performance of its obligations under this Agreement
or any other agreement with the Fund, provided however, that in no case shall
the indemnity in favor of the Sub-Adviser Indemnified Person be deemed to
protect such person against any liability to which any such person would
otherwise be subject by reason of any misfeasance or negligence in the discharge
of its obligations and the performance of its duties under this Agreement.
Notwithstanding Section 8 of this Agreement, the Sub-Adviser agrees to
indemnify and hold harmless the Investment Manager, any affiliated person of the
Investment Manager (except the
E-5
Company), and each person, if any, who, within the meaning of Section 15 of the
1933 Act, controls ("controlling person") the Investment Manager (all of such
persons being referred to as "Investment Manager Indemnified Persons") against
any and all losses, claims, damages, liabilities (excluding salary charges of
employees, officers or partners of the Investment Manager), or litigation
(including legal and other) expenses to which an Investment Manager Indemnified
Person may become subject under the 1933 Act, the 1940 Act, the Advisers Act,
any other statute, common law or otherwise, arising out of the Sub-Adviser's
responsibilities as investment sub-adviser to the Fund which (1) may be based
upon any untrue statement or alleged untrue statement of a material fact
supplied by the Sub-Adviser for inclusion in the Registration Statement or
prospectus or statement of additional information covering shares of the Fund,
or any amendment thereof, or any supplement thereto, or, with respect to a
material fact supplied by the Sub-Adviser for inclusion in the Registration
Statement or prospectus or statement of additional information, the omission or
alleged omission or failure to state therein a material fact known or which
should have been known to the Sub-Adviser and was required to be stated therein
or necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon information furnished to the
Sub-Adviser, the Company, or any affiliated person of the Sub-Adviser or Company
by an Investment Manager Indemnified Person; or (2) may be based upon a failure
by the Sub-Adviser to comply with, or a breach of, any provision of this
Agreement or any other agreement with the Fund; or (3) may be based upon
misfeasance or negligence by the Sub-Adviser in the discharge of its duties and
performance of its obligations under this Agreement or any other agreement with
the Fund provided however, that in no case shall the indemnity in favor of an
Investment Manager Indemnified Person be deemed to protect such person against
any liability to which any such person would otherwise be subject by reason of
misfeasance or negligence in the discharge of its obligations and the
performance of its duties under this Agreement.
Neither the Investment Manager nor the Sub-Adviser shall be liable under
this Section with respect to any claim made against an Indemnified Person unless
such Indemnified Person shall have notified the indemnifying party in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Person (or such Indemnified Person shall have received notice of
such service on any designated agent), but failure to notify the indemnifying
party of any such claim shall not relieve the indemnifying party from any
liability which it may have to the Indemnified Person against whom such action
is brought otherwise than on account of this Section. In case any such action is
brought against the Indemnified Person, the indemnifying party will be entitled
to participate, at its own expense, in the defense thereof or, after notice to
the Indemnified Person, to assume the defense thereof, with counsel satisfactory
to the Indemnified Person. If the indemnifying party assumes the defense and the
selection of counsel by the indemnifying party to represent both the Indemnified
Person and the indemnifying party would result in a conflict of interests and
would not, in the reasonable judgment of the Indemnified Person, adequately
represent the interests of the Indemnified Person, the indemnifying party will
at its own expense, assume the defense with counsel to the indemnifying party
and, also at its own expense, with separate counsel to the Indemnified Person
which counsel shall be satisfactory to the indemnifying party and the
Indemnified Person. The Indemnified Person will bear the fees and expenses of
any additional counsel retained by it, and the indemnifying party shall not be
liable to the Indemnified Person under this Agreement for any legal or other
expenses subsequently incurred by the Indemnified Person independently in
connection with the defense thereof other than reasonable costs of
investigation. The indemnifying party shall not have the right to compromise or
settle the litigation without the prior written consent of the Indemnified
Person if the compromise or settlement results, or may result, in a finding of
wrongdoing on the part of the Indemnified Person.
10. DURATION AND TERMINATION OF THE AGREEMENT
This Agreement shall commence on the date hereof unless terminated as
herein provided, this agreement will remain in full force and effect until May
1, 2004 and shall continue in full force and effect for periods of one year
thereafter so long as such continuance is approved at least annually (i) by
either the Directors of the Company or by a vote of a majority of the
outstanding shares (as defined in the 1940 Act) of the Company, and (ii) in
either event by the vote of a majority of the Directors of the Company who
E-6
are not parties to this Agreement or "interested persons" (as defined in the
1940 Act); of any such party, cast in person at a meeting called for the purpose
of voting on such approval.
This Agreement may be terminated at any time without payment of any
penalty by the Company upon the vote of a majority of the Directors or by vote
of the majority of the Fund's outstanding voting securities, upon ten (10) days'
written notice to the Sub-Adviser or (b) by the Investment Manager or the
Sub-Adviser at any time upon sixty (60) days' written notice to the other
parties.
This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
USE OF NAME
It is understood that the name "Van Eck" or any derivative thereof or
logo associated with that name is the valuable property of the Investment
Manager and its affiliates, and that the Company and Sub-Adviser have the right
to use such name (or derivative or logo) only with the approval of the Adviser
and only so long as the Investment Manager is Adviser to the Fund. Upon
termination of the Investment Advisory and Management Agreement between the
Company and the Investment Manager, the Company and the Sub-Adviser shall
forthwith cease to use such name (or derivative or logo).
It is understood that the name John A. Levin and Co. any derivative
thereof or logo associated with that name is the valuable property of the
Sub-Adviser and its affiliates and that the Company and/or the Fund have the
right to use such name (or derivative or logo) in offering materials of the
Company only with the approval of the Sub-Adviser and only for so long as the
Sub-Adviser is investment sub-adviser to the Fund. Upon termination of this
Agreement, the Company and Investment Manager shall forthwith cease to use such
name (or derivative or logo).
15. BINDING AGREEMENT
This Agreement will become binding on the parties hereto upon their
execution of the attached Schedule to this Agreement.
E-7
Witness the due execution hereof effective this ____th day of
______________ 2002.
Attest:
John A. Levin and Co., Inc.
By:
- --------------------------------------- ------------------------------------
Name:
Title:
Attest:
By:
- --------------------------------------- ------------------------------------
Name:
Title:
Attest: Van Eck Associates Corporation
By:
- --------------------------------------- ------------------------------------
Name:
Title:
E-8
SCHEDULE A
VAN ECK FUNDS, INC.,
For the services and facilities to be
provided to the Fund by the Sub-Adviser
as provided in Paragraph 2 hereof, the
Investment Manager shall pay the
Sub-Adviser a fee, payable monthly, at
the annual rate of .375 of 1% of the
Fund's average daily net assets from the
Advisory fee it receives from the Fund,
as determined by the Company or its
third party administrator in accordance
with procedures established, from time
to time, by or under the direction of
the Board of Directors of the Company.
The Company shall not be liable for the
obligation of the Investment Manager to
make payment to the Sub-Adviser.
E-9
EXHIBIT F
VAN ECK FUNDS, INC
TOTAL RETURN FUND
PROXY FOR SPECIAL SHAREHOLDERS MEETING TO BE HELD APRIL 26, 2002
The undersigned shareholder of TOTAL RETURN FUND, (the "Fund"), a series
of VAN ECK FUNDS, INC (the "Company"), having received Notice of the Meeting of
Shareholders of the Fund to be held on April 26, 2002 and the Proxy
Statement/Prospectus accompanying such Notice, hereby constitutes and appoints
Jan van Eck. Derek van Eck, Susan Lashley, Thomas H. Elwood and Bruce J. Smith
and each of them, true and lawful attorneys or attorney for the undersigned,
with several powers of substitution, for and in the name, place and stead of the
undersigned, to attend and vote all shares of the Fund which the undersigned
would be entitled to vote at the Meeting to be held at 99 Park Avenue, 8th
Floor, New York, New York 10016, on April 26, 2002 at 9:00 a.m., Eastern Time,
and at any and all adjournments thereof, with all powers the undersigned would
possess if personally present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL BELOW. THE
SHARES REPRESENTED HERBY WILL BE VOTED AS INDICATED BELOW OR FOR THE PROPOSAL IF
NO CHOICE IS INDICATED.
PLEASE MARK YOUR PROXY, DATE AND SIGN IT ON THE REVERSE SIDE AND RETURN
IT PROMPTLY IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
Please vote by filling in the boxes below.
1. To approve the Investment Management Agreement with Van Eck
Associates
FOR _________ AGAINST ___________ ABSTAIN __________
2. To approve the Investment Sub-Advisory Agreement with John A.
Levin & Co. Inc.
FOR _________ AGAINST ___________ ABSTAIN __________
3. To approve the Agreement and Plan of Reorganizaton
F-1
FOR _________ AGAINST ___________ ABSTAIN __________
Dated: ______________________ 2002
________________________
Signature of shareholder
___________________________________
Signature of Co-shareholder, if any
For joint accounts, all co-owners must sign. Executors, administrators,
Directors, etc. should so indicate when signing.
F-2
EXHIBIT G
VAN ECK FUNDS, INC.
MID CAP VALUE FUND
PROXY FOR SPECIAL SHAREHOLDERS MEETING TO BE HELD APRIL 26, 2002
The undersigned shareholder of Mid Cap Value Fund, (the "Fund"), a series
of VAN ECK FUNDS, INC (the "Company"), having received Notice of the Meeting of
Shareholders of the Fund to be held on April 26, 2002 and the Proxy
Statement/Prospectus accompanying such Notice, hereby constitutes and appoints
Jan van Eck. Derek van Eck, Susan Lashley, Thomas H. Elwood and Bruce J. Smith
and each of them, true and lawful attorneys or attorney for the undersigned,
with several powers of substitution, for and in the name, place and stead of the
undersigned, to attend and vote all shares of the Fund which the undersigned
would be entitled to vote at the Meeting to be held at 99 Park Avenue, 8th
Floor, New York, New York 10016, on April 26, 2002 at 9:00 a.m., Eastern Time,
and at any and all adjournments thereof, with all powers the undersigned would
possess if personally present.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL BELOW. THE
SHARES REPRESENTED HERBY WILL BE VOTED AS INDICATED BELOW OR FOR THE PROPOSAL IF
NO CHOICE IS INDICATED.
PLEASE MARK YOUR PROXY, DATE AND SIGN IT ON THE REVERSE SIDE AND RETURN
IT PROMPTLY IN THE ACCOMPANYING ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES.
Please vote by filling in the boxes below.
4. To approve the Investment Management Agreement with Van Eck
Associates
FOR _________ AGAINST ___________ ABSTAIN __________
5. To approve the Investment Sub-Advisory Agreement with John A.
Levin & Co. Inc.
FOR _________ AGAINST ___________ ABSTAIN __________
6. To approve the Agreement and Plan of Reorganization
G-1
Eck Mid Cap Value Fund, the distribution of such shares to the
shareholders of the Fund and the subsequent liquidation of the
Fund.
FOR _________ AGAINST ___________ ABSTAIN __________
Dated: ______________________ 2002
________________________
Signature of shareholder
___________________________________
Signature of Co-Shareholder, if any
For joint accounts, all co-owners must sign. Executors, administrators,
Directors, etc. should also indicate when signing.
G-2
PART B
STATEMENT OF ADDITIONAL INFORMATION
Reorganization of
MID CAP VALUE FUND
(formerly Growth and Income Fund)
TOTAL RETURN FUND
each a series of
Van Eck Funds, Inc.
99 Park Avenue, 8th Floor
New York, New York 10016
(212) 687-5200 o 1-800-826-2333
With
MID CAP VALUE FUND
a series of
Van Eck Funds II, Inc.
99 Park Avenue, 8th Floor
New York, New York 10016
(212) 687-5200 o 1-800-826-2333
This Statement of Additional Information, relating specifically to the
reorganization of Mid-Cap Value Fund (formerly Growth and Income Fund) ("Mid-Cap
I Fund") and Total Return Fund ("Total Return Fund"), both series of Van Eck
Funds, Inc. ("Van Eck I"), with and into Mid-Cap Value Fund, the sole portfolio
series of Van Eck Funds II, Inc. ("Van Eck II") and the conversion of shares of
Mid-Cap I Fund and Total Return Fund to shares of Mid-Cap II Fund, consists of
this cover page and the following described documents, each of which is attached
hereto and incorporated by reference herein:
(1) The Form of Statement of Additional Information of Mid-Cap II Fund
dated ___________ __, 2002;
(2) the Statement of Additional Information of Mid-Cap I Fund and Total
Return Fund dated May 1, 2001, as amended January 1, 2002'
(3) the Annual Report of Mid-Cap I Fund and Total Return Fund for the
year ended December 31, 2001;
(4) the Pro-Forma Financial Statements.
This Statement of Additional Information, which is not a prospectus,
supplements and should be read in conjunction with the Proxy
Statement/Prospectus dated _____________ ___, 2002. A copy of the Proxy
Statement/Prospectus may be obtained without charge by contacting Van Eck
Associates Corporation at 99 Park Avenue, New York, New York 10016 or by
telephoning Van Eck Associates Corporation at 1 (800) 544-4653.
The date of this Statement of Additional Information is ______________
___, 2002
2
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
Page
Form of Statement of Additional Information of Mid Cap I Fund B-
Statement of Additional Information of Mid Cap II Fund and Total
Return Fund dated May 1, 2001 B-
Annual Report of Mid Cap I Fund and Total Return Fund for the
Year ended December 31, 2001 B-
Pro Forma Financial Statements B-
VAN ECK FUNDS II, INC.
99 PARK AVENUE, NEW YORK, NEW YORK 10016
SHAREHOLDER SERVICES: TOLL FREE (800) 544-4653
WWW.VANECK.COM
Van Eck Funds II, Inc. (the "Company") is a registered investment company
currently consisting of one series: the Van Eck Mid-Cap Value Fund.
This Statement of Additional Information ("SAI") is not a prospectus but
supplements and should be read in conjunction with the Company's prospectus
dated May 1, 2002 (the "Prospectus"). This Statement of Additional Information
is incorporated by reference into the Prospectus. A copy of the Prospectus is
available at no charge upon written or telephone request to the Company at the
address or telephone number above. Shareholders are advised to read and retain
this Statement of Additional Information for future reference.
TABLE OF CONTENTS
General Information ...................................................... 1
Investment Objectives and Policies of The Fund ........................... 1
Bank Obligations ......................................................... 1
Commercial Paper ......................................................... 1
Repurchase Agreements .................................................... 1
Lending of Portfolio Securities .......................................... 2
Restricted Securities .................................................... 2
Derivatives .............................................................. 3
When-Issued and Delayed Delivery Securities & Forward Commitments ........ 7
Foreign Securities ....................................................... 7
Foreign Currency Transactions ............................................ 8
Depositary Receipts ...................................................... 9
Warrants ................................................................. 9
Investment Companies ..................................................... 9
Portfolio Turnover ....................................................... 9
Investment Restrictions .................................................. 9
Investment Advisory Services ............................................. 11
The Distributor .......................................................... 12
Portfolio Transactions and Brokerage ..................................... 14
Directors and Officers ................................................... 16
Purchase of Shares ....................................................... 18
Valuation of Shares ...................................................... 19
Exchange Privilege ....................................................... 20
Tax-Sheltered Retirement Plans ........................................... 20
Investment Programs ...................................................... 23
Taxes .................................................................... 24
Redemptions In Kind ...................................................... 27
Performance .............................................................. 27
Description of the Company ............................................... 29
Additional Information ................................................... 29
Financial Statements ..................................................... 30
Appendix ................................................................. 31
Statement of Additional Information
May 1, 2002
GENERAL INFORMATION
Van Eck Funds II, Inc., (the "Company") is comprised of one portfolio Van
Eck Mid-Cap Value Fund (the "Fund"). The Company had no business history prior
to its formation.
The Fund is classified as diversified as defined in the Investment Company
Act of 1940, as amended (the "Act"). This means that with respect to 75% of the
Fund's assets, the Fund may not invest more than 5% of its total assets in any
issuer or invest in more than 10% of the outstanding voting securities of any
issuer.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUND
The investment objective and policies of the Fund are described in the
Company's Prospectus under the headings "The Fund" and "Additional Investment
Strategies" with the Fund's policies being described specifically under the
sub-heading "Other Investments, Investment Policies, Investment Techniques and
Risks". The following information supplements the discussion of investment
objectives and policies for the Fund contained in the Company's Prospectus.
Unless otherwise specified, the investment policies and restrictions of the Fund
are not fundamental policies and may be changed by the Company's Board of
Directors without shareholder approval. Shareholders will be notified prior to
any material change. The investment objective of the Fund is a non-fundamental
policy and may be changed without shareholder approval.
Under normal market conditions, the Fund expects to follow a policy of
investing at least 80% of its total assets in common stocks and other equity
securities, including preferred stocks and securities convertible into common
stock of mid-cap companies. If the Fund intends to change the 80% policy, the
Fund will provide shareholders with at least 60 days' prior notice of such
change. Any notice of a change will be made in accordance with Rule 35d-1(c)
under the Act.
BANK OBLIGATIONS
The Fund may acquire obligations of banks with total assets of at least
$500,000,000. These include certificates of deposit, bankers' acceptances, and
time deposits, all of which are normally limited to $100,000 from any one bank.
Certificates of deposit are generally short-term, interest-bearing negotiable
certificates issued by commercial banks or savings and loan associations against
funds deposited in the issuing institution. Bankers' acceptances are time drafts
drawn on a commercial bank by a borrower, usually in connection with an
international commercial transaction (to finance the import, export, transfer or
storage of goods). With a bankers' acceptance, the borrower is liable for
payment as is the bank, which unconditionally guarantees to pay the draft at its
face amount on the maturity date. Most bankers' acceptances have maturities of
six months or less and are traded in secondary markets prior to maturity. Time
deposits are generally short-term, interest-bearing negotiable obligations
issued by commercial banks against funds deposited in the issuing institutions.
The Fund will not invest in time deposits maturing in more than seven days.
COMMERCIAL PAPER
The Fund may invest in commercial paper. Commercial paper involves an
unsecured promissory note issued by a corporation. It is usually sold on a
discount basis and has a maturity at the time of issuance of 9 months or less.
The Fund may invest in commercial paper rated within the three highest
categories by Moody's Investors Services, Inc. ("Moody's"), Standard & Poor's
Corporation ("Standard & Poor's") or other nationally recognized statistical
rating organizations ("NRSROs") or, if not rated, which are of equivalent
investment quality in the judgment of the Adviser.
REPURCHASE AGREEMENTS
The Fund may invest in repurchase agreements. A repurchase agreement
customarily obligates the seller, at the time it sells securities to the Fund,
to repurchase the securities at a mutually agreed upon time and price. The total
amount received on repurchase would be calculated to exceed the price paid by
the Fund, reflecting an agreed upon market rate of interest for the period from
the time of the repurchase agreement to the settlement date, and would not
necessarily be related to the interest rate on the underlying securities. The
differences between the total amount to be received upon repurchase of the
securities and the price which was paid by the Fund upon their acquisition is
accrued as interest and is included in the Fund's net income declared as
dividends. The underlying securities will consist of high-quality liquid
securities. The Fund has the right to sell securities subject to repurchase
agreements but would be required to deliver identical securities upon maturity
of the repurchase agreements unless the seller fails to pay the repurchase
price. It is the Fund's intention not to sell securities subject to repurchase
agreements prior to the agreement's maturity.
1
During the holding period of a repurchase agreement, the seller must "mark
to market" the collateral on a daily basis and must provide additional
collateral if the market value of the obligation falls below the repurchase
price. If the Fund acquires a repurchase agreement and then the seller defaults
at a time when the value of the underlying securities is less than the
obligation of the seller, the Fund could incur a loss. If the seller defaults or
becomes insolvent, the Fund could realize delays, costs, or a loss in asserting
its rights to the collateral in satisfaction of the seller's repurchase
agreement. Repurchase agreements involve certain risks not associated with
direct investment in securities, including the risk that the original seller
will default on its obligations to repurchase, as a result of bankruptcy or
otherwise. The Fund will enter into repurchase agreements only with sellers who
are believed by the Adviser to present minimal credit risks and whose
creditworthiness has been evaluated by the Adviser and/or the Sub-Adviser (the
"Adviser") in accordance with certain guidelines and is subject to periodic
review by the Board of Directors of the Company. Currently, these guidelines
require sellers who are broker-dealers to have a net worth of at least
$25,000,000, although this requirement may be waived by the Board of Directors
of the Company on the recommendation of the Adviser, and sellers who are banks
that have assets of at least $1,000,000,000. The underlying security, held as
collateral, will be marked to market on a daily basis, and must be of
high-quality. The seller must provide additional collateral if the market value
of the obligation falls below the repurchase price. In the event that the other
party to the agreement fails to repurchase the securities subject to the
agreement, the Fund could suffer a loss to the extent proceeds from the sale of
the underlying securities held as collateral was less than the price specified
in the repurchase agreement. The seller also must be considered by the Adviser
to be an institution of impeccable reputation and integrity, and the Adviser
must be acquainted with and satisfied with the individuals at the seller with
whom it deals.
LENDING OF PORTFOLIO SECURITIES
The Fund may seek to increase its income by lending portfolio securities.
Under present regulatory policies such loans may be made to institutions such as
broker dealers, and are required to be secured continuously by collateral in
cash, cash equivalents or U.S. Government securities maintained on a current
basis in an amount at least equal to the market value of the securities loaned.
It is intended that the value of securities loaned would not exceed 30% of the
value of the total assets of the Fund.
RESTRICTED SECURITIES
Subject to the Fund's limitations on investments in illiquid investments,
the Fund may also invest in restricted securities that may not be sold under
Rule 144A, which presents certain risks. As a result, the Fund might not sell
these securities when the Adviser wishes to do so, or might have to sell them at
less than fair value. In addition, market quotations are less readily available.
Therefore, judgment may at times play a greater role in valuing these securities
than in the case of unrestricted securities.
2
DERIVATIVES. A derivative is a security that derives its current value from
the current value of another security. Kinds of derivatives include, but are not
limited to: forward contracts, futures contracts, options and swaps. The Fund
will not commit more than 5% of assets to initial margin deposits on futures
contracts and premiums on options for futures contracts (leverage). Hedging, as
defined by the Commodity Exchange Act, is excluded from this 5% limit.
CALL OPTIONS. The Fund may write (sell) covered call options which are
traded on national and international securities exchanges to enhance investment
performance or for hedging purposes. A call option is a contract that gives the
holder (buyer) of the option the right to buy (in return for a premium paid),
and the writer of the option (in return for a premium received) the obligation
to sell, the underlying security at a specified price (the exercise price) at
any time before the option expires. A covered call option is a call in which the
writer of the option, for example, owns the underlying security throughout the
option period or has deposited in a separate account with the Company's
custodian liquid high-grade obligations or cash equal in value to the exercise
price of the option.
The Fund will write covered call options both to reduce the risks
associated with certain of its investments and to increase total investment
return through the receipt of premiums. In return for the premium income, the
Fund will give up the opportunity to profit from an increase in the market price
of the underlying security above the exercise price so long as its obligations
under the contract continue, except insofar as the premium represents a profit.
Moreover, in writing the call option, the Fund will retain the risk of loss
should the price of the security decline. The premium is intended to offset that
loss in whole or in part. Unlike the situation in which the Fund owns securities
not subject to a call option, the Fund, in writing call options, must assume
that the call may be exercised at any time prior to the expiration of its
obligation as a seller, and that in such circumstances the net proceeds realized
from the sale of the underlying securities pursuant to the call may be
substantially below the prevailing market price, although it must be at the
previously agreed to exercise price.
The Fund may protect itself from loss due to a decline in value of the
underlying security or from the loss of appreciation due to its rise in value by
buying an identical option, in which case the purchase cost of such option may
offset the premium received for the option previously writ-
3
ten. In order to do this, the Fund makes a "closing purchase transaction" on the
purchase of a call option on the same security with the same exercise price and
expiration date as the covered call option that it has previously written. The
Fund will realize a gain or loss from a closing purchase transaction if the
amount paid to purchase a call option is less or more than the amount received
from the sale of the corresponding call option. Also, because increases in the
market price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from the exercise or
closing out of a call option is likely to be offset in whole or in part by
unrealized appreciation of the underlying security owned by the Fund.
There is no assurance that a liquid market will exist for any particular
option, at any particular time, and for some options no market may exist. If the
Fund is unable to effect a closing purchase transaction, the Fund will not sell
the underlying security until the option expires or the Fund delivers the
underlying security upon exercise.
PUT OPTIONS. The Fund may purchase put options. The Fund may purchase put
options on securities to protect its holdings in an underlying or related
security against an anticipated decline in market value. Such hedge protection
is provided only during the life of the put option. Securities are considered
related if their price movements generally correlate with one another. The
purchase of put options on securities held by the Fund or related to such
securities will enable the Fund to preserve, at least partially, unrealized
gains in an appreciated security in its portfolio without actually selling the
security. In addition, the Fund will continue to receive interest or dividend
income on the security. The Fund may also sell put options it has previously
purchased, which could result in a net gain or loss depending on whether the
amount received on the sale is more or less than the premium and other
transaction costs paid on the put option which was bought.
OPTIONS ON INDEXES. The Fund may write covered call options and may
purchase put options on appropriate securities indexes for the purpose of
hedging against the risk of unfavorable price movements adversely affecting the
value of the Fund's securities or to enhance income. Unlike a stock option,
which gives the holder the right to purchase or sell a specified stock at a
specified price, an option on a securities index gives the holder the right to
receive a cash settlement amount based upon price movements in the stock market
generally (or in a particular industry or segment of the market represented by
the index) rather than the price movements in individual stocks.
The value of a securities index fluctuates with changes in the market
values of the securities which are contained in the index. For example, some
securities index options are based on a broad market index such as the Standard
& Poor's 500 or the NYSE Composite Index, or a narrower market index such as the
Standard & Poor's 100. Indexes may also be based on an industry or market
segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options on stock indexes are traded on exchanges or traded
over-the-counter ("OTC options"). Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation) and have standardized strike prices and
expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates.
The effectiveness of hedging through the purchase or sale of securities
index options will depend upon the extent to which price movements in the
portion of the securities portfolio being hedged correlate with price movements
in the selected securities index. Perfect correlation is not possible because
the securities held or to be acquired by the Fund will not exactly match the
composition of the securities indexes on which options are purchased or written.
In the purchase of securities index options, the principal risk is that the
premium and transaction costs paid by the Fund in purchasing an option will be
lost as a result of unanticipated movements in the price of the securities
comprising the securities index for which the option has been purchased. In
writing securities index options, the principal risks are the inability to
effect closing transactions at favorable prices and the inability to participate
in the appreciation of the underlying securities.
FUTURES TRANSACTIONS. A futures contract is an agreement to buy or sell a
security (or deliver a final cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures exchanges
and trading in futures is regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC").
Positions taken in the futures markets are not normally held until delivery
or cash settlement is required, but are instead liquidated through offsetting
transactions which may result in a gain or a loss. A clearing organization
associated with the exchange on which futures are traded assumes responsibility
for closing-out transactions and guarantees that, as between the clearing
members of an exchange, the sale and purchase obligations will be performed with
regard to all positions that remain open at the termination of the contract.
4
Upon entering into a futures contract, the Fund will be required to deposit
with a futures commission merchant a certain percentage (usually 1% to 5%) of
the futures contracts market value as initial margin. As a general matter, the
Fund may not commit in the aggregate more than 5% of the market value of its
total assets to initial margin deposits on the Fund's existing futures contracts
and premium paid for options on unexpired futures contracts. Initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned upon termination of the futures contract if all contractual
obligations have been satisfied. The initial margin in most cases will consist
of cash or United States Government securities. Subsequent payments, called
variation margin, may be made with the futures commission merchant as a result
of marking the contracts to market on a daily basis as the contract value
fluctuates.
First, there can be no assurance that the prices of such instruments and
the hedged security or the cash market position will move as anticipated. If
prices do not move as anticipated, the Fund may incur a loss on its investment,
may not achieve the hedging protection it anticipated and/or incur a loss
greater than if it had entered into a cash market position. Second, investments
in such instruments may reduce the gains which would otherwise be realized from
the sale of the underlying securities or assets which are being hedged. There
can be no assurance that such a market will exist for a particular futures
contract or option. If the Fund cannot close out an exchange traded futures
contact or option which it holds, it would have to perform its contract
obligation or exercise its option to realize any profit and would incur
transaction costs on the sale of the underlying assets.
FUTURES ON DEBT SECURITIES. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
securities having a standardized face value and rate of return. The Fund may buy
and sell futures contracts on debt securities. By purchasing futures on debt
securities--assuming a "long" position--the Fund will legally obligate itself to
accept the future delivery of the underlying security and pay the agreed price.
By selling futures on debt securities--assuming a "short" position--it will
legally obligate itself to make the future delivery of the security against
payment of the agreed price. Open future positions on debt securities will be
valued at the most recent settlement price, unless such price does not appear to
the Adviser to reflect the fair value of the contract, in which case the
positions will be valued by, or under the direction of, the Board of Directors.
The Fund by hedging through the use of futures on debt securities seeks to
establish more certainty with respect to the effective rate of return on their
portfolio securities. The Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position.
On other occasions, the Fund may take a "long" position by purchasing
futures on debt securities. This would be done, for example, when the Fund
intends to purchase particular debt securities, but expects the rate of return
available in the bond market at that time to be less favorable than rates
currently available in the futures markets. If the anticipated rise in the price
of the debt securities contracts should occur (with its concomitant reduction in
yield), the increased cost to the Fund of purchasing the debt securities will be
offset, at least to some extent, by the rise in the value of the futures
position in debt securities taken in anticipation of the subsequent purchase of
such debt securities.
The Fund could accomplish similar results by selling debt securities with
long maturities and investing in debt securities with short maturities when
interest rates are expected to increase or by buying debt securities with long
maturities and selling debt securities with short maturities when interest rates
are expected to decline. However, by using futures contracts as a risk
management technique (to reduce the Fund's exposure to interest rate
fluctuations), given the greater liquidity in the futures market than in the
bond market, it might be possible to accomplish the same result more effectively
and perhaps at a lower cost. See "Limitations on Purchase and Sale of Futures
Contracts and Options on Futures Contracts" below.
INTEREST RATE AND CURRENCY FUTURES CONTRACTS. The Fund may enter into
interest rate or currency futures contracts, including futures contracts on
indices of debt securities, as a hedge against changes in prevailing levels of
interest rates or currency exchange rates in order to establish more definitely
the effective rate of return on securities or currencies held or intended to be
acquired. Hedging may include sales of futures as a hedge against the effect or
expected increases in interest rates or decreases in currency exchange rates,
and purchases of futures as an offset against the effect of expected declines in
interest rates or increases in currency exchange rates.
5
STOCK INDEX FUTURES CONTRACTS. A stock index futures contract does not
require the physical delivery of securities, but merely provides for profits and
losses resulting from changes in the market value of the futures contract to be
credited or debited at the close of each trading day to the respective accounts
of the parties to the contract. On the contract's expiration date, a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the futures contract is based.
The Fund may buy and sell stock index futures contracts.
Stock index futures may be used to hedge the equity portion of the Fund's
securities portfolio with regard to market risk (involving the market's
assessment of over-all economic prospects), as distinguished from stock-specific
risk (involving the market's evaluation of the merits of the issuer of a
particular security). By establishing an appropriate "short" position in stock
index futures contracts, the Fund may seek to protect the value of its portfolio
against an overall decline in the market for equity securities. Alternatively,
in anticipation of a generally rising market, the Fund can seek to avoid losing
the benefit of apparently low current prices by establishing a "long" position
in stock index futures contracts and later liquidating that position as
particular equity securities are in fact acquired. To the extent that these
hedging strategies are successful, the Fund will be affected to a lesser degree
by adverse overall market price movements, unrelated to the merits of specific
portfolio equity securities, than would otherwise be the case. See "Limitations
on Purchase and Sale of Futures Contracts and Options on Futures Contracts"
below.
OPTIONS ON FUTURES CONTRACTS. For bona fide hedging purposes, the Fund may
purchase and sell put options and write call options on futures contracts. These
options are traded on exchanges that are licensed and regulated by the CFTC for
the purpose of options trading. A call option on a futures contract gives the
purchaser the right, in return for the premium paid, to purchase a futures
contract (assume a "long" position) at a specified exercise price at any time
before the option expires. A put option gives the purchaser the right, in return
for the premium paid, to sell a futures contract (assume a "short" position) at
a specified exercise price at any time before the option expires. Upon the
exercise of a call, the writer of the option is obligated to sell the futures
contract (to deliver a "long" position to the option holder) at the option
exercise price, which presumably will be lower than the current market price of
the contract in the futures market. Upon exercise of a put, the writer of the
option is obligated to purchase the futures contract (to deliver a "short"
position to the option holder) at the option exercise price which presumably
will be higher than the current market price of the contract in the futures
market.
When the Fund, as a purchaser of a put option on a futures contract,
exercises such option and assumes a short futures position, its gain will be
credited to its futures variation margin account. Any loss suffered by the
writer of the option of a futures contract will be debited to its futures
variation margin account. However, as with the trading of futures, most
participants in the options markets do not seek to realize their gains or losses
by exercise of their option rights. Instead, the holder of an option usually
will realize a gain or loss by buying or selling an offsetting option at a
market price that will reflect an increase or a decrease from the premium
originally paid as purchaser or required as a writer.
Options on futures contracts can be used by the Fund to hedge the same
risks as might be addressed by the direct purchase or sale of the underlying
futures contracts themselves. Depending on the pricing of the option, compared
to either the futures contract upon which it is based or upon the price of the
underlying securities themselves, it may or may not be less risky than direct
ownership of the futures contract or the underlying securities.
In contrast to a futures transaction, in which only transaction costs are
involved, benefits received by the Fund as a purchaser in an option transaction
will be reduced by the amount of the premium paid as well as by transaction
costs. In the event of an adverse market movement, however, the Fund which
purchased an option will not be subject to a risk of loss on the option
transaction beyond the price of the premium it paid plus its transaction costs,
and may consequently benefit from a favorable movement in the value of its
portfolio securities that would have been more completely offset if the hedge
had been effected through the use of futures contracts.
If the Fund writes call options on futures contracts, the Fund will receive
a premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held by, or to be acquired for, the Fund. If the option is
exercised, the Fund will incur a loss in the option transaction, which will be
reduced by the amount of the premium it has received, but which may be partially
offset by favorable changes in the value of its portfolio securities.
While the purchaser or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, the Fund's ability to establish and close out options positions
at fairly established prices
6
will be subject to the existence of a liquid market. The Fund will not purchase
or write options on futures contracts unless, in the Adviser's opinion, the
market for such options has sufficient liquidity that the risks associated with
such options transactions are not at unacceptable levels.
FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES. In
order to hedge against foreign currency exchange rate risks, the Fund may enter
into forward currency exchange contracts ("forward currency contracts"), as well
as purchase put or call options on foreign currencies. A forward currency
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. In addition, for hedging purposes and to
duplicate a cash market transaction, the Fund may enter into foreign currency
futures contracts. The Fund may also conduct its foreign currency exchange
transactions on a spot (i.e., cash) basis at the spot rate prevailing in the
currency exchange market.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS. The Fund may engage in futures, options and currency
transactions for investment purposes. The Fund may not purchase or sell futures
contracts or related options if immediately thereafter the sum of the amounts of
initial margin deposits on the Fund's existing futures contracts and premiums
paid for unexpired options on futures contracts used for non-hedging purposes
would exceed 5% of the value of the Fund's total assets; provided, however, that
in the case of an option that is "in-money" at the time of purchase, the
"in-money" amount may be excluded in calculating the 5% limitation. In instances
involving the purchase or sale of futures contracts or the writing of covered
call options thereon by the Fund, such positions will always be "covered", as
appropriate, by, for example, (i) an amount of cash and cash equivalents, equal
to the market value of the futures contracts purchased or sold and options
written thereon (less any related margin deposits), deposited in a segregated
account with its custodian or (ii) by owning the instruments underlying the
futures contract sold (i.e., short futures positions) or option written thereon
or by holding a separate option permitting the Fund to purchase or sell the same
futures contract or option at the same strike price or better.
Positions in futures contracts may be closed but only on an exchange or a
board of trade which provides the market for such futures. Although the Fund
intends to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, the Fund would
continue to be required to make daily cash payments of variation margin.
Consequently, where a liquid secondary market does not exist, the Fund will be
unable to control losses from such futures contracts by closing out its
positions.
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
The Fund may make contracts to buy securities for a fixed price at a future
date beyond customary settlement time. When such transactions are negotiated,
the price is fixed at the time of commitment but delivery and payment for the
securities can take place up to three months after the date of commitment to
purchase. Such agreements involve a risk of loss if the value of the security to
be purchased declines prior to the settlement date, which risk is in addition to
the risk of decline in value of the Fund's other assets. Where such purchases
are made through dealers, the Fund relies on the dealer to consummate the sale.
The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield or price. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the Fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. The Fund holds, and maintains until the settlement date in a segregated
account, cash or high-grade obligations in an amount sufficient to meet the
purchase price of its total commitments for forward commitment securities. The
Fund may realize short-term profits or losses upon the sale of such forward
commitment contracts.
FOREIGN SECURITIES
The Fund may invest in and hold securities of foreign issuers in an amount,
which together with investments in Depositary Receipts, American Depositary
Receipts ("ADRs"), European Depositary Receipts ("EDRs"), and Global Depositary
Receipts ("GDRs") will not exceed 20% of the Fund's total assets. For purposes
hereof, securities of foreign issuers means securities of issuers organized or
whose principal place of business is outside the United States, or whose
securities are principally traded in securities markets outside the United
States.
7
Investment in foreign securities by the Fund involve certain additional
risks, including the possibility of : (1) adverse foreign political and economic
developments, (2) less publicly available information about foreign issuers, (3)
less comprehensive accounting, reporting and disclosure requirements, (4) less
government regulation and supervision of foreign stock exchanges, brokers and
listed companies, (5) expropriation or confiscatory taxation that could effect
investments, (6) currency blockages which would prevent cash from being brought
back in the United States, (7) generally higher brokerage and custodial costs
than those of domestic securities, (8) with respect to foreign securities
denominated in foreign currencies, the costs associated with the exchange of
currencies and the possibility of unfavorable changes in currency rates and
exchange rate regulations and (9) settlement of transactions being delayed
beyond periods customary in the United States.
Investment in foreign securities may involve the following special
considerations: with respect to foreign denominated securities, the risk of
fluctuating exchange rates; restrictions on and costs associated with the
exchange of currencies; the fact that foreign securities and markets are not as
liquid as their domestic counterparts; the imposition of exchange control
restrictions; and the possibility of economic or political instability. Also,
issuers of foreign securities are subject to different and, in some cases, less
comprehensive and non-uniform accounting, reporting and disclosure requirements
than domestic issuers, and settlement of transactions with respect to foreign
securities may be sometimes delayed beyond periods customary in the United
States. Foreign securities also generally have higher brokerage and custodial
costs than those of domestic securities. As a result, the selection of
investments in foreign issues may be more difficult and subject to greater risks
than investments in domestic issues. Since the Fund may invest in businesses
located in foreign nations, there is the possibility of expropriation or
confiscatory taxation, political or social instability or diplomatic
developments which could affect investments in those nations and there may be
more difficulty in obtaining and enforcing a court judgment abroad.
The Adviser will consider these and other factors before investing in
particular securities of foreign issuers and will not make such investments
unless, in its opinion, such investments will comply with the policies and meet
the objectives of the Fund.
FOREIGN CURRENCY TRANSACTIONS
The Fund may sell a particular security on either a spot (cash) basis at
the rate then prevailing in the currency exchange market or on a forward basis
by entering into a forward contract to purchase or sell currency, to hedge
against an anticipated decline in the U.S. dollar value of securities it intends
or has contracted to sell. This method of attempting to hedge the value of the
Fund's portfolio securities against a decline in the value of a currency does
not eliminate fluctuations in the underlying prices of the securities. The Fund
is not obligated to engage in any such currency hedging operations, and there
can be no assurance as to the success of any hedging operations which the Fund
may implement. Although the strategy of engaging in foreign currency
transactions could reduce the risk of loss due to a decline in the value of the
hedged currency it could also limit the potential gain from an increase in the
value of the currency. When effecting currency exchange transactions, some price
spread (to cover service charges) will be incurred. The Fund does not intend to
maintain a net exposure to such contracts where the fulfillment of the Fund's
certain provisions of the Internal Revenue Code of 1986 have the effect of
limiting the extent to which the fund may enter into forward contracts or
futures contracts or engage in options transactions.
Although these investment practices will be used to generate additional
income or attempt to reduce the effect of any price decline in the security
subject to the option, they do involve certain risks that are different, in some
respects, from investment risks associated with similar funds which do not
engage in such activities. These risks include the following: writing covered
call options-the inability to effect closing transactions at favorable prices
and the inability to participate in the appreciation of the underlying
securities above the exercise price; and purchasing put options-possible loss of
the entire premium paid. In addition, the effectiveness of hedging through the
purchase of securities index options will depend upon the extent to which price
movement in the portion of the securities portfolios being hedged correlate with
price movements in the selected securities index. Perfect correlation may not be
possible because (i) the securities held or to be acquired by the Fund may not
exactly match the composition of the securities indexes on which options are
written or (ii) the price movements of the securities underlying the option may
not follow the price movements of the portfolio securities being hedged. If the
Adviser's forecasts regarding movements in securities prices or interest rates
or currency prices or economic factors are incorrect, the Fund's investment
results may have been better without the hedge.
8
DEPOSITARY RECEIPTS
The Fund may invest in ADRs, GDRs, and EDRs (collectively "Depositary
Receipts") which, together with investment in securities of foreign issuers,
will not exceed 20% of the Fund's total assets. ADRs are certificates issued by
a United States bank representing the right to receive securities of a foreign
issuer deposited in a foreign branch of a United States bank and traded on a
United States exchange or over-the-counter. There are no fees imposed on the
purchase or sale of ADRs when purchased from the issuing bank in the initial
underwriting, although the issuing bank may impose charges for the collection of
dividends and the conversion of ADRs into the underlying ordinary shares.
Brokerage commissions will be incurred if ADRs are purchased through brokers on
the domestic stock exchanges. Investments in ADRs have advantages over direct
investments in the underlying foreign securities, including the following: they
are more liquid investments, they are United States dollar-denominated, they are
easily transferable, and market quotations for such securities are readily
available. The risks associated with ownership of Depositary Receipts are the
same as those associated with investments in foreign securities except there is
no currency risk. EDRs and GDRs are typically issued by foreign banks or trust
companies, although they may be issued by U.S. banks or trust companies, and
also evidence ownership of underlying securities issued by a foreign or U.S.
securities market. Generally, Depositary Receipts in registered form are
designed for use in the U.S. securities market and Depositary Receipts in bearer
form are designed for use in securities markets outside the United States.
Depositary Receipts may not necessarily be denominated in the same currency as
the underlying securities into which they may be converted. Brokerage
commissions will be incurred if ADRs are purchased through brokers on the U.S.
stock exchange.
WARRANTS
The Fund may invest in warrants, which are rights to buy certain securities
at set prices during specified time periods. If, prior to the expiration date,
the Fund is not able to exercise a warrant at a cost lower than the underlying
securities, the Fund will suffer a loss of its entire investment in the warrant.
INVESTMENT COMPANIES
The Fund may, subject to its respective investment restrictions, under
certain circumstances acquire the securities of other open-end and closed-end
investment companies. Such investments often result in duplicate fees and
expenses.
PORTFOLIO TURNOVER
Portfolio turnover for the Fund may vary from year to year or within a year
depending upon economic, market and business conditions. A higher portfolio
turnover rate may cause the Fund to realize larger amounts of gains or losses
and more brokerage commissions or other transaction related costs than it would
with a lower portfolio turnover rate. If there are gains, they are passed
through to the shareholders as capital gains distributions and, as such, are
taxable to the shareholders.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions relating to the investments
of the Fund. The investment restrictions numbered 1 through 7, 10 and 13 are
fundamental policies of the Fund and may not be changed without approval of a
majority of the outstanding shares of the Fund. (As used in the Prospectus and
this Statement of Additional Information, the term "majority of the outstanding
voting shares" means the lesser of (1) 67% of the shares represented at a
meeting of which more than 50% of the outstanding share are represented or (2)
more than 50% of the outstanding shares.) All other investment restrictions are
operating policies and are subject to change by the Company's Board of Directors
without shareholder approval. No investment restriction which involves a maximum
percentage of securities or assets will be considered to be violated unless the
excess over the percentage occurs immediately after and is caused by an
acquisition or borrowing of securities or assets by the Fund. The Fund will not:
1. Issue securities senior to its common stock, except to the extent that
permissible borrowings may be so construed. For purposes hereof,
writing covered call options and entering into futures contracts, to
the extent permitted by restrictions 8 and 10 below, shall not involve
the issuance of senior securities or borrowings.
9
2. Buy securities on margin, except that it may: (a) obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities, and (b) make margin deposits in connection
with futures contracts, subject to restriction 10 below.
3 Borrow money, except the Fund may, as a temporary measure for
extraordinary or emergency purposes, including to cover net
redemptions, and not for investment purposes, borrow from banks and
then only in amounts not exceeding 5% of its total assets. In
addition, the Fund may not pledge, mortgage or hypothecate its assets
except in connection with permissible borrowings and then only in
amounts not exceeding 30% of the value of its total assets. The Fund
will not pledge, mortgage or hypothecate its assets to the extent that
at any time the percentage of pledged assets plus the sales commission
will exceed 30% of the value of its total assets. This restriction
will not prevent the Fund from (a) purchasing securities on a "forward
commitment", "delayed delivery" or "when-issued" basis or (b) entering
into futures contracts as set forth below in restriction 10, provided
that a segregated account consisting of cash or other liquid
securities in an amount equal to the total value of the securities
underlying such agreement is established and maintained.
4. Act as an underwriter of securities of other issuers except to the
extent that it may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 (a) in reselling securities, such as
restricted securities, acquired in private transactions and
subsequently registered under the Securities Act of 1933, and (b) in
connection with the purchase of government securities directly from
the issuer, except to the extent that the disposition of a security
may technically cause it to be considered an underwriter as that term
is defined under the Securities Act of 1933.
5. Invest 25% or more of the value of the total assets of the Fund in
securities of issuers having its principal business activities in the
same industry. This restriction also shall not apply to: (i)
securities issued or guaranteed by the United States Government, its
agents or instrumentalities and (ii) tax-exempt securities issued by
governments or political subdivisions of governments.
6. Invest in real estate, although the Fund may buy securities of
companies which deal in real estate, and securities which are secured
by readily marketable interests in real estate, including interests in
real estate investment trusts, real estate limited partnerships, real
estate investment conduits or mortgage related instruments issued or
backed by the United States Government, its agencies or its
instrumentalities.
7. Make loans, except the Fund may: (a) purchase bonds, debentures, notes
and other debt obligations customarily either publicly distributed or
distributed privately to institutional investors and within the limits
imposed on the acquisition of restricted securities set forth in
restriction 11, and (b) enter into repurchase agreements with respect
to its portfolio securities.
8. Write options, except that the Fund may write covered call options,
provided that as a result of such sale, the Fund's securities covering
all call options or subject to put options would not exceed 25% of the
value of the Fund's total assets.
9. Purchase options, except that the Fund may purchase put options
provided that the total premiums paid for such outstanding options
owned by the Fund does not exceed 5% of its total assets. The Fund may
not write put options on securities other than to close out previously
purchased put options.
10. Enter into commodity contracts, except that the Fund may enter into
financial futures contracts and foreign currency hedging contracts and
stock index futures contracts if, immediately thereafter: (a) the
total of the initial margin deposits required with respect to all open
futures positions at the time such positions were established, plus
the sum of the premiums paid for all unexpired options on futures
contracts would not exceed 5% of the value of the Fund's total assets,
and (b) a segregate account consisting of cash or other liquid
securities in an amount equal to the total market value of any futures
contract purchased by the Fund, less the amount of any initial margin,
is established.
11. Invest more than 15% of the net asset value of the Fund in securities
which are not readily marketable, such as repurchase agreements having
a maturity of more than 7 days, restricted securities, time deposits
with maturities of more than 7 days, and other securities which are
not otherwise readily marketable, provided, however, that the Fund may
invest without limitation in restricted securities issued under Rule
144A of the Securities Act of 1933 provided the Board of Directors or
the Adviser under the direction of the Board of Directors has
determined that each such security is liquid.
10
12. Invest more than 10% of the value of its total assets in securities of
other open-end and closed-end investment companies, except by
purchases in the open market involving only customary broker's
commissions or as part of a merger, consolidation, or acquisition, or
as otherwise permitted by the Act and rules thereunder.
13. Make an investment unless, when considering all its other investments,
75% of the value of the Fund's total assets would consist of cash,
cash items, United States Government securities, securities of other
investment companies, and other securities. For purposes of this
restriction, the purchase of "other securities" is limited so that (a)
no more than 5% of the value of the Fund's total assets would be
invested in any one issuer and (b) no more than 10% of the issuer's
outstanding voting securities would be held by the Company. As a
matter of operating policy, the Company will not consider repurchase
agreements to be subject to this 5% limitation if all the collateral
underlying the repurchase agreements are United States Government
Securities.
14. Participate on a joint or joint and several basis in any trading
account in securities, although transactions for the Fund and any
other account under common management may be combined or allocated
between the Fund and such account.
15. Invest in companies for the sole purpose of exercising control or
management.
16. Invest in interests, other than debentures or equity stock interests,
in oil and gas or other mineral exploration or development programs.
17. Invest in securities of foreign issuers, except the Fund may invest up
to 20% of the value of its total assets in securities of foreign
issuers including ADRs.
18. Effect short sales of securities, except short sales against the box.
INVESTMENT ADVISORY SERVICES
INVESTMENT MANAGEMENT AND ADMINISTRATION
The Company has entered into an Investment Management Agreement (the
"Advisory Agreement") with respect to the Fund with Van Eck Associates
Corporation ("Van Eck Associates" or "the Adviser") and a Sub-Advisory Agreement
with John A. Levin & Co., Inc. ("Levin" or the "Sub-Adviser"), pursuant to which
the Adviser serves as investment adviser to the Fund. Under the terms of the
agreements, the Sub-Adviser, subject to review by the Company's Board of
Directors, has the day-to-day responsibility for making decisions to buy, sell,
or hold any particular security for all the Funds. See "MANAGEMENT OF THE FUND"
in the Prospectus.
At a meeting of the Board of Directors held on February 12, 2002 a majority of
the Directors, including a majority of the directors who are not "interested
persons" of the Fund (the "Independent Directors") considered and unanimously
approved the Advisory Agreement. The Advisory Agreement is identical to the
investment advisory agreement between the Fund's predecessor, Van Eck Funds,
Inc., Mid-Cap Value Fund (the "Predecessor Fund") and Van Eck Associates (the
"Prior Agreement"). At a regular meeting of the Board of Directors of the
Predecessor Fund (which consists of the same individuals who serve as Directors
of the Company) held on December 12, 2001, a majority of the directors of the
Predecessor Fund including a majority of the directors who are not "interested
persons" of the Predecessor Fund (the "Predecessor Fund Independent Directors")
considered and unanimously approved the Prior Agreement for the Predecessor
Fund. In considering the approval of the Prior Agreement, the directors of the
Predecessor Fund, including the Predecessor Fund Independent Directors,
considered whether the approval of the Prior Agreement was in the best interests
of the Predecessor Fund and the shareholders of the Predecessor Fund. The
directors also reviewed materials furnished by Van Eck Associates and met with
representatives of Van Eck Associates. Among other things, the directors
considered the investment philosophy and style of Van Eck Associates its
relative performance record and its personnel. The directors noted that Van Eck
Associates intended to engage Levin as sub-adviser to the Predecessor Fund, and
that Levin intended to use a mid-cap value strategy. The directors were also
presented with certain comparative information on advisory fees paid by other
mutual funds managed with a mid-cap value strategy, which indicated that the
advisory fees payable under the Advisory Agreement would fall in the middle of
the second quartile (as ranked from highest to lowest fees).
At a meeting of the Board of Directors held on February 12, 2002 a majority
of the Directors, including a majority of the Independent Directors considered
and unanimously approved the Sub-Advisory Agreement. The Sub-Advisory Agreement
is identical to the investment sub-advisory agreement between the Predecessor
Fund and Levin (the "Prior Sub-Advisory Agreement"). At a regular meeting of the
board of directors of the Predecessor Fund (which consists of the same
individuals who serve as Directors of the Company) held on December 12, 2001, a
majority of the directors of the Predecessor Fund, including a majority of the
Predecessor Fund Independent Directors considered and unanimously approved the
Prior Sub-Advisory Agreement for the Predecessor Fund. In considering the
approval of the Prior Sub-Advisory Agreement, the Directors of the Predecessor
Fund, including the Predecessor Fund Independent Directors, considered whether
the approval of the Prior Sub-Advisory Agreement was in the best interests of
the Predecessor Fund and the Shareholders of the Predecessor Fund. In
considering the approval of the Sub-Advisory Agreement the Directors reviewed
materials furnished by Levin and met with a representative of Levin. Among other
things, a representative of Levin provided an overview of Levin's experience,
investment process and personnel. Levin also provided the Directors with
information on the performance of Levin's mid-cap value composite, which has
outperformed its benchmark index since its inception in 1999.
The current Advisory Agreement for the Fund was approved by the sole
shareholder of the Fund at a meeting held __________, 2002. The term of the
agreement is one year, but it will continue in effect from year to year if
approved at least annually by a vote of a majority of the Board of Directors of
the Company (including a majority of the directors who are not parties to the
contract or interested persons of any such parties) cast in person at a meeting
called for the purpose of voting on such renewal, or by the vote of a majority
of the outstanding shares of the Fund. Under the agreement, Van Eck Associates
will be compensated by the Fund at an annual rate of 0.75% of the Fund's average
net assets. There are no Break points in the fee structure. The Advisory
Agreement may be terminated, without the payment of any penalty, by any party,
by the vote of the Board of Directors, or by vote of a majority of the
outstanding shares of the Fund, on 60 days' written notice to the Adviser, or
automatically in the event of an assignment.
The current Sub-Advisory Agreement for the Fund was approved by the sole
shareholder of the Fund at a meeting held _______, 2002. The term of the
Sub-Advisory agreement is one year, but it will continue in effect from year to
year if approved at least annually by a vote of a majority of the Board of
Directors of the Company (including a majority of the directors who are not
parties to the contract or interested persons of any such parties) cast in
person at a meeting called for the purpose of voting on such renewal, or by the
vote of a majority of the outstanding shares of the Fund. Under the Sub-Advisory
Agreement Van Eck Associates has agreed to pay Levin a sub-advisory fee at an
annual rate of .20% of the first $200 million of average daily net assets, .19%
of the next $1.1 billion of average daily net assets and .18% of assets in
excess of $1.3 billion. Levin has agreed to waive all sub-advisory fees through
September 30, 2002.
The Sub-Advisory agreement may be terminated, without payment of any
penalty, by any party by the vote of the Board of Directors or by the vote of a
majority of the Fund's outstanding voting securities on 10 days' written notice
to Levin or by Van Eck Associates or Levin at any time upon 60 days' notice to
the other parties. The Sub-Advisory Agreement will terminate automatically in
the event of its assignment.
The Company entered into an Administration Agreement dated April __, 2002
with respect to the Fund with Van Eck Associates Corporation (the
"Administrator"), pursuant to which the Administrator, subject to review by the
Company's Board of Directors, is responsible for providing administrative and
accounting functions to the Fund including certain legal, accounting, regulatory
and compliance services, state registration services, corporate secretary and
board of directors administration, tax compliance services and reporting. The
agreement may be terminated, without the payment of any penalty, by any party,
by the vote of the Board of Directors, or by vote of a majority of the
outstanding shares of the Fund, on 60 days' written notice to the Administrator,
or automatically in the event of an assignment.
11
For providing investment advisory, management, and administrative services
to the Predecessor Fund, Chubb Asset Managers, Inc. ("CAM") and the
Administrator were entitled to receive monthly compensation based on a
percentage of the average net asset value of the Fund under a monthly fee
schedule equal to 0.20% and 0.45% of the Fund's average annual net assets. The
fees, net of waivers, paid to CAM and Administrator are set forth below:
ADVISER'S FEES
ADVISER'S FEES ADMINISTRATOR'S
FEES
Fiscal year ended December 31, 2001 $119,218 $283,462
Fiscal year ended December 31, 2000 $175,191 $412,140
Fiscal year ended December 31, 1999 $130,692 $317,818
FEES PAID TO THE ADVISER
An Expense Limitation Agreement implemented certain expense limits between
the Company and the Adviser.
For the year ended December 31, 2001, the rate of expenses borne by the
Fund was limited to 1.35% and for the years ended December 31st 2000 and 1999
such limitations were 1.32% and 1.35%, respectively.
THE DISTRIBUTOR
Van Eck Securities Corporation (the "Distributor"), a wholly-owned
subsidiary of the Administrator, serves as distributor of the shares of the Fund
pursuant to a Distribution Agreement dated _____, 2002, approved by action of
the Board of Directors at a meeting held on ________, 2002.
Under the terms of the Distribution Agreement, the Distributor will use its
best efforts to distribute the Company's shares among investors and
broker-dealers with which it has contracted to sell the Company's shares. The
shares are sold only at the public offering price in effect at the time of the
sale ("Offering Price"), which is determined in the manner set forth in the
Prospectus under "HOW TO BUY, SELL, EXCHANGE OR TRANSFER SHARES". The Company
will receive not less than the full net asset value of the shares of the Fund
sold, which amount is determined in the manner set forth in this Statement of
Additional Information under "VALUATION OF SHARES". The amount between the
Offering Price and the net asset value of the Fund may be retained by the
Distributor or it may be reallowed in whole or in part to broker-dealers
effecting sales of the Company's shares. See "PURCHASE OF SHARES" in the
Prospectus.
For the year ended December 31, 1999, the Distributor retained $111,365
after reallowances of $21,090 from the Predecessor. For the year ended December
31, 2000, the Distributor retained $17,759 after reallowances of $97,024. For
the year ended December 31, 2001, the Distributor retained $28,855 after
reallowances of $4,907.
The Company pays the costs and expenses incident to registering and
qualifying its shares for sale under the Federal securities law, the costs and
expenses relating to notice filings, the costs of preparing, printing, and
distributing prospectuses, reports and other marketing materials to prospective
investors.
The Company has adopted a plan of distribution pursuant to Rule 12b-1 under
the Act ("Distribution Plans"), which provides that the Company may, directly or
indirectly, engage in activities primarily intended to result in the sale of the
Company's shares.
The maximum expenditure the Company may reimburse under the Distribution
Plans will be the lesser of (i) the actual expenses incurred in distribution
related activities permissible under the Distribution Plan ("Rule 12b-1
activities"), as determined by the Board of Directors of the Company, or (ii)
0.50% per annum of the net asset value of each Fund's shares. Reimbursements
under the Distribution Plan will be accrued daily and paid quarterly in arrears.
12
The National Association of Securities Dealers, Inc. ("NASD") adopted
amendments to Article III, Section 26 of its Rules of Fair Practice which, among
other things, (i) impose certain limits on "asset based sales charges" paid to
finance sales or sales promotion expenses) in order to regulate such charges
under the maximum sales load limitations applicable to investment companies and
(ii) treat "service fees"; payments made for personal shareholder services
and/or maintenance of shareholder accounts) as distinguishable from asset based
sales charges and, therefore, outside the scope of the maximum sales load
limitations. The Company's Distribution Plan contemplate that activities to both
(i) finance the sale of Company shares and (ii) compensate persons who render
shareholder support services are Rule 12b-1 activities within the meaning of the
Distribution Plans.
In light of the NASD rule amendments, the Board of Directors, and
separately a majority of the Independent Directors, determined it would be
appropriate and in the best interest of the Company and its shareholders to
clearly identify that portion of the maximum expenditure under the Distribution
Plan that should be considered to be asset based sales charges and that portion
should be considered to be service fees. Consequently, it was determined that
0.25% per annum of the average daily net asset value of the Fund be considered
to be asset based sales charges, as defined by Article III, Section 26 of the
NASD's Rules of Fair Practice, and 0.25% per annum of the average daily net
asset value of the Fund be considered to be service fees, as defined by Article
III, Section 26 of the NASD's Rules of Fair Practice. No payment of a service
fee will be made to a securities dealer unless that dealer has sold shares of
the Company that are then outstanding for a minimum of 12 months and that are
valued in excess of $1,000.
The Distribution Plan does not provide for any charges to the Company for
excess amounts expended by the Distributor and, if the Distribution Plan is
terminated in accordance with its terms, the obligation of the Company to make
payments to the Distributor pursuant to the Distribution Plan will cease. The
Distribution Plan does not provide for the reimbursement of the Distributor for
any expenses of the Distributor attributable to the Distributor's "overhead".
For the years ended December 31, 2001, 2000 and 1999, $244,292, $975,717
and $635,183 was the net amount paid by the Predecessor to the Distributor,
under the Class A Plan of Distribution.
The Distribution Plan as to the Class A shares was approved on ___________,
2002 by the Board of Directors, and separately by all directors who are not
interested persons of the Company and who have no direct or indirect interest in
the Distribution Plan or related arrangements (the "Rule 12b-1 Directors"). The
Distribution Plan will continue in effect from year to year if approved by the
votes of a majority of the Company's Board of Directors and the Rule 12b-1
Directors, cast in person at a meeting called for the purpose of voting on such
approval. All material amendments to the Distribution Plan must be likewise
approved by the Board of Directors and the Rule 12b-1 Directors. The
Distribution Plan may be terminated, without penalty, at any time by vote of a
majority of the Rule 12b-1 Directors or by vote of a majority of the outstanding
shares of the Company, on 60 days' written notice. The Distribution Plan may not
be amended to increase materially the amount of expenditures under the
Distribution Plan unless such amendment is approved by a vote of the voting
securities of the Fund. The Distribution Plan will automatically terminate in
the event of its assignment (as defined in the Act). So long as the Distribution
Plan is in effect, the election and nomination of Directors who are not
"interested persons" of the Company shall be committed to the discretion of the
Directors who are not "interested persons." The Directors have determined that,
in their judgment, there is a reasonable likelihood that the Distribution Plan
will benefit the Fund and its shareholders. The Company will preserve copies of
the Distribution Plan and any agreement or report made pursuant to Rule 12b-1
under the Act, for a period of not less than six years from the date of the
Distribution Plan or such agreement or report, the first two years in an easily
accessible place. For additional information regarding the Distribution Plan,
see the Prospectus.
13
VAN ECK SECURITIES CORPORATION
12b-1 ACCOUNTING--PREDECESSOR FUND
YEAR ENDED DECEMBER 31, 2001
TOTAL 12b-1 EXPENSE PER BOOKS $305,122
PAYMENT TO SECURITIES DEALERS 60,831
-------
NET 12b-1 FEES 244,292
-------
DISTRIBUTION EXPENDITURES:
Reports 348
Dealer Fact Sheets 1,125
Prospectus 178
Marketing Support Telephone 3,623
Marketing Department Expenses 205,143
Telemarketing Department Expenses 33,437
-------
TOTAL EXPENDITURES 243,853
-------
EXCESS OVER EXPENSE PAYMENTS TO VESC ($) $ 438
=======
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Investment Management Agreement, the Adviser has the day-to-day
responsibility for selecting broker-dealers through which securities are to be
purchased and sold.
The money market securities and other debt securities purchased by the Fund
usually will be purchased on a principal basis directly from issuers,
underwriters, or dealers. Accordingly, no brokerage charges are expected to be
paid on such transactions. However, purchases from an underwriter on a principal
basis generally include a concession paid to the underwriter, and transactions
with a dealer usually include the dealer's "mark-up" or "mark-down".
Insofar as known to management, no director or officer of the Company, or
of the Adviser, Sub-Adviser or any person affiliated with them has any material
direct or indirect interest in any broker employed by or on behalf of the
Company except as officers or directors of the Distributor.
In selecting broker-dealers to execute transactions with respect to the
Fund, the Adviser is obligated to use its best efforts to obtain for the Fund
the most favorable overall price and execution available, considering all the
circumstances. Such circumstances include the price of the security, the size of
the broker-dealer's "spread" or commission, the willingness of the broker-dealer
to position the trade, the reliability, financial strength and stability and
operational capabilities of the broker-dealer, the ability to effect the
transaction at all where a large block is involved, availability of the
broker-dealer to stand ready to execute possibly difficult transactions in the
future, and past experience as to qualified broker-dealers. Such considerations
are judgmental and are weighed by the Adviser in seeking the most favorable
overall economic result to the Company.
Subject to the foregoing standards, the Adviser and Sub-Adviser have been
authorized by the Company's Board of Directors to allocate brokerage to
broker-dealers who have provided brokerage and research services, as such
services are defined in Section 28(e) of the Securities Exchange Act of 1934.
Pursuant to that authorization, the Adviser may cause the Fund to pay any
broker- dealer a commission in excess of the amount another broker-dealer would
have charged for effecting the same transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the value
of the brokerage and research services provided by such broker-dealer to the
Adviser, viewed in terms of either that particular transaction or the Adviser's
overall responsibilities with respect to the Company and other accounts as to
which it exercises investment discretion. Such brokerage and research services
may include, among other things, analyses and reports concerning issuers,
industries, securities, economic factors and trends, and strategies for the
Fund. Such research services may be used by the Adviser in connection with any
other advi-
14
sory accounts managed by it. Conversely, research services to any other advisory
accounts may be used by the Adviser in managing the investments of the Company.
During the years ended December 31, 2001, 2000 and 1999, the Predecessor
Fund paid no commissions to an affiliated broker/dealer and no commissions were
contingent upon the sale of Fund shares.
The Adviser will use its best efforts to recapture all available tender
offer solicitation fees and similar payments in connection with tenders of the
securities of the Company and to advise the Company of any fees or payments of
whatever type which it may be possible to obtain for the Company's benefit in
connection with the purchase or sale of the Company's securities.
The Adviser and their affiliates may provide investment advice to other
clients, including, but not limited to, mutual funds, individuals, pension funds
and institutional investors. Some of these investment portfolios, as well as the
portfolios of other clients, may have investment objectives and investment
programs similar to the Fund. Accordingly, occasions may arise when the Adviser
and investment personnel of the Sub-Adviser may select securities for purchase
or sale by the Fund that are also held by other advisory accounts, or that are
currently being purchased or sold for other advisory accounts. It is the
practice of the Adviser and its investment personnel, its affiliates to allocate
such purchases or sales insofar as feasible, among their advisory clients in a
manner they deem equitable. It is the policy of the Adviser and their affiliates
not to favor any one account over the other.
15
The Board of Directors is responsible for supervising the operation of the
Fund. It establishes the Fund's major policies, reviews investments, and
provides guidance to the Advisor and others who provide services to the Fund.
The present members of the Audit Committee are Richard D. Stamberger and
David J. Olderman. The duties of this Committee include meeting which
representatives of the Company's independent accountants to review fees,
services, procedures, conclusions and recommendations of independent auditors
and to discuss the Company's system of internal controls. Thereafter, the
Committee reports to the Board of the Committee's findings and recommendations
concerning internal accounting matters as well as its recommendation for
retention or dismissal of the auditing firm.
The present members of the Nominating Committee of the Board of Directors
are Richard D. Stamberger and David J. Olderman. The duties of this Committee
include consideration of recommendations on nominations for Directors, review of
the composition of the Board, and recommendations of meetings, compensation and
similar matters.
The present member of the Executive Committee is John C. van Eck. The
duties of this Committee are to exercise the general powers of the Board of
Directors between meetings of the Board.
The Directors and principal officers of the Company are identified below,
together with biographical information.
DIRECTORS AND OFFICERS
----------------------
TERM OF PRINCIPAL NUMBER OF OTHER
OFFICE(2) AND OCCUPATIONS FUNDS IN DIRECTORSHIPS
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF DURING PAST FUND COMPLEX HELD BY
AND AGE WITH FUND TIME SERVED 5 YEARS TRUSTEE/OFFICER TRUSTEE/OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED DIRECTORS*
John C. van Eck Chairman Since 1997 Chairman, Van Eck Van Eck Funds, Inc. Chairman of the
(86) and Associates Corporation (2); Van Eck Funds Board and President
Director and Van Eck Securities (6); Worldwide of two other invest-
Corporation Insurance Trust (4) ment companies
advised by the
Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT
DIRECTORS
Jeremy H. Biggs Director Since 1997 Vice Chairman, Director Van Eck Funds, Inc. Trustee/Director of
(65) and Chief Investment (2); Van Eck Funds two other investment
Officer, Fiduciary Trust (6); Worldwide companies advised
Company International Insurance Trust (4) by the Adviser;
Chairman, Davis Funds
Group; Treasurer and
Director, Royal Oak
Foundation; Director,
Union Settlement
Association; First
Vice President, Trustee
and Chairman, Finance
Committee, St. James
School
- ------------------------------------------------------------------------------------------------------------------------------------
David J. Olderman Director Since 1997 Private investor Van Eck Funds, Inc. Trustee/Director of
(66) (2); Van Eck Funds two other investment
(6); Worldwide companies advised
Insurance Trust (4) by the Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
Richard D. Stamberger Director Since 1997 President, SmartBrief. Van Eck Funds, Inc. Trustee of two other
(43) com (2); Van Eck Funds investment companies
(6); Worldwide advised by the
Insurance Trust (4) Adviser; Partner and
Co-founder, Quest
Partners, LLC; Executive
Vice President, Chief
Operating Officer and
Director of NuCable
Resources Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
Richard Cowell*** Director Since 2002 Van Eck Funds Trustee of other
(74) (6); Worldwide investment companies
240 El Vedado Way Insurance Trust (4) advised by the Adviser;
Palm Beach, FL 33480 Private investor;
Director, West Indies &
Caribbean Development
Ltd. (real estate)
- ----------------------------------------------------------------------------------------------------------------------------------
Philip D. DeFeo*** Director Since 2002 Van Eck Funds Trustee of other
(55) (6); Worldwide investment companies
301 Pine Street Insurance Trust (4) advised by the Adviser;
San Francisco, CA 94104 Chairman, Pacific Stock
Exchange; former
President, Van Eck
Associates Corporation
and Van Eck Securities
Corporation
- ----------------------------------------------------------------------------------------------------------------------------------
Ralph F. Peters*** Director Since 2002 Van Eck Funds Trustee of other
(72) (6); Worldwide investment companies
1350 Beverly Road Insurance Trust (4) advised by the Adviser;
McLean, VA 22101 Director, Sun Life
Insurance and Annuity
Company of New York;
Director, U.S. Life
Income Fund.
TERM OF PRINCIPAL NUMBER OF OTHER
OFFICE(2) AND OCCUPATIONS FUNDS IN DIRECTORSHIPS
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF DURING PAST FUND COMPLEX HELD BY
AND AGE WITH FUND TIME SERVED 5 YEARS TRUSTEE/OFFICER TRUSTEE/OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
Jan F. van Eck*** Director Since 2002 Van Eck Funds Officer and Director,
(38) (6); Worldwide Van Eck Associates
99 Park Avenue Insurance Trust (4) Corporation, Van Eck
New York, NY 10016 Securities Corporation
and other affiliated
companies
- ----------------------------------------------------------------------------------------------------------------------------------
Derek S. van Eck*** Director Since 2002 Van Eck Funds Officer and Director,
(37) (6); Worldwide Van Eck Associates
99 Park Avenue Insurance Trust (4) Corporation, Van Eck
New York, NY 10016 Securities Corporation
and other affiliated
companies
- ----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Bruce J. Smith Vice President Since 1997 Senior Vice President Van Eck Funds, Inc. Officer of two other
(47) and Controller and Chief Financial (2); Van Eck Funds investment companies
Officer, Van Eck (6); Worldwide advised by the
Associates Corporation; Insurance Trust (4) Adviser
Senior Managing
Director, Van Eck
Securities Corporation
16
TERM OF PRINCIPAL NUMBER OF OTHER
OFFICE(2) AND OCCUPATIONS FUNDS IN DIRECTORSHIPS
NAME, ADDRESS(1) POSITION(S) HELD LENGTH OF DURING PAST FUND COMPLEX HELD BY
AND AGE WITH FUND TIME SERVED 5 YEARS TRUSTEE/OFFICER TRUSTEE/OFFICER
- ------------------------------------------------------------------------------------------------------------------------------------
Thomas H. Elwood Vice President Since 1998 Vice President, Secretary Van Eck Funds, Inc. Officer of two other
(54) and Secretary and General Counsel, (2); Van Eck Funds investment companies
Van Eck Associates (6); Worldwide advised by the
Corporation, Van Eck Insurance Trust (4) Adviser
Securities Corporation
and other affiliated
companies
- ------------------------------------------------------------------------------------------------------------------------------------
Alex Bogaenko Officer Since 1997 Director of Portfolio Van Eck Funds, Inc. Controller of two
(39) Administration, Van (2); Van Eck Funds other investment
Eck Associates (6); Worldwide companies advised
Corporation and Van Insurance Trust (4) by the Adviser
Eck Securities
Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Susan Lashley Officer Since 1997 Managing Director, Van Eck Funds, Inc. Vice President of
(47) Mutual Fund (2); Van Eck Funds another investment
Operations, Van Eck (6); Worldwide company advised
Securities Corporation Insurance Trust (4) by the Adviser
- ------------------------------------------------------------------------------------------------------------------------------------
(1) The address for each Director/Officer is 99 Park Avenue, 8th Floor, New
York, NY 10016.
(2) Each Director serves for an indefinite term, until his resignation, death
or removal. Officers are elected yearly by the Directors.
* John C. van Eck is an interested director as he owns shares and is on the
Board of Directors of the investment adviser.
*** To be elected to the Board prior to the Reorganization.
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES
IN ALL REGISTERED INVESTMENT COMPANIES
DOLLAR RANGE OF EQUITY SECURITIES OVERSEEN BY DIRECTOR IN
NAME OF DIRECTOR IN THE FUND FAMILY OF INVESTMENT COMPANIES
- ------------------ ------------------------------- --------------------------------------
John C. Van Eck $0 $2,233,525.56
Jeremy H. Biggs 0 45,339.69
David J. Olderman 0 0
Richard D. Stamberger 0 0
NAME OF OWNERS
AND RELATIONSHIPS TITLE OF VALUE OF PERCENT OF
NAME OF DIRECTOR TO DIRECTOR COMPANY CLASS SECURITIES CLASS
- ------------------------------------------------------------------------------------------------------------------------------------
17
2001 COMPENSATION TABLE
NAME OF AGGREGATE PENSION OR RETIREMENT TOTAL COMPENSATION
PERSON COMPENSATION BENEFITS ACCRUED AS PART OF FROM FUND AND FUND
POSITION FROM FUND FUND EXPENSES COMPLEX(a) PAID TO DIRECTORS
- ------- ------------ ------------------------ -------------------------
John C. van Eck $0 $0 $0
Chairman
Jeremy Biggs $5,000 $5,000 $36,000
Director
Richard D. Stamberger $0 $0 $36,000
Director
David Olderman $5,750 $0 $39,250
Director
- ----------
(a) The term "fund complex" refers to the funds of the Company, and of Van Eck
Funds and Van Eck Worldwide Insurance Trust, which are managed by the
Administrator. The directors are paid a fee for their services to the
Company. No other compensation, including pension or other retirement
benefits, is paid to the directors by the fund complex.
PURCHASE OF SHARES
GROUP PURCHASES
An individual who is a member of a qualified group may purchase shares of
the Funds at the reduced commission applicable to the group taken as a whole.
The commission is based upon the aggregate dollar value, at the current offering
price, of shares owned by the group, plus the securities currently being
purchased. For example, if members of the group held $80,000, calculated at
current offering price, of the Fund's Class A shares and now were investing
$25,000, the sales charge would be 3.75%. Information concerning the current
sales charge applicable to a group may be obtained by contacting the
Distributor.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring a Fund's shares at a
discount and (iii) satisfies uniform criteria which enables the Distributor to
realize economies of scale in its cost of distributing shares. A qualified group
must have more than 10 members, must be available to arrange for group meetings
between representatives of the Distributor and the members of the group, must
agree to include sales and other materials related to the Fund in its
publications and mailings to members at reduced or no cost to the Distributor,
and must seek to arrange the use of Automatic Investment Plan.
COMBINED PURCHASES
Shares of funds in the Van Eck Global Group of Funds (except the Van Eck
U.S. Government Money Fund series of Van Eck Funds) may be purchased at the
initial series charged applicable to the quantity purchased levels shown above
by combining concurrent purchases.
LETTER OF INTENT
Purchasers who anticipate that they will invest (other than through
exchanges) $100,000 or more in one or more of the funds in the Van Eck Funds
(Asia Dynasty Fund, Global Hard Assets Fund, Global Leaders Fund, International
Investors Gold Fund and Troika Dialog Fund, except the U.S. Government Money
fund) within thirteen months may execute a Letter of Intent on the form in the
Application. The execution of a Letter of Intent will result in the purchaser
paying a lower initial sales charge, at the appropriate quantity purchase level
shown above, on all purchases during a thirteen month period. A purchase not
originally made pursuant to a Letter of Intent may be included under a Letter of
Intent executed within 90 days after such purchase.
18
RIGHT OF ACCUMULATION
The above scale of initial sales charges also applies to an investor's
current purchase of shares of any of the funds in the Van Eck Funds (except the
Van Eck U.S. Government Money Fund) where the aggregate value of those shares
plus shares of the funds previously purchased and still owned, determined at the
current offering price, is more than $100,000, provided the Distributor of DST
is notified by the investor or the Broker or Agent each time a purchase is made
which would so qualify.
AVAILABILITY OF DISCOUNTS
An investor or the Broker or Agent must notify DST or the Distributor at
the time or purchase whenever a quantity discount or reduced sales charge is
applicable to a purchase. Quantity discounts described above may be modified or
terminated at any time without prior notice.
VALUATION OF SHARES
The net asset value of the shares of the Fund is normally determined as of
the close of trading on the New York Stock Exchange (usually 4:00 p.m. New York
Time) on each day during which the New York Stock Exchange is open for trading
and at such other times when both the degree of trading in the Fund's portfolio
securities would materially affect the net asset value of the Fund's shares and
shares of the Fund were tendered for redemption or a repurchase order was
received. The New York Stock Exchange is open from Monday through Friday except
on the following national holidays: New Years Day, Martin Luther King Jr.'s
Birthday, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day.
Dividends paid by the Fund with respect to Class A shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount.
Class A shares of the Fund are sold at the public offering price which is
determined once each day the Fund is open for business, which is the net asset
value per share plus a sales charge in accordance with the schedule set forth in
the Prospectus.
Portfolio securities which are traded on national securities exchanges are
valued at the last quoted sale price as of the close of business of the New York
Stock Exchange or, lacking any quoted sales, at the mean between the closing bid
and asked prices.
Securities traded in the over-the-counter market as part of the NASDAQ
National Market system are valued at the last quoted sale price (at the close of
the New York Stock Exchange) obtained from a readily available market quotation
system or securities pricing services. If no sale took place, such securities
are valued at the mean between the bid and asked prices.
Long-term U.S. Treasury securities and other obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
are valued at representative quoted prices from bond pricing services.
Long-term publicly traded corporate bonds are valued at prices obtained
from a bond pricing service when such prices are available or, when appropriate,
from over-the-counter exchange quotations or from broker-dealers who make a
market in that security.
Foreign securities denominated in foreign currencies are valued at
representative quoted prices on the principal exchange of the country of origin
and are converted to United States dollar equivalents using that day's current
exchange rate (New York closing spot). Occasionally, significant events
affecting the values of such securities may occur between the times at which
they are determined and the close of the New York Stock Exchange. If, during
such periods, significant events occur which materially affect the value of the
securities of the Fund and during such periods either shares are tendered for
redemption or a purchase or sale order is received by the Company, such
securities will be valued at fair value as determined in good faith by the
Board.
All non-U.S. securities traded in the over-the-counter securities market
are valued at the last sale quote, if market quotations are available, or at the
mean between the closing bid and asked prices, if there is no active trading in
a particular security for a given day. Where market quotations are not readily
available for such non-U.S. over-the-counter securities, then such securities
will be valued in good faith by a method that the Board of Directors, or its
delegates, believes accurately reflects fair value.
19
Options and convertible preferred stocks listed on national securities
exchanges are valued as of their last sale price or, if there is no sale, at the
mean between the closing bid and asked prices.
Futures contracts are valued as of their last sale price or, if there is no
sale, at the mean between the closing bid and asked prices.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by the Board of Directors
of the Company using its best judgment.
EXCHANGE PRIVILEGE
Class A shareholders of the Fund may exchange their shares for shares of
the same class of other of the funds in the Van Eck Funds. The Exchange
Privilege will not be available if the proceeds from a redemption of shares of a
fund whose shares qualify are paid directly to the shareholder. The Exchange
Privilege is not available for shares which are not on deposit with DST or State
Street Bank and Trust Company ("SSBT"), or shares which are held in escrow
pursuant to a Letter of Intent. If certificates representing shares of the Fund
accompany a written exchange request, such shares will be deposited into an
account with the same registration as the certificates upon receipt by DST.
The Fund reserves the right to (i) charge a fee of not more than $5.00 per
exchange payable to the Fund or charge a fee reasonably intended to cover the
costs incurred in connection with the exchange; (ii) establish a limit on the
number and amount of exchanges made pursuant to the Exchange Privilege and (iii)
terminate the Exchange Privilege without written notice. In the event of such
termination, shareholders who have acquired their shares pursuant to the
Exchange Privilege will be afforded the opportunity to re-exchange such shares
for shares of the fund originally purchased without sales charge, for a period
of not less than three (3) months.
By exercising the Exchange Privilege each shareholder whose shares are
subject to the Exchange Privilege will be deemed to have agreed to indemnify and
hold harmless the Company and each of its funds, their investment adviser,
sub-investment adviser (if any), distributor, transfer agent, SSBT and the
officers, directors, employees and agents thereof against any liability, damage,
claim or loss, including reasonable costs and attorneys' fees, resulting from
acceptance of, or acting or failure to act upon, or acceptance of unauthorized
instructions or non-authentic telephone instructions given in connection with,
the Exchange Privilege, so long as reasonable procedures are employed to confirm
the authenticity of such communications. (For more information on the Exchange
Privilege, see the Prospectus).
TAX-SHELTERED RETIREMENT PLANS
The Company offers several prototype tax-sheltered retirement plans through
which shares of a Fund may be purchased. These plans are more fully described
below. State Street Bank and Trust Company, P.O. Box 218407, Kansas City,
Missouri 64121, acts as the trustee and/or custodian (the "Trustee") under the
retirement plans offered by the Company. Persons who wish to establish a
tax-sheltered retirement plan should consult their own tax advisors or attorneys
regarding their eligibility to do so and the laws applicable thereto, such as
the employee coverage and nondiscrimination rules, fiduciary responsibility
provisions, diversification requirements and the reporting and disclosure
obligations under the Employee Retirement Income Security Act of 1974 and
applicable state tax laws. The Company is not responsible for compliance with
such laws. Further information regarding the retirement plans, including
applications and fee schedules, may be obtained upon request to the Company.
REGULAR INDIVIDUAL RETIREMENT ACCOUNT AND SPOUSAL INDIVIDUAL RETIREMENT
ACCOUNT. The Regular IRA is available to all individuals under age 70 1/2,
including self-employed individuals, who receive compensation for services
rendered and wish to purchase shares of a Fund. Spousal Individual Retirement
Accounts ("SPIRA") are available to individuals who are otherwise eligible to
establish a Regular IRA for themselves and whose spouses are treated as having
no compensation of their own.
The amount an individual contributes to a Regular IRA reduces the amount
the individual can contribute to a Roth IRA for the same year.
In general, the maximum deductible contribution to an IRA which may be made
for any one year is $2,000 or 100% of annual compensation includible in gross
income, whichever is less. If an individual establishes a SPIRA, the maximum
aggregate deductible amount that the individual may contribute annually is the
lesser of $4000 or 100%. However, that no more than $2,000 per year for either
the individual or the spouse may be contributed to either the IRA or SPIRA.
20
In the case of a taxpayer who is deemed to be an active participant in an
employer-sponsored retirement plan, no deduction is available for contributions
to a Regular IRA or SPIRA if his adjusted gross income exceeds the annual
maximum. For 1998, the annual maximum is $60,000 for married taxpayers filing
jointly, $40,000 for single taxpayers, and $10,000 for married taxpayers filing
separately. For each year after 1998, the annual maximum for married taxpayers
filing jointly and single taxpayers is increased $1,000. In 2006, the annual
maximum filing jointly increases $5,000 and in 2007 increases $15,000. (Married
taxpayers who file joint tax returns will not be deemed to be active
participants solely because their spouse is an active participant under an
employer-sponsored retirement plan. However, when one spouse is an active
participant and the other is not, no deduction is available for contributions to
a Regular IRA by the nonactive participant spouse if the spouses' combined
adjusted gross income exceeds $160,000.) Taxpayers who are active participants
in employer-sponsored retirement plans will be able to make fully deductible IRA
contributions at the same levels discussed above, if their adjusted gross income
is less than the annual minimum. For 1998, the annual minimum is $50,000 for
married taxpayers filing jointly and $30,000 for single taxpayers. For married
taxpayers filing jointly and single taxpayers, the annual minimum is increased
at the same rate as the annual maximum through the year 2005. After 2005, the
annual minimum for married taxpayers filing jointly is increased $5,000 in 2006
and for 2007.
In the case of taxpayerswhoare active participants in employer-sponsored
retirement plans and who have adjusted gross income between the applicable
annual minimum and maximum, deductible IRA contributions will be phased out. In
general and before 2007, the $2,000 IRA deduction is reduced by $200 for each
$1,000 of adjusted gross income in excess of the applicable minimum. In general,
in the case of a taxpayer who contributes to an IRA and a SPIRA, the $4000 IRA
deduction is reduced by $400 for each $1,000 of adjusted gross income in excess
of the applicable minimum.
Individuals who are ineligible to make fully deductible contributions may
make nondeductible contributions up to an aggregate of $2,000 in the case of
contributions (deductible and nondeductible) to a Regular IRA and up to an
aggregate of $4,000 in the case of contributions (deductible and nondeductible)
to a Regular IRA and SPIRA. The income upon all such contributions will
accumulate tax free until distribution.
In addition, a separate rollover IRA may be established by a "rollover"
contribution, which may permit the tax-free transfer of assets from qualified
retirement plans under specified circumstances. A "rollover contribution" from a
qualified retirement plan includes a lump sum distribution received by an
individual, because of severance of employment, from a qualified plan and paid
into an individual retirement account within 60 days after receipt or
transferred directly in a trust-to-trust transfer. A rollover IRA can be
established even if the individual is over age 70 1/2.
Dividends and capital gains earned on amounts invested in either an IRA or
SPIRA are automatically reinvested by the Trustee in shares of the Fund and
accumulate tax-free until distribution. Distributions from a Regular IRA, SPIRA
or rollover IRA, to the extent taxable, are taxable as ordinary income.
Distributions from either an IRA or SPIRA prior to age 59 1/2 may result in
adverse tax consequences and penalties. In addition, there may be a penalty on
contributions in excess of the contribution limits and other penalties are
imposed on insufficient payouts after age 70 1/2.
ROTH INDIVIDUAL RETIREMENT ACCOUNT AND SPOUSAL ROTH INDIVIDUAL RETIREMENT
ACCOUNT. The Roth IRA is available to all individuals who wish to purchase Fund
shares regardless of their age, including self-employed individuals, and whose
adjusted gross income is less than $160,000 for married taxpayers filing
jointly, $10,000 for married taxpayers filing jointly, $10,000 for married
taxpayers filing separately, and $110,000 for single taxpayers. Spousal Roth
IRAs ("SPRIRA") are available to individuals who are otherwise eligible to
establish a Roth IRA for themselves and whose spouses are treated as having no
compensation of their own.
Contributions to a Roth IRA or SPRIRA are not deductible. In general, the
maximum annual contribution to a Roth IRA which may be made for any one year is
$2,000 or 100% of annual compensation includible in gross income, whichever is
less, minus any contributions made for the year to a Regular IRA. If an
individual establishes a SPRIRA, the aggregate maximum amount that the
individual may contribute annually is the lesser of $4,000 or 100% of the
combined compensation of individual and spouse, minus any deductible Regular IRA
or Roth IRA contributions made by the individual to his own Regular or Roth IRA
for the taxable year. The amount an individual contributes to a Roth IRA reduces
the amount such individual can contribute to a Regular IRA for the same year.
Taxpayers can make the full annual contribution to a Roth IRA if their
adjusted gross income for the year is less than $150,000 if married filing
jointly, or less than $95,000 if single.
21
Taxpayers who are eligible to establish a Roth IRA, but whose adjusted
gross incomes exceed the amount for making a full annual contribution, can make
a reduced contribution to the Roth IRA. In general, to determine the reduced
contribution: (i) subtract the base amount ($95,000 for single, $150,000 for
married filing jointly, $0 for married filing separately) from adjusted gross
income; (ii) subtract the amount in (i) above from $15,000 ($10,000 if married
filing jointly or married filing separately); (iii) divide the amount in (ii) by
$15,000 ($10,000 if married filing jointly or married filing separately); and
(iv) multiply the fraction from (iii) by $2,000 ($4,000 for a SPRIRA).
In addition, if the adjusted gross income of married taxpayers who file
joint returns or a single taxpayer is less than $100,000, they may convert a
non-Roth IRA to a Roth IRA. Married couples filing separate returns cannot make
such a conversion. A taxpayer converts a non Roth IRA into a Roth IRA by
withdrawing the funds from his non Roth IRA and rolling them over into a Roth
IRA within 60 days, or by directing his non Roth IRA trustee or custodian to
convert the existing non Roth IRA with such custodian or trustee. Except for
conversions made during 1998, the amount rolled over from the non Roth IRA to
the Roth IRA is includible in income and subject to income tax in the year of
conversion. For non Roth IRAs converted into Roth Conversion IRAs during 1998,
special rules apply. The amount rolled over is includible in Federal gross
income (and subject to Federal income taxes) over a four year period.
In addition, an individual can rollover a Roth IRA into another Roth IRA
within 60 days after receipt of the funds (or directly in a trustee-to-trustee
transfer).
Dividends and capital gains earned on amounts invested in either a Roth IRA
or SPRIRA are automatically reinvested by the Trustee in shares of a Fund and
accumulate tax free until distribution.
"Qualified distribution" from either a Roth IRA or SPRIRA are not included
in federal gross income and not subject to federal income tax. Any non-qualified
distribution is includible in federal gross income and subject to federal income
tax only to the extent it is a distribution of earnings. These earnings are
taxable as ordinary income. To be a "qualified distribution" the amounts must be
withdrawn after the "5-year holding period" and must be withdrawn when you are
age 59 1/2 or older, because of death or permanent disability, or to pay for
qualifying "first-time homebuyer expenses." For Roth IRAs, SPRIRAs and rollover
Roth IRAs, the "5-year holding period" is the five tax year period beginning
with the first tax year for which the taxpayer made a contribution to his or her
Roth IRA. For non Roth IRAs converted into Roth IRAs, the "5-year holding
period" is the five tax year period beginning with the first tax year in which
the non Roth IRA was converted to a Roth IRA.
Withdrawals are deemed to be made first from contributions to the Roth IRA
and then from earnings. Thus, until the full amount contributed has been
withdrawn, withdrawals are not includible for federal gross income. Special
rules apply to withdrawals from Regular IRAs converted in 1998 to a Roth IRA.
The taxable portion of distributions from either a Roth IRA or SPRIRA prior
to age 59 1/2 may result in adverse tax consequences and penalties. In addition,
there may be a penalty on contributions in excess of the contribution limits.
SIMPLIFIED EMPLOYEE PENSION PLAN. An SEP may be utilized by employers to
provide retirement income to employees by making contributions to employee SEP
IRAs. Owners and partners may qualify as employees. The employee is always 100%
vested in contributions made under an SEP. Subject to certain limitations, an
employer may also make contributions to an SEP-IRA under a salary reduction
arrangement, by which the employee elects contributions to an SEP-IRA in lieu of
immediate cash compensation. After December 31, 1996, contributions under a
salary reduction arrangement are permitted only into SEP plans in existence on
December 31, 1996. The maximum contribution to an SEP-IRA (an IRA established to
receive SEP contributions) is the lesser of $30,000 or 15% of taxable
compensation from the employer, excluding contributions made pursuant to a
salary reduction arrangement.
Contributions by employers under an SEP arrangement up to the maximum
permissible amounts are deductible by employers for federal income tax purposes.
Contributions up to the maximum permissible amounts are not includible in the
gross income of the employee. Dividends and capital gains on amounts invested in
SEP-IRAs are automatically reinvested by the Trustee in shares of the mutual
fund that paid such amounts, and accumulate tax-free until distribution.
Withdrawals of amounts prior to age 59 1/2 may result in adverse tax
consequences. In addition, there may be a penalty on contributions in excess of
the contribution limits, and other penalties are imposed on insufficient payouts
after age 70 1/2.
22
QUALIFIED PENSION PLANS. International Investors Fund offers forms of
prototype profit sharing and money purchase pension plans (together, the
"Qualified Pension Plans") that can be utilized by self-employed individuals,
partnerships and corporations (for this purpose called "Employers") and their
employees who wish to purchase shares of a Fund under a retirement program.
The maximum combined contribution which may be made to all Qualified
Pension Plans in any one year on behalf of a participant is, depending on the
types of plans and benefit formula selected by the Employer, up to the lesser of
$30,000 or 25 percent of compensation (net earned income in the case of a
self-employed individual). Contributions by Employers to Qualified Pension Plans
up to the maximum permissible amounts are deductible for Federal income tax
purposes. Amounts contributed by employers on behalf of employees are not taxed
to the employees until the time of distribution, except that contributions in
excess of permissible amounts may result in adverse tax consequences and
penalties to the Employer. Dividends and capital gains earned on amounts
invested in Qualified Pension Plans are automatically reinvested by the Trustee
in shares of a Fund and accumulate tax-free until distribution.
Amounts contributed by employers on behalf of employees are not taxed to
the employees until the time of distribution, except that withdrawals of
contributions prior to age 59 1/2 may result in adverse tax consequences and
penalties.
403(b)(7) PROGRAM. The Tax-Deferred Annuity Program and Custodial Account
offered by the Fund (the "403(b)(7) Program") allows employees of certain tax
exempt organizations and schools to have a portion of their compensation set
aside for their retirement years in shares held in an investment company
custodial account.
In general, the maximum limit on annual contributions for each employee is
the lesser of $30,000 per year (as adjusted by the IRS for cost-of-living
increases), 25% of the employee's compensation, or the employee's exclusion
allowance specified in Section 403(b) of the Code. However, an employee's salary
reduction contributions to a 403(b)(7) Program may not exceed $9,500 a year (as
adjusted for cost of living expenses). Amounts contributed by employers on
behalf of employees are not taxed to the employees until the time of
distribution, except that contributions in excess of permissible amounts may
result in adverse tax consequences and penalties. Dividends and capital gains on
amounts invested in the 403(b)(7) Program are automatically reinvested in shares
of a Fund. It is intended that dividends and capital gains on amounts invested
in the 403(b)(7) Program will accumulate tax-free until distribution.
Employees will receive distributions from their accounts under the
403(b)(7) Program following termination of employment by retirement or at such
other time as the employer shall designate, but in no case later than an
employee reaching age 65. Withdrawals of contributions prior to age 59 1/2 may
result in adverse tax consequences and penalties. Employees will also receive
distributions from their accounts under the 403(b)(7) Program in the event they
become disabled.
INVESTMENT PROGRAMS
DIVIDEND REINVESTMENT PLAN. Reinvestments of dividends of the Funds will
occur on a date selected by the Board of Directors.
AUTOMATIC EXCHANGE PLAN. Investors may arrange under the Exchange Plan to
have DST collect a specified amount once a month or quarter from the investor's
account in one of the funds and purchase full and fractional shares of another
fund at the public offering price next computed after receipt of the proceeds.
Further details of the Automatic Exchange Plan are given in the application
which is available from DST or the Fund.
An investor should realize that the Fund's securities are subject to market
fluctuations, and accordingly the Automatic Exchange Plan does not assure a
profit or protect against depreciation in declining markets. The Automatic
Exchange Plan contemplates the systematic purchase of securities at regular
intervals regardless of price levels.
The expenses of the Automatic Exchange Plan are general expenses of the
Fund's and will not involve any direct charge to the participating shareholder.
The Automatic Exchange Plan is completely voluntary and may be terminated on
fifteen days notice to DST.
23
AUTOMATIC INVESTMENT PLAN. Investors may arrange under the Automatic
Investment Plan to have DST collect a specified amount once a month or quarter
from the investor's checking account and purchase full and fractional shares of
the Funds at the public offering price next computed after receipt of the
proceeds. Further details of the Automatic Investment Plan are given in the
application which is available from DST or the Fund.
An investor should realize that the Fund's securities are subject to market
fluctuations, and accordingly the Automatic Investment Plan does not assure a
profit or protect against depreciation in declining markets. The Automatic
Investment Plan contemplates the systematic purchase of securities at regular
intervals regardless of price levels.
The expenses of the Automatic Investment Plan are general expenses of the
Fund and will not involve any direct charge to the participating shareholder.
The Automatic Investment Plan is completely voluntary. The Automatic Investment
Plan may be terminated on thirty days notice to DST.
AUTOMATIC WITHDRAWAL PLAN. The Automatic Withdrawal Plan is designed to
provide a convenient method of receiving fixed redemption proceeds at regular
intervals from shares of the Fund deposited by the investor under this Plan.
Further details of the Automatic Withdrawal Plan are given in the application
which is available from DST or the Funds.
In order to open an Automatic Withdrawal Plan, the investor must complete
the Application and deposit, or purchase for deposit, with DST, agent for the
Automatic Withdrawal Plan, shares of Funds having a total value of not less than
$10,000 based on the offering price on the date the Application is accepted.
Income dividends and capital gains distributions on shares under an
Automatic Withdrawal Plan will be credited to the investor's Automatic
Withdrawal Plan account in full and fractional shares at the net asset value in
effect on the reinvestment date.
Periodic checks for a specified amount will be sent to the investor, or any
person designated by the investor, monthly or quarterly (January, April, July
and October). The Fund will bear the cost of administering the Automatic
Withdrawal Plan.
Redemption of shares of the Fund deposited under the Automatic Withdrawal
Plan may deplete or possibly use up the initial investment plus income dividends
and distributions reinvested, particularly in the event of a market decline. In
addition, the amounts received by an investor cannot be considered as an actual
yield or income on the investment since part of such payments may be a return of
capital. The redemption of shares under the Automatic Withdrawal Plan may give
rise to a taxable event.
The maintenance of an Automatic Withdrawal Plan concurrently with purchases
of additional shares of the Fund would be disadvantageous because of the sales
charge payable with respect to such purchases. An investor may not have an
Automatic Withdrawal Plan in effect and at the same time have in effect an
Automatic Investment Plan or an Automatic Exchange Plan. If an investor has an
Automatic Investment Plan or an Automatic Exchange Plan, such service must be
terminated before an Automatic Withdrawal Plan may take effect.
The Automatic Withdrawal Plan may be terminated at any time (1) on 30 days'
notice to DST or from DST to the investor, (2) upon receipt by DST of
appropriate evidence of the investor's death or (3) when all shares under the
Automatic Withdrawal Plan have been redeemed. Upon termination, unless otherwise
requested, certificates representing remaining full shares, if any, will be
delivered to the investor or his or her duly appointed legal representatives.
TAXES
TAXATION OF THE FUND--IN GENERAL
The Fund intends to continue to elect to be treated and to qualify each
taxable year as a "regulated investment company" under Subchapter M of the Code.
To so qualify, the Fund must, among other things, (a) derive at least 90% of its
gross income from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies; and (b) satisfy certain diversification requirements.
24
As a regulated investment company, the Fund will not be subject to federal
income tax on its net investment income and capital gain net income (capital
gains in excess of its capital losses) that it distributes to shareholders if at
least 90% of its net investment income and short-term capital gains for the
taxable year are distributed. However, if for any taxable year the Fund does not
satisfy the requirements of Subchapter M of the Code, all of its taxable income
will be subject to tax at regular corporate rates without any deduction for
distribution to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
accumulated earnings or profits.
The Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year the Fund must
distribute, or be deemed to have distributed, (i) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (ii) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the twelve month period ending on
October 31 (or December 31, if the Fund so elects), and (iii) all ordinary
income and capital gains for previous years that were not distributed during
such years. For this purpose, any income or gain retained by the Fund that is
subject to corporate tax will be considered to have been distributed by
year-end. The Fund intends to make sufficient distributions to avoid this 4%
excise tax.
TAXATION OF THE FUND'S INVESTMENTS
ORIGINAL ISSUE DISCOUNT. For federal income tax purposes, debt securities
purchased by the Fund may be treated as having an original issue discount.
Original issue discount represents interest for federal income tax purposes and
can generally be defined as the excess of the stated redemption price at
maturity of a debt obligation over the issue price. Original issue discount is
treated for federal income tax purposes as income earned by the Fund, whether or
not any income is actually received, and therefore is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount included in the income of the Fund each year is determined on the basis
of a constant yield to maturity which takes into account the compounding of
accrued interest.
Debt securities may be purchased by the Fund at a discount which exceeds
the original issue discount remaining on the securities, if any, at the time the
Fund purchased the securities. This additional discount represents market
discount for income tax purposes. In the case of any debt security issued after
July 18, 1984, having a fixed maturity date of more than one year from the date
of issue and having market discount, the gain realized on disposition will be
treated as interest to the extent it does not exceed the accrued market discount
on the security (unless the Fund elects to include such accrued market discount
in income in the tax year to which it is attributable). Generally, market
discount is accrued on a daily basis. The Fund may be required to capitalize,
rather than deduct currently, part or all of any direct interest expense
incurred or continued to purchase or carry any debt security having market
discount, unless it makes the election to include market discount currently.
Because the Fund must include original issue discount in income, it will be more
difficult for the Fund to make the distributions required for them to maintain
their status as a regulated investment company under Subchapter M of the Code or
to avoid the 4% excise tax described above.
OPTIONS AND FUTURES TRANSACTIONS. Certain of the Fund's investments may be
subject to provisions of the Code that (i) require inclusion of unrealized gains
or losses in the Fund's income for purposes of the 90% test, the excise tax and
the distribution requirements applicable to regulated investment companies, (ii)
defer recognition of realized losses, and (iii) characterize both realized and
unrealized gain or loss as short-term or long-term gain or loss. Such provisions
generally apply to options and futures contracts. The extent to which the Fund
makes such investments may be materially limited by these provisions of the
Code.
FOREIGN CURRENCY TRANSACTIONS. Under Section 988 of the Code, special rules
are provided for certain foreign currency transactions. Foreign currency gains
or losses from foreign currency contracts (whether or not traded in the
interbank market), from futures contracts that are not "regulated futures
contracts," and from unlisted options are treated as ordinary income or loss
under Section 988. The Fund may elect to have foreign currency-related regulated
futures contracts and listed options subject to ordinary income or loss
treatment under Section 988. In addition, in certain circumstances, the Fund may
elect capital gain or loss for foreign currency transactions. The rules under
Section 988 may also affect the timing of income recognized by the Fund.
25
TAXATION OF THE SHAREHOLDERS
Distributions of net investment income and the excess of net short-term
capital gain over net long-term capital loss are taxable as ordinary income to
shareholders. Distributions of net capital gain (the excess of net long-term
capital gain over net short-term capital loss) are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Any loss realized upon a taxable
disposition of shares within six months from the date of their purchase will be
treated as a long-term capital loss to the extent of any long-term capital gain
distributions received by shareholders during such period.
Distributions of net investment income and capital gain net income will be
taxable as described above whether received in cash or reinvested in additional
shares. When distributions are received in the form of shares issued by the
Fund, the amount of the distribution deemed to have been received by
participating shareholders is the fair market value of the shares received
rather than the amount of cash which would otherwise have been received. In such
case, participating shareholders will have a basis for federal income tax
purposes in each share received from the Fund equal to the fair market value of
such share on the payment date.
Distributions by the Fund result in a reduction in the net asset value of
the Fund's shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain as described above,
even though, from an investment standpoint, it may constitute a partial return
of capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a distribution will then receive
a return of their investment upon distribution which will nevertheless be
taxable to them.
If a shareholder (i) incurs a sales load in acquiring shares in the Fund,
and (ii) by reason of incurring such charge or making such acquisition acquires
the right to acquire shares of one or more regulated investment companies
without the payment of a load or with the payment of a reduced load
("reinvestment right"), and (iii) disposes of the shares before the 91st day
after the date on which the shares were acquired, and (iv) subsequently acquires
shares in that regulated investment company or in another regulated investment
company and the otherwise applicable load charge is reduced pursuant to the
reinvestment right, then the load charge will not be taken into account for
purposes of determining the shareholder's gain or loss. To the extent such
charge is not taken into account in determining the amount of gain or loss, the
charge will be treated as incurred in connection with the subsequently acquired
shares and will have a corresponding effect on the shareholder's basis in such
shares.
The Fund may be required to withhold federal income tax at a rate of 30%
from dividends made to any shareholder who fails to furnish a certified taxpayer
identification number ("TIN") or who fails to certify that he or she is exempt
from such withholding or who the Internal Revenue Service notifies the Fund as
having provided the Fund with an incorrect TIN or failed to properly report for
federal income tax purposes. Any such withheld amount will be fully creditable
on each shareholder's individual federal income tax return.
The foregoing discussion is a general summary of certain of the current
federal income tax laws affecting the Fund and investors in the shares. The
discussion does not purport to deal with all of the federal income tax
consequences applicable to the Fund, or to all categories of investors, some of
which may be subject to special rules. Investors should consult their own
advisors regarding the tax consequences, including state and local tax
consequences, to them of investment in the Fund.
26
REDEMPTIONS IN KIND
The Company has elected to have the ability to redeem its shares in kind,
committing itself to pay in cash all requests for redemption by any shareholder
of record limited in amount with respect to each shareholder of record during
any ninety-day period to the lesser of (i) $250,000 or (ii) 1% of the net asset
value of such company at the beginning of such period.
PERFORMANCE
From time to time, in reports and sale literature: (1) the Fund's
performance or P/E ratio may be compared to: (i) the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") and Dow Jones Industrial Average
so that the investor may compare the Fund's results with those of a group of
unmanaged securities widely regarded by investors as representative of the
United States stock market in general; (ii) other groups of mutual funds tracked
by: (A) Lipper Analytical Services, Inc., a widely-used independent research
firm which ranks mutual funds by overall performance, investment objectives, and
asset size; (B) Forbes Magazine's Annual Mutual Funds Survey and Mutual Fund
Honor Roll; or (C) other financial or business publications, such as the Wall
Street Journal, Business Week, Money Magazine, and Barron's, which provide
similar information; (iii) indices of stocks comparable to those in which the
particular Fund invests; (2) the Consumer Price Index (measure for inflation)
may be used to assess the real rate of return from an investment in the Fund;
(3) other government statistics such as Gross Domestic Product, and net import
and export figures derived from governmental publications, e.g., The Survey of
Current Business, may be used to illustrate investment attributes of the Fund or
the general economic, business, investment, or financial environment in which
the Fund operates; and (4) the effect of tax-deferred compounding on the Fund's
investment returns, or on returns in general, may be illustrated by graphs,
charts, etc. where such graphs or charts would compare, at various points in
time, the return from an investment in the Fund (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends and
assuming one or more tax rates) with the return on a taxable basis.
From time to time advertisements and sales literature may refer to rankings
and ratings of the Adviser related to their size, performance, management and/or
service as prepared by various trade publications, such as Dalbar, Pensions and
Investments, SEI, CDA, Bests, and others.
The Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc., which ranks mutual funds on the basis of
historical risk and total return. Morningstar rankings are calculated using the
mutual fund's average annual returns for certain periods and a risk factor that
reflects the mutual fund's performance relative to three-month Treasury bill
monthly returns. Morningstar's rankings range from five stars (highest) to one
star (lowest) and represent Morningstar's assessment of the historical risk
level and total return of a mutual fund as a weighted average for 3, 5, and
10-year periods. In each category, Morningstar limits its five star rankings to
10% of the funds it follows and its four star rankings to 22.5% of the funds it
follows. Rankings are not absolute or necessarily predictive of future
performance. The Fund's performance may also be ranked by Standard & Poor's
Micropal. Micropal's ranking and performance analysis ranks funds on the basis
of total return, assuming reinvestment of distribution, but does not take sales
charges or redemption fees into consideration and is prepared without regard to
tax consequences.
When Lipper's rankings or performance results are used, the Fund will be
compared to Lipper's appropriate fund category by portfolio holdings. Rankings
may be listed among one or more of the asset-size classes as determined by
Lipper. Since the assets in the Fund may change, the Fund may be ranked within
one Lipper asset-sized class at one time and in another Lipper asset-size class
at some other time. The Lipper rankings and performance analysis ranks funds on
the basis of total return, assuming reinvestment of distribution, but does not
take sales charges or redemption fees into consideration and is prepared without
regard to tax consequences. Lipper also issues a monthly yield analysis for
fixed-income funds. Footnotes in advertisements and other marketing literature
will include the time period and Lipper asset-size class, as applicable, for the
ranking in question.
As noted above, the performance of the Fund may be compared, for example,
to the record of the S&P 500 Index, as well as the Russell 2000 Index, the S&P
MidCap 400 Index, the Bear Stearns Foreign Bond Index, the NASDAQ Composite
Index and the Morgan Stanley Capital International's Europe Australia, Far
Eastern ("EAFE") Index. The S&P 500 Index is a well known measure of the price
performance of 500 leading larger domestic stocks which represent approximately
80% of the market capitalization of the United States equity market. The NASDAQ
Composite Index is comprised of all stocks on NASDAQ's National Market Systems,
as well as other NASDAQ domestic equity securities. The NASDAQ Composite Index
has typically included smaller, less mature companies representing 10% or 15% of
the capitalization of the entire domestic equity market. The EAFE
27
Index is comprised of more than 900 companies in Europe, Australia and the Far
East. All of these indices are unmanaged and capitalization weighted. In
general, the securities comprising the NASDAQ Composite Index are more growth
oriented and have a somewhat higher beta and P/E ratio than those in the S&P 500
Index.
The total returns of all indices noted above will show the changes in
prices for the stocks in each index. Where applicable, the performance data will
assume reinvestment of all capital gains distributions and dividends paid by the
stocks in each data base. Tax consequences will not be included in such
illustration, nor will brokerage or other fees or expenses of investing be
reflected.
This yield figure represents the net annualized yield based on a specified
30-day (or one month) period assuming a reinvestment and semiannual compounding
of income. Yield is calculated by dividing the average daily net investment
income per share earned during the specified period by the maximum offering
price per share on the last day of the period, according to the following
formula:
YIELD = 2[(A-B/CD + 1)6-1]
Where: A = dividends and interest earned during the period
B = expenses accrued for the period (net of reimbursement)
C = the average daily number of shares outstanding during
the period that were entitled to receive dividends
D = the maximum offering price per share on the last day
of the period after adjustment for payment of dividends
within 30 days thereafter
A tax equivalent yield is calculated by dividing that portion of the 30-day
yield figure which is tax-exempt by one minus the effective federal income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt.
The average annual total return quotation for the Class A shares of the
Predecessor Fund (after maximum sales charge) for the 12 months ended December
31, 2001 was (19.23%). The average annual total return quotation for the
Predecessor Fund for the 5 years ended December 31, 2001 was 1.03%. The average
annual total return quotation for the Predecessor Fund for the 10 years ended
December 31, 2001 was 7.49%. The average annual total return quotation for the
Fund since the Company's inception on December 1, 1987 through December 31, 2001
was 10.12%. These figures reflect a portion of fees and other expenses of the
Company which were waived or assumed during the stated period.
These average annual total return figures represent the average annual
compound rate of return for the stated period. Average annual total return
quotations reflect the percentage change between the beginning value of a static
account in the Fund at the maximum public offering price and the ending value of
that account measured by the then current net asset value of the Fund assuming
that all dividends and capital gains distributions during the stated period were
reinvested in shares of the Fund when paid. Total return is calculated by
finding the average annual compound rates of return of a hypothetical investment
that would compare the initial amount to the ending redeemable value of such
investment according to the following formula:
P(1+T)n = ERV
Where: P= A hypothetical initial payment of $1,000
T= Average annual total return
n= Number of years
ERV= Ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5, or 10 year periods at the end of the
year or period
The Fund also may advertise non-standardized total return quotations,
calculated in the same manner as the quotations stated above, except that the
initial value used is the net asset value. Under this total return calculation,
the average annual total return quotation for the Predecessor Fund for the 12
months ended December 31, 2001 was (14.31%) . Under this same calculation, the
average annual total return quotation for the Predecessor Fund for the 5 years
ended December 31, 2001was 2.23%. Under this same calculation, the average
annual total return quotation for the Predecessor Fund for the 10 years ended
December 31, 2001 was 8.12%.
28
DESCRIPTION OF THE COMPANY
The Company was incorporated in Maryland on January 30, 2002. The Company
is composed of one open-end diversified management investment company, the Van
Eck Mid-Cap Value Fund. In the future, the Company may establish additional
funds. Each share of capital stock when issued will be fully paid and
non-assessable. Each share of capital stock issued with respect to the Fund has
a pro rata interest in the assets of the Fund and is entitled to such dividends
and distributions of income belonging to the Fund as are declared by the Board
of Directors. Each share of capital stock is entitled to one vote on all matters
submitted to a vote of all shareholders of the Company, and fractional shares
are entitled to a corresponding fractional vote. Shareholders of the Company
will not be entitled to preemptive rights or cumulative voting rights. All
shares may be redeemed at any time by the Company.
As a Maryland corporate entity, the Company is not required to hold regular
annual shareholder meetings and, in the normal course, does not expect to hold
such meetings. The Company is, however, required to hold shareholder meetings
for such purposes as, for example: (i) approving certain agreements as required
by the Act; (ii) changing fundamental investment objectives and restrictions of
the Fund; and (iii) filling vacancies on the Board of Directors in the event
that less than a majority of the directors were elected by shareholders. The
Company expects that there will be no meetings of shareholders for the purpose
of electing directors unless and until such time as less than a majority of the
directors holding office have been elected by shareholders. At such time, the
directors then in office will call a shareholder meeting for the election of
directors. In addition, holders of record of not less than two-thirds of the
outstanding shares of the Company may remove a director.
ADDITIONAL INFORMATION
CUSTODIAN. Citibank, N.A., 111 Wall Street, New York City, New York 10043,
acts as custodian of the Company's assets. Citibank is responsible for holding
all securities and cash of the Fund, receiving and paying for securities
purchased, delivering against payment securities sold, receiving and collecting
income from investments, making all payments covering expenses of the Company
and performing other administrative duties, all as directed by persons
authorized by the Company. Citibank does not exercise any supervisory function
in such matters as the purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of the Company. The Company, with respect to
the Fund, may also appoint from time to time, with the approval of the Company's
Board of Directors, qualified domestic sub-custodians for the Fund and foreign
sub-custodians qualified under Rule 17f-5 of the Act with respect to certain
foreign securities which may be purchased by the Fund.
INDEPENDENT AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, NY
10019, has been selected as the independent auditors of the Company.
COUNSEL. Goodwin Procter LLP, Exchange Place, Boston, Massachusetts 02109,
serves as counsel to the Company.
TRANSFER AGENT. The Company has contracted with DST Systems, Inc. ("DST"),
210 W. 10th St., 8th Floor, Kansas City, Missouri 64105, to act as its transfer
agent, registrar, and dividend disbursing agent. DST will service shareholder
accounts, and its duties will include: (i) effecting sales redemptions and
exchanges of Company shares; (ii) distributing dividends and capital gains
associated with Company accounts; and (iii) maintaining account records and
responding to shareholder inquiries.
NAME AND SERVICE MARK. The Van Eck Associates Corporation has granted the
Company the right to use the "Van Eck" name and service mark.
CAPITAL STOCK
The authorized capital stock of the Company consists of 800,000,000 shares
of common stock, par value $.001, which is divided into one series: Van Eck
Mid-Cap Value Fund. The Fund currently consists of 100,000,000 authorized
shares. The Company has the right to issue additional shares without the consent
of the shareholders, and may allocate its issued and reissued shares to new
Funds.
29
The assets received by the Company for the issuance or sale of shares of
the Fund and all income, earnings, profits and proceeds thereof are specifically
allocated to the Fund. They constitute the underlying assets of the Fund, are
required to be segregated on the books of account, and are to be charged with
the expenses of the Fund. Each issued and outstanding share in the Fund is
entitled to participate equally in dividends and distributions declared with
respect to the Fund and in the net assets of the Fund upon liquidation or
dissolution remaining after satisfaction of outstanding liabilities.
FINANCIAL STATEMENTS
The financial statements contained in the Predecessor Company's December
31, 2001 Annual Report to shareholders are included herein. The Annual Report is
available at no charge upon written or telephone request to the Company at the
address or telephone numbers set forth on the first page of this Statement of
Additional Information.
30
APPENDIX
DESCRIPTION OF INVESTMENT RATINGS
MOODY'S--BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large, or by an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are not likely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
RATING REFINEMENTS. Moody's may apply numerical modifiers, 1, 2 and 3, in each
generic rating classification from Aa through B in its municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic category; the modifier 2 indicates a mid-range ranking; and a
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
SHORT-TERM NOTES. The four ratings of Moody's for short-term notes are MIG 1,
MIG 2, MIG 3 and MIG 4. MIG 1 denotes "best quality, enjoying strong protection
from established cash flows." MIG 2 denotes "high quality" with "ample margins
of protection." MIG 3 notes are of "favorable quality...but lacking the
undeniable strength of the preceding grades." MIG 4 notes are of "adequate
quality, carrying specific risk but having protection...and not distinctly or
predominantly speculative."
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of 9
months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
31
STANDARD & POOR'S--BOND RATINGS
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from sources Standard & Poor's considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligations.
II. Nature of and provisions of the obligations.
III. Protection afforded by, and relative position of, the obligations in the
event of bankruptcy, reorganization, or other arrangement under the laws of
bankruptcy and other laws affecting creditor's rights.
AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher-rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by the
addition of a plus or minus sign to show relative standing within
the major rating categories.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper. The four categories are as
follows:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designation 1, 2, and 3 to indicate the relative degree of safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong.
32
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated "A-1."
A-3. Issues carrying this designation have a satisfactory capacity or timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher
designations.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
Standard & Poor's rating categories with respect to certain municipal note
issues with a maturity of less than 3 years are as follows:
SP-1. A very strong, or strong, capacity to pay principal and interest.
Issues that possess overwhelming safety characteristics will be given
a "+" designation.
SP-2. A satisfactory capacity to pay principal and interest.
SP-3. A speculative capacity to pay principal and interest. Standard &
Poor's may continue to rate note issues with a maturity greater than 3
years in accordance with the same rating scale currently employed for
municipal bond ratings.
33
VAN ECK/CHUBB FUNDS, INC.
99 PARK AVENUE, NEW YORK, NEW YORK 10016
SHAREHOLDER SERVICES: TOLL FREE (800) 544-4653
WWW.VANECK.COM
Van Eck/Chubb Funds, Inc. (the "Company") is a mutual fund consisting of
five series: Van Eck/Chubb Global Income Fund, Van Eck/Chubb Government
Securities Fund, Van Eck/Chubb Growth and Income Fund, Van Eck/Chubb Tax-Exempt
Fund and Van Eck/Chubb Total Return Fund.
This Statement of Additional Information ("SAI") is not a prospectus but
supplements and should be read in conjunction with the Company's prospectus
dated May 1, 2001 (the "Prospectus"). This Statement of Additional Information
is incorporated by reference into the Prospectus. The Company's Annual Report is
incorporated by reference in this SAI. A copy of the Prospectus and/or Annual
Report is available at no charge upon written or telephone request to the
Company at the address or telephone number above. Shareholders are advised to
read and retain this Statement of Additional Information for future reference.
TABLE OF CONTENTS
General Information ......................................................... 1
Investment Objectives and Policies of The Funds ............................. 1
Bank Obligations ............................................................ 1
Commercial Paper ............................................................ 1
Repurchase Agreements ....................................................... 1
Reverse Repurchase Agreements ............................................... 2
Lending of Portfolio Securities ............................................. 2
Restricted Securities ....................................................... 2
Loan Participations and Other Direct Indebtedness ........................... 3
Derivatives ................................................................. 3
When-Issued and Delayed Delivery Securities & Forward Commitments ........... 8
Foreign Securities .......................................................... 8
Foreign Currency Transactions ............................................... 9
Depositary Receipts ......................................................... 9
Mortgage-Related Securities ................................................. 9
Warrants .................................................................... 11
Low Rated or Unrated Debt Securities ........................................ 11
Investment Companies ........................................................ 11
Portfolio Turnover .......................................................... 11
Investment Restrictions ..................................................... 11
Investment Advisory Services ................................................ 14
The Distributor ............................................................. 15
Portfolio Transactions and Brokerage ........................................ 17
Directors and Officers ...................................................... 19
Purchase of Shares .......................................................... 22
Valuation of Shares ......................................................... 22
Exchange Privilege .......................................................... 23
Tax-Sheltered Retirement Plans .............................................. 24
Investment Programs ......................................................... 27
Taxes ....................................................................... 28
Redemptions In Kind ......................................................... 30
Performance ................................................................. 30
Description of the Company .................................................. 33
Additional Information ...................................................... 33
Financial Statements ........................................................ 34
Appendix .................................................................... 35
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2001
GENERAL INFORMATION
Van Eck/Chubb Funds, Inc., (the "Company") is comprised of five separate
portfolios (the "Funds"). The Company had no business history prior to its
formation. Until September 30, 1997, the name of the Company was Chubb
Investment Funds, Inc.
Van Eck/Chubb Government Securities Fund, Van Eck/Chubb Growth and Income
Fund, Van Eck/Chubb Tax-Exempt Fund and Van Eck/Chubb Total Return Fund are
classified with diversified as defined in the Investment Company Act of 1940, as
amended (the "Act"). This means that with respect to 75% of each Fund's assets,
each Fund may not invest more than 5% of its total assets in any issuer or
invest more than 10% of the outstanding voting securities of any issuer. Van
Eck/Chubb Global Income Fund is classified as non-diversified, which means that
the proportion of the Fund's assets that may be invested in the securities of a
single issuer is not limited to the Act. However, to meet other requirements,
the Fund at the close of each quarter of its taxable year must, in general,
limit its investments so that (i) no more that 25% of its assets are invested in
the securities of a single issuer, (ii) with respect to 50% of the Fund's
assets, no more than 5% of its assets at the time or purchase are invested in a
single issuer and (iii) the Fund will not own more than 10% of the outstanding
voting securities of any one issuer.
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
The investment objectives and policies of each Fund are described in the
Company's Prospectus under the heading "Investment Objectives and Policies" with
each Fund's policies being described specifically under its own sub-heading. The
following information supplements the discussion of investment objectives and
policies for each Fund contained in the Company's Prospectus. Unless otherwise
specified, the investment policies and restrictions of each Fund are not
fundamental policies and may be changed by the Company's Board of Directors
without shareholder approval. Shareholders will be notified prior to any
material change. The investment objectives of each Fund are fundamental policies
and may be changed only with shareholder approval.
BANK OBLIGATIONS
All of the Funds may acquire obligations of banks with total assets of at
least $500,000,000. These include certificates of deposit, bankers' acceptances,
and time deposits, all of which are normally limited to $100,000 per Fund from
any one bank. Certificates of deposit are generally short-term, interest-bearing
negotiable certificates issued by commercial banks or savings and loan
associations against funds deposited in the issuing institution. Bankers'
acceptances are time drafts drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction (to finance the import,
export, transfer or storage of goods). With a bankers' acceptance, the borrower
is liable for payment as is the bank, which unconditionally guarantees to pay
the draft at its face amount on the maturity date. Most bankers' acceptances
have maturities of six months or less and are traded in secondary markets prior
to maturity. Time deposits are generally short-term, interest-bearing negotiable
obligations issued by commercial banks against funds deposited in the issuing
institutions. None of the Funds will invest in time deposits maturing in more
than seven days.
COMMERCIAL PAPER
All the Funds may invest in commercial paper. Commercial paper involves an
unsecured promissory note issued by a corporation. It is usually sold on a
discount basis and has a maturity at the time of issuance of 9 months or less.
The Funds may invest in commercial paper rated within the three highest
categories by Moody's Investors Services, Inc. ("Moody's"), Standard & Poor's
Corporation ("Standard & Poor's") or other nationally recognized statistical
rating organizations ("NRSROs") or, if not rated, which are of equivalent
investment quality in the judgment of the Adviser.
REPURCHASE AGREEMENTS
All of the Funds may invest in repurchase agreements. A repurchase
agreement customarily obligates the seller, at the time it sells securities to a
Fund, to repurchase the securities at a mutually agreed upon time and price. The
total amount received on repurchase would be calculated to exceed the price paid
by the Fund, reflecting an agreed upon market rate of interest for the period
from the time of the repurchase agreement to the settlement date, and would not
necessarily be related to the interest rate on the underlying securities. The
differences between the total amount to be received upon repurchase of the
securities and the price which was paid by the Fund upon their acquisition is
accrued as interest and is included in the Fund's net income declared as
dividends.
1
The underlying securities will consist of high-quality liquid securities. The
Fund has the right to sell securities subject to repurchase agreements but would
be required to deliver identical securities upon maturity of the repurchase
agreements unless the seller fails to pay the repurchase price. It is each
Fund's intention not to sell securities subject to repurchase agreements prior
to the agreement's maturity.
During the holding period of a repurchase agreement, the seller must "mark
to market" the collateral on a daily basis and must provide additional
collateral if the market value of the obligation falls below the repurchase
price. If a Fund acquires a repurchase agreement and then the seller defaults at
a time when the value of the underlying securities is less than the obligation
of the seller, the Company could incur a loss. If the seller defaults or becomes
insolvent, a Fund could realize delays, costs, or a loss in asserting its rights
to the collateral in satisfaction of the seller's repurchase agreement.
Repurchase agreements involve certain risks not associated with direct
investment in securities, including the risk that the original seller will
default on its obligations to repurchase, as a result of bankruptcy or
otherwise. The Fund will enter into repurchase agreements only with sellers who
are believed by the Adviser to present minimal credit risks and whose
creditworthiness has been evaluated by the Adviser in accordance with certain
guidelines and is subject to periodic review by the Board of Directors of the
Company. Currently, these guidelines require sellers who are broker-dealers to
have a net worth of at least $25,000,000, although this requirement may be
waived by the Board of Directors of the Company on the recommendation of the
Adviser, and sellers who are banks to have assets of at least $1,000,000,000.
The underlying security, held as collateral, will be marked to market on a daily
basis, and must be of high-quality. The seller must provide additional
collateral if the market value of the obligation falls below the repurchase
price. In the event that the other party to the agreement fails to repurchase
the securities subject to the agreement, a Fund could suffer a loss to the
extent proceeds from the sale of the underlying securities held as collateral
was less than the price specified in the repurchase agreement. The seller also
must be considered by the Adviser to be an institution of impeccable reputation
and integrity, and the Adviser must be acquainted with and satisfied with the
individuals at the seller with whom it deals.
REVERSE REPURCHASE AGREEMENTS
In order to generate additional income the Global Income Fund may engage in
reverse repurchase agreement transactions with banks, broker-dealers and other
financial intermediaries. Under a reverse purchase agreement, the Fund would
sell portfolio securities and agree to repurchase them at a particular price at
a future date. At the time the Fund enters into the reverse repurchase agreement
it will establish and maintain a segregated amount with the custodian containing
cash or liquid securities having a value not less than the repurchase price,
including interest. Reverse repurchase agreements involve risk that the market
value of the securities retained in lieu of the sale may decline below the price
the securities the Fund has sold but is obligated to repurchase. In the event
the buyer of the securities files for bankruptcy or becomes insolvent, such
buyer or its trustee or receiver may receive an extension of time to determine
whether to enforce the Fund's obligation to repurchase the securities and the
Fund's use of the proceeds of the reverse repurchase agreement may effectively
be restricted pending such decision. Reverse repurchase agreements will be
treated as borrowings for purpose of calculating the Fund's borrowing
limitations. Reverse repurchase agreements are the same as repurchase agreements
except that the Fund assumes the role of seller/borrower in the transaction. The
Fund will invest the proceeds in other money market instruments or repurchase
agreements maturing not later than the expiration of the reverse repurchase
agreement. Reverse repurchase agreements involve the risk that the market value
of the securities sold by the Fund may decline below the repurchase price of the
securities.
LENDING OF PORTFOLIO SECURITIES
The Global Income Fund may seek to increase its income by lending portfolio
securities. Under present regulatory policies such loans may be made to
institutions such as broker dealers, and are required to be secured continuously
be collateral in cash, cash equivalents or U.S. Government securities maintained
on a current basis in an amount at least equal to the market value of the
securities loaned. It is intended that the value of securities loaned would not
exceed 30% of the value of the total assets of the Fund.
RESTRICTED SECURITIES
Subject to a Fund's limitations on investments in illiquid investments, a
Fund may also invest in restricted securities that may not be sold under Rule
144A, which presents certain risks. As a result, a Fund might not sell these
securities when the Adviser
2
wishes to do so, or might have to sell them at less than fair value. In
addition, market quotations are less readily available. Therefore, judgment may
at times play a greater role in valuing these securities than in the case of
unrestricted securities.
LOAN PARTICIPATIONS AND OTHER DIRECT INDEBTEDNESS
The Funds may purchase loan participations and other direct indebtedness.
In purchasing a loan participation, the Fund acquires some or all of the
interest of a bank or other lending institution in a loan to a corporate
borrower. Many such loans are secured, although some may be unsecured. Such
loans may be in default at the time of purchase. Loans and other direct
indebtedness that are fully secured offer the Fund more protection than an
unsecured loan in the event non-payment of scheduled interest or principal.
However, there is no assurance that liquidation of collateral from a secured
loan or other direct indebtedness would satisfy the corporate borrower's
obligation, or that collateral can be liquidated.
These loans and other direct indebtedness are made generally to finance
internal growth, mergers, acquisitions, stock repurchases, leveraged buy-outs
and other corporate activities. Such loans and other direct indebtedness loans
are generally made by a syndicate of lending institutions, represented by an
agent lending institution, which has negotiated and structured the loan and is
responsible for collecting interest, principal and other amounts due on its own
behalf and on behalf of the others in the syndicate, and for enforcing its and
their other rights against the borrower. Alternatively such loans and other
direct indebtedness may be structured as a novation, pursuant to which the Fund
would assume all of the rights of the lending institution in a loan, or as an
assignment, pursuant to which the Fund would purchase an assignment of a portion
of a lender's interest in a loan or other direct indebtedness either directly
from the lender or through an intermediary. The Fund may also purchase trade or
other claims against companies, which generally represent money owed by the
company to a supplier of goods or services. These claims may also be purchased
at a time when the company is in default.
Certain of the loan participations and other direct indebtedness acquired
by the Fund may involve revolving credit facilities or other standby financing
commitments which obligate the Fund to pay additional cash on a certain date or
on demand. These commitments may have the effect of requiring the Fund to
increase its investment in a company when the Fund might not otherwise decide to
do so (including at a time when the company's financial condition makes it
unlikely that such amounts will be repaid). To the extent that the Fund is
committed to advance additional funds, it will at all times hold and maintain in
a segregated account cash of high grade debt obligations in an amount sufficient
to meet such commitments.
The Fund's ability to receive payment of principal, interest and other
amounts due in connection with these investments will depend primarily on the
financial condition of the borrower. In selecting the loan participations and
other direct indebtedness which the Fund will purchase, the Investment Manager
will rely upon its own (and not upon the original lending institution's) credit
analysis of the borrower. As the Fund may be required to rely upon another
institution to collect and pass on to the Fund amounts payable with respect to
the loan and other direct indebtedness, an insolvency, bankruptcy or
reorganization of the lending institution may delay or prevent the Fund from
receiving such amounts. In such cases the Fund will evaluate as well the
creditworthiness of the lending institution and will treat both the borrower and
the lending institution as an "issuer" of the loan participation for purposes of
the certain investment restrictions pertaining to the diversification of the
Fund's portfolio investments. The highly leveraged nature of many such loans and
other direct indebtedness may make such loans especially vulnerable to adverse
changes in economic or market conditions. Investments in such loans and other
direct indebtedness may involve additional risk to the Fund. For example, if a
loan or other direct indebtedness is foreclosed, the Fund could become part
owner of any collateral, and would bear the costs and liabilities associated
with owning and disposing of the collateral. In addition, it is conceivable that
under emerging legal theories of lender liability, the Fund could be held liable
as a co-lender. It is unclear whether loans and other forms of direct
indebtedness offer securities law protections against fraud and
misrepresentation. In the absence of definitive regulatory guidance, the Fund
relies on the Adviser's research in an attempt to avoid situations where fraud
and misrepresentation could adversely affect the Fund. In addition, loan
participations and other direct investments may not be in the form of securities
or may be subject to restrictions on transfer, and only limited opportunities
may exist to resell such investments. As a result, the Fund may be unable to
sell such investments at an opportune time or may have to resell them at less
than fair market value. To the extent that the Adviser determines that such
investments are illiquid, the Fund will include them in the investment
limitations above.
DERIVATIVES. A derivative is a security that derives its current value from
the current value of another security. Kinds of derivatives include, but are not
limited to: forward contracts, futures contracts, options and swaps. The Funds
will not commit more than 5% of assets to initial margin deposits on futures
contracts and premiums on options for futures contracts (leverage). Hedging, as
defined by the Commodity Exchange Act, is excluded from this 5% limit.
3
CALL OPTIONS. All the Funds may write (sell) covered call options which are
traded on national and international securities exchanges to enhance investment
performance or for hedging purposes. A call option is a contract that gives the
holder (buyer) of the option the right to buy (in return for a premium paid),
and the writer of the option (in return for a premium received) the obligation
to sell, the underlying security at a specified price (the exercise price) at
any time before the option expires. A covered call option is a call in which the
writer of the option, for example, owns the underlying security throughout the
option period or has deposited in a separate account with the Company's
custodian liquid high-grade obligations or cash equal in value to the exercise
price of the option.
A Fund will write covered call options both to reduce the risks associated
with certain of its investments and to increase total investment return through
the receipt of premiums. In return for the premium income, the Fund will give up
the opportunity to profit from an increase in the market price of the underlying
security above the exercise price so long as its obligations under the contract
continue, except insofar as the premium represents a profit. Moreover, in
writing the call option, the Fund will retain the risk of loss should the price
of the security decline. The premium is intended to offset that loss in whole or
in part. Unlike the situation in which the Fund owns securities not subject to a
call option, the Fund, in writing call options, must assume that the call may be
exercised at any time prior to the expiration of its obligation as a seller, and
that in such circumstances the net proceeds realized from the sale of the
underlying securities pursuant to the call may be substantially below the
prevailing market price, although it must be at the previously agreed to
exercise price.
A Fund may protect itself from loss due to a decline in value of the
underlying security or from the loss of appreciation due to its rise in value by
buying an identical option, in which case the purchase cost of such option may
offset the premium received for the option previously written. In order to do
this, the Fund makes a "closing purchase transaction" on the purchase of a call
option on the same security with the same exercise price and expiration date as
the covered call option that it has previously written. The Fund will realize a
gain or loss from a closing purchase transaction if the amount paid to purchase
a call option is less or more than the amount received from the sale of the
corresponding call option. Also, because increases in the market price of a call
option will generally reflect increases in the market price of the underlying
security, any loss resulting from the exercise or closing out of a call option
is likely to be offset in whole or in part by unrealized appreciation of the
underlying security owned by the Fund.
There is no assurance that a liquid market will exist for any particular
option, at any particular time, and for some options no market may exist. If a
Fund is unable to effect a closing purchase transaction, a Fund will not sell
the underlying security until the option expires or the Fund delivers the
underlying security upon exercise.
PUT OPTIONS. All the Funds may purchase put options and the Global Income
Fund may also sell covered put options. A Fund may purchase put options on
securities to protect its holdings in an underlying or related security against
an anticipated decline in market value. Such hedge protection is provided only
during the life of the put option. Securities are considered related if their
price movements generally correlate with one another. The purchase of put
options on securities held by a Fund or related to such securities will enable a
Fund to preserve, at least partially, unrealized gains in an appreciated
security in its portfolio without actually selling the security. In addition, a
Fund will continue to receive interest or dividend income on the security. A
Fund may also sell put options it has previously purchased, which could result
in a net gain or loss depending on whether the amount received on the sale is
more or less than the premium and other transaction costs paid on the put option
which was bought.
OPTIONS ON INDEXES. All the Funds may write covered call options and may
purchase put options on appropriate securities indexes for the purpose of
hedging against the risk of unfavorable price movements adversely affecting the
value of a Fund's securities or to enhance income. Unlike a stock option, which
gives the holder the right to purchase or sell a specified stock at a specified
price, an option on a securities index gives the holder the right to receive a
cash settlement amount based upon price movements in the stock market generally
(or in a particular industry or segment of the market represented by the index)
rather than the price movements in individual stocks.
The value of a securities index fluctuates with changes in the market
values of the securities which are contained in the index. For example, some
securities index options are based on a broad market index such as the Standard
& Poor's 500 or the NYSE Composite Index, or a narrower market index such as the
Standard & Poor's 100. Indexes may also be based on an industry or market
segment such as the AMEX Oil and Gas Index or the Computer and Business
Equipment Index. Options on stock indexes are traded on exchanges or traded
over-the-counter ("OTC options"). Listed options are third-party contracts
(i.e., performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing corporation) and have standardized strike prices and
expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration dates.
4
The effectiveness of hedging through the purchase or sale of securities
index options will depend upon the extent to which price movements in the
portion of the securities portfolio being hedged correlate with price movements
in the selected securities index. Perfect correlation is not possible because
the securities held or to be acquired by a Fund will not exactly match the
composition of the securities indexes on which options are purchased or written.
In the purchase of securities index options, the principal risk is that the
premium and transaction costs paid by a Fund in purchasing an option will be
lost as a result of unanticipated movements in the price of the securities
comprising the securities index for which the option has been purchased. In
writing securities index options, the principal risks are the inability to
effect closing transactions at favorable prices and the inability to participate
in the appreciation of the underlying securities.
FUTURES TRANSACTIONS. A futures contract is an agreement to buy or sell a
security (or deliver a final cash settlement price, in the case of a contract
relating to an index or otherwise not calling for physical delivery at the end
of trading in the contracts) for a set price in the future. Futures exchanges
and trading in futures is regulated under the Commodity Exchange Act by the
Commodity Futures Trading Commission ("CFTC").
Positions taken in the futures markets are not normally held until delivery
or cash settlement is required, but are instead liquidated through offsetting
transactions which may result in a gain or a loss. A clearing organization
associated with the exchange on which futures are traded assumes responsibility
for closing-out transactions and guarantees that, as between the clearing
members of an exchange, the sale and purchase obligations will be performed with
regard to all positions that remain open at the termination of the contract.
Upon entering into a futures contract, a Fund will be required to deposit
with a futures commission merchant a certain percentage (usually 1% to 5%) of
the futures contracts market value as initial margin. As a general matter, a
Fund may not commit in the aggregate more than 5% of the market value of its
total assets to initial margin deposits on the Fund's existing futures contracts
and premium paid for options on unexpired futures contracts. Initial margin is
in the nature of a performance bond or good faith deposit on the contract which
is returned upon termination of the futures contract if all contractual
obligations have been satisfied. The initial margin in most cases will consist
of cash or United States Government securities. Subsequent payments, called
variation margin, may be made with the futures commission merchant as a result
of marking the contracts to market on a daily basis as the contract value
fluctuates.
First, there can be no assurance that the prices of such instruments and
the hedged security or the cash market position will move as anticipated. If
prices do not move as anticipated, the Fund may incur a loss on its investment,
may not achieve the hedging protection it anticipated and/or incur a loss
greater than if it had entered into a cash market position. Second, investments
in such instruments may reduce the gains which would otherwise be realized from
the sale of the underlying securities or assets which are being hedged. There
can be no assurance that such a market will exist for a particular futures
contract or option. If the Fund cannot close out an exchange traded futures
contact or option which it holds, it would have to perform its contract
obligation or exercise its option to realize any profit and would incur
transaction costs on the sale of the underlying assets.
FUTURES ON DEBT SECURITIES. A futures contract on a debt security is a
binding contractual commitment which, if held to maturity, will result in an
obligation to make or accept delivery, during a particular future month, of
securities having a standardized face value and rate of return. All of the Funds
may buy and sell futures contracts on debt securities. By purchasing futures on
debt securities--assuming a "long" position--a Fund will legally obligate itself
to accept the future delivery of the underlying security and pay the agreed
price. By selling futures on debt securities--assuming a "short" position--it
will legally obligate itself to make the future delivery of the security against
payment of the agreed price. Open future positions on debt securities will be
valued at the most recent settlement price, unless such price does not appear to
the Adviser to reflect the fair value of the contract, in which case the
positions will be valued by, or under the direction of, the Board of Directors.
The Funds by hedging through the use of futures on debt securities seek to
establish more certainty with respect to the effective rate of return on their
portfolio securities. A Fund may, for example, take a "short" position in the
futures market by selling contracts for the future delivery of debt securities
held by the Fund (or securities having characteristics similar to those held by
the Fund) in order to hedge against an anticipated rise in interest rates that
would adversely affect the value of the Fund's portfolio securities. When
hedging of this character is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position.
5
On other occasions, a Fund may take a "long" position by purchasing futures
on debt securities. This would be done, for example, when the Fund intends to
purchase particular debt securities, but expects the rate of return available in
the bond market at that time to be less favorable than rates currently available
in the futures markets. If the anticipated rise in the price of the debt
securities contracts should occur (with its concomitant reduction in yield), the
increased cost to the Fund of purchasing the debt securities will be offset, at
least to some extent, by the rise in the value of the futures position in debt
securities taken in anticipation of the subsequent purchase of such debt
securities.
The Fund could accomplish similar results by selling debt securities with
long maturities and investing in debt securities with short maturities when
interest rates are expected to increase or by buying debt securities with long
maturities and selling debt securities with short maturities when interest rates
are expected to decline. However, by using futures contracts as a risk
management technique (to reduce a Fund's exposure to interest rate
fluctuations), given the greater liquidity in the futures market than in the
bond market, it might be possible to accomplish the same result more effectively
and perhaps at a lower cost. See "Limitations on Purchase and Sale of Futures
Contracts and Options on Futures Contracts" below.
INTEREST RATE AND CURRENCY FUTURES CONTRACTS. The Funds may enter into
interest rate or currency futures contracts, including futures contracts on
indices of debt securities, as a hedge against changes in prevailing levels of
interest rates or currency exchange rates in order to establish more definitely
the effective rate of return on securities or currencies held or intended to be
acquired. Hedging may include sales of futures as a hedge against the effect or
expected increases in interest rates or decreases in currency exchange rates,
and purchases of futures as an offset against the effect of expected declines in
interest rates or increases in currency exchange rates.
STOCK INDEX FUTURES CONTRACTS. A stock index futures contract does not
require the physical delivery of securities, but merely provides for profits and
losses resulting from changes in the market value of the futures contract to be
credited or debited at the close of each trading day to the respective accounts
of the parties to the contract. On the contract's expiration date, a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular stock index futures contract reflect changes in
the specified index of equity securities on which the futures contract is based.
The Total Return Fund, the Growth and Income Fund, the Capital Appreciation Fund
and the Global Income Fund may buy and sell stock index futures contracts.
Stock index futures may be used to hedge the equity portion of a Fund's
securities portfolio with regard to market risk (involving the market's
assessment of over-all economic prospects), as distinguished from stock-specific
risk (involving the market's evaluation of the merits of the issuer of a
particular security). By establishing an appropriate "short" position in stock
index futures contracts, a Fund may seek to protect the value of its portfolio
against an overall decline in the market for equity securities. Alternatively,
in anticipation of a generally rising market, a Fund can seek to avoid losing
the benefit of apparently low current prices by establishing a "long" position
in stock index futures contracts and later liquidating that position as
particular equity securities are in fact acquired. To the extent that these
hedging strategies are successful, a Fund will be affected to a lesser degree by
adverse overall market price movements, unrelated to the merits of specific
portfolio equity securities, than would otherwise be the case. See "Limitations
on Purchase and Sale of Futures Contracts and Options on Futures Contracts"
below.
OPTIONS ON FUTURES CONTRACTS. For bona fide hedging purposes, all the Funds
may purchase and the Global Income Fund may sell put options and write call
options on futures contracts. These options are traded on exchanges that are
licensed and regulated by the CFTC for the purpose of options trading. A call
option on a futures contract gives the purchaser the right, in return for the
premium paid, to purchase a futures contract (assume a "long" position) at a
specified exercise price at any time before the option expires. A put option
gives the purchaser the right, in return for the premium paid, to sell a futures
contract (assume a "short" position) at a specified exercise price at any time
before the option expires. Upon the exercise of a call, the writer of the option
is obligated to sell the futures contract (to deliver a "long" position to the
option holder) at the option exercise price, which presumably will be lower than
the current market price of the contract in the futures market. Upon exercise of
a put, the writer of the option is obligated to purchase the futures contract
(to deliver a "short" position to the option holder) at the option exercise
price which presumably will be higher than the current market price of the
contract in the futures market.
When a Fund, as a purchaser of a put option on a futures contract,
exercises such option and assumes a short futures position, its gain will be
credited to its futures variation margin account. Any loss suffered by the
writer of the option of a futures contract will be debited to its futures
variation margin account. However, as with the trading of futures, most
participants in the options markets do not seek to realize their gains or losses
by exercise of their option rights. Instead, the holder of an option usually
will
6
realize a gain or loss by buying or selling an offsetting option at a market
price that will reflect an increase or a decrease from the premium originally
paid as purchaser or required as a writer.
Options on futures contracts can be used by a Fund to hedge the same risks
as might be addressed by the direct purchase or sale of the underlying futures
contracts themselves. Depending on the pricing of the option, compared to either
the futures contract upon which it is based or upon the price of the underlying
securities themselves, it may or may not be less risky than direct ownership of
the futures contract or the underlying securities.
In contrast to a futures transaction, in which only transaction costs are
involved, benefits received by a Fund as a purchaser in an option transaction
will be reduced by the amount of the premium paid as well as by transaction
costs. In the event of an adverse market movement, however, a Fund which
purchased an option will not be subject to a risk of loss on the option
transaction beyond the price of the premium it paid plus its transaction costs,
and may consequently benefit from a favorable movement in the value of its
portfolio securities that would have been more completely offset if the hedge
had been effected through the use of futures contracts.
If a Fund writes call options on futures contracts, the Fund will receive a
premium but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held by, or to be acquired for, the Fund. If the option is
exercised, the Fund will incur a loss in the option transaction, which will be
reduced by the amount of the premium it has received, but which may be partially
offset by favorable changes in the value of its portfolio securities.
While the purchaser or writer of an option on a futures contract may
normally terminate its position by selling or purchasing an offsetting option of
the same series, a Fund's ability to establish and close out options positions
at fairly established prices will be subject to the existence of a liquid
market. The Funds will not purchase or write options on futures contracts
unless, in the Adviser's opinion, the market for such options has sufficient
liquidity that the risks associated with such options transactions are not at
unacceptable levels.
FOREIGN CURRENCY EXCHANGE CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES. In
order to hedge against foreign currency exchange rate risks, the Funds may enter
into forward currency exchange contracts ("forward currency contracts"), as well
as purchase put or call options on foreign currencies. A forward currency
contract is an obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and privately traded by
currency traders and their customers. In addition, for hedging purposes and to
duplicate a cash market transaction, the Global Income Fund may enter into
foreign currency futures contracts. The Global Income Fund may also conduct
their foreign currency exchange transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the currency exchange market.
LIMITATIONS ON PURCHASE AND SALE OF FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS. The Funds will engage in transactions in futures contracts
and related options for bona fide hedging purposes and not for speculation. The
Global Income Fund may engage in futures, options and currency transactions for
investment purposes. The Funds may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amounts of initial
margin deposits on a Fund's existing futures contracts and premiums paid for
unexpired options on futures contracts would exceed 5% of the value of the
Fund's total assets; provided, however, that in the case of an option that is
"in-money" at the time of purchase, the "in-money" amount may be excluded in
calculating the 5% limitation. In instances involving the purchase or sale of
futures contracts or the writing of covered call options thereon by a Fund, such
positions will always be "covered", as appropriate, by, for example, (i) an
amount of cash and cash equivalents, equal to the market value of the futures
contracts purchased or sold and options written thereon (less any related margin
deposits), deposited in a segregated account with its custodian or (ii) by
owning the instruments underlying the futures contract sold (i.e., short futures
positions) or option written thereon or by holding a separate option permitting
the Fund to purchase or sell the same futures contract or option at the same
strike price or better.
Positions in futures contracts may be closed but only on an exchange or a
board of trade which provides the market for such futures. Although the Funds
intend to purchase or sell futures only on exchanges or boards of trade where
there appears to be an active market, there is no guarantee that such will exist
for any particular contract or at any particular time. If there is not a liquid
market at a particular time, it may not be possible to close a futures position
at such time, and, in the event of adverse price movements, a Fund would
continue to be required to make daily cash payments of variation margin.
Consequently, where a liquid secondary market does not exist, the Fund will be
unable to control losses from such futures contracts by closing out its
positions.
7
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES AND FORWARD COMMITMENTS
The Funds may make contracts to buy securities for a fixed price at a
future date beyond customary settlement time. When such transactions are
negotiated, the price is fixed at the time of commitment but delivery and
payment for the securities can take place up to three months after the date of
commitment to purchase. Such agreements involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date, which risk
is in addition to the risk of decline in value of the Government Securities
Fund, Tax-Exempt Fund or Global Income Fund's other assets. Where such purchases
are made through dealers, the Fund relies on the dealer to consummate the sale.
The dealer's failure to do so may result in the loss to the Fund of an
advantageous yield or price. Although the Fund will generally enter into forward
commitments with the intention of acquiring securities for its portfolio or for
delivery pursuant to options contracts it has entered into, the Fund may dispose
of a commitment prior to settlement if the Adviser deems it appropriate to do
so. The Fund holds, and maintains until the settlement date in a segregated
account, cash or high-grade obligations in an amount sufficient to meet the
purchase price of its total commitments for forward commitment securities. The
Fund may realize short-term profits or losses upon the sale of such forward
commitment contracts.
FOREIGN SECURITIES
The Growth and Income Fund and the Total Return Fund may invest in and hold
securities of foreign issuers in an amount, which together with investments in
Depositary Receipts, American Depositary Receipts ("ADRs") European Depositary
Receipts ("EDRs") and Global Depositary Receipts ("GDRs") will not exceed 20% of
the Fund's total assets. The Global Income Fund has an unlimited right to invest
and hold foreign securities. For purposes hereof, securities of foreign issuers
means securities of issuers organized or whose principal place of business is
outside the United States, or whose securities are principally traded in
securities markets outside the United States.
Although investment in foreign securities by the Growth and Income Fund and
Total Return Fund are intended to reduce risk by providing further
diversification, such investments, as well as those of the Global Income Fund,
involve certain additional risks, including the possibility of : (1) adverse
foreign political and economic developments, (2) less publicly available
information about foreign issuers, (3) less comprehensive accounting, reporting
and disclosure requirements, (4) less government regulation and supervision of
foreign stock exchanges, brokers and listed companies, (5) expropriation or
confiscatory taxation that could effect investments, (6) currency blockages
which would prevent cash from being brought back in the United States, (7)
generally higher brokerage and custodial costs than those of domestic
securities, (8) with respect to foreign securities denominated in foreign
currencies, the costs associated with the exchange of currencies and the
possibility of unfavorable changes in currency rates and exchange rate
regulations and (9) settlement of transactions being delayed beyond periods
customary in the United States.
Investment in foreign securities may involve the following special
considerations: with respect to foreign denominated securities, the risk of
fluctuating exchange rates; restrictions on and costs associated with the
exchange of currencies; the fact that foreign securities and markets are not as
liquid as their domestic counterparts; the imposition of exchange control
restrictions; and the possibility of economic or political instability. Also,
issuers of foreign securities are subject to different and, in some cases, less
comprehensive and non-uniform accounting, reporting and disclosure requirements
than domestic issuers, and settlement of transactions with respect to foreign
securities may be sometimes delayed beyond periods customary in the United
States. Foreign securities also generally have higher brokerage and custodial
costs than those of domestic securities. As a result, the selection of
investments in foreign issues may be more difficult and subject to greater risks
than investments in domestic issues. Since the Growth and Income Fund, the Total
Return Fund and the Global Income Fund may invest in businesses located in
foreign nations, there is the possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments which could
affect investments in those nations and there may be more difficulty in
obtaining and enforcing a court judgment abroad.
The Adviser will consider these and other factors before investing in
particular securities of foreign issuers and will not make such investments
unless, in its opinion, such investments will comply with the policies and meet
the objectives of the Growth and Income Fund, the Total Return Fund and the
Global Income Fund. Also, the Board of Directors will monitor all foreign
custody arrangements to ensure compliance with the Act and the rules thereunder,
and will review and approve, at least annually, the continuance of such
arrangements as is consistent with the best interests of the Company and its
shareholders.
8
FOREIGN CURRENCY TRANSACTIONS
The Global Income Fund, Growth and Income Fund and Total Return Fund may
sell a particular security on either a spot (cash) basis at the rate then
prevailing in the currency exchange market or on a forward basis by entering
into a forward contract to purchase or sell currency, to hedge against an
anticipated decline in the U.S. dollar value of securities it intends or has
contracted to sell. This method of attempting to hedge the value of the Fund's
portfolio securities against a decline in the value of a currency does not
eliminate fluctuations in the underlying prices of the securities. None of the
Funds is obligated to engage in any such currency hedging operations, and there
can be no assurance as to the success of any hedging operations which a Fund may
implement. Although the strategy of engaging in foreign currency transactions
could reduce the risk of loss due to a decline in the value of the hedged
currency it could also limit the potential gain from an increase in the value of
the currency. When effecting currency exchange transactions, some price spread
(to cover service charges) will be incurred. No Fund, except the Global Income
Fund, intends to maintain a net exposure to such contracts where the fulfillment
of the Fund's certain provisions of the Internal Revenue Code of 1986 have the
effect of limiting the extent to which the fund may enter into forward contracts
or futures contracts or engage in options transactions.
Although these investment practices will be used to generate additional
income or attempt to reduce the effect of any price decline in the security
subject to the option, they do involve certain risks that are different, in some
respects, from investment risks associated with similar funds which do not
engage in such activities. These risks include the following: writing covered
call options-the inability to effect closing transactions at favorable prices
and the inability to participate in the appreciation of the underlying
securities above the exercise price; and purchasing put options-possible loss of
the entire premium paid. In addition, the effectiveness of hedging through the
purchase of securities index options will depend upon the extent to which price
movement in the portion of the securities portfolios being hedged correlate with
price movements in the selected securities index. Perfect correlation may not be
possible because (i) the securities held or to be acquired by a Fund may not
exactly match the composition of the securities indexes on which options are
written or (ii) the price movements of the securities underlying the option may
not follow the price movements of the portfolio securities being hedged. If the
Adviser's forecasts regarding movements in securities prices or interest rates
or currency prices or economic factors are incorrect, the Fund's investment
results may have been better without the hedge.
DEPOSITARY RECEIPTS
The Growth and Income Fund, the Total Return Fund and the Global Income
Fund may invest in "ADRs," "GDRs," and EDRs" (collectively "Depositary
Receipts") which, with the exception of the Global Income Fund, together with
investment in securities of foreign issuers, will not exceed 20% of the Fund's
total assets. ADRs are certificates issued by a United States bank representing
the right to receive securities of a foreign issuer deposited in a foreign
branch of a United States bank and traded on a United States exchange or
over-the-counter. There are no fees imposed on the purchase or sale of ADRs when
purchased from the issuing bank in the initial underwriting, although the
issuing bank may impose charges for the collection of dividends and the
conversion of ADRs into the underlying ordinary shares. Brokerage commissions
will be incurred if ADRs are purchased through brokers on the domestic stock
exchanges. Investments in ADRs have advantages over direct investments in the
underlying foreign securities, including the following: they are more liquid
investments, they are United States dollar-denominated, they are easily
transferable, and market quotations for such securities are readily available.
The risks associated with ownership of Depositary Receipts are the same as those
associated with investments in foreign securities except there is no currency
risk. European Depositary Receipts ("EDRs") and Global Depositary Receipts
("GDRs") are typically issued by foreign banks or trust companies, although they
may be issued by US banks or trust companies, and also evidence ownership of
underlying securities issued by a foreign or U.S. securities market. Generally,
Depositary Receipts in registered form are designed for use in the U.S.
securities market and Depositary Receipts in bearer form are designed for use in
securities markets outside the United States. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Brokerage commissions will be incurred if ADRs
are purchased through brokers on the U.S. stock exchange.
MORTGAGE-RELATED SECURITIES
Government National Mortgage Association ("GNMA") certificates are mortgage
pass-through securities representing part ownership of a pool of mortgage loans.
These loans, issued by lenders such as mortgage bankers, commercial banks, and
savings and loan associations, are either insured by the Federal Housing
Administration or guaranteed by the Veterans Administration. A "pool" or group
of such mortgages is assembled and, after being approved by GNMA, is offered to
investors through securities
9
dealers. Once approved by GNMA, the timely payment of interest and principal on
each mortgage is guaranteed by GNMA and backed by the full faith and credit of
the United States Treasury. GNMA certificates differ from bonds in that
principal is paid back monthly by the borrower over the term of the loan rather
than returned in a lump sum at maturity. GNMA certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the certificate.
In addition to GNMA certificates, the Government Securities Fund and Global
Income Fund may invest in mortgage pass-through securities issued by Federal
National Mortgage Association ("FNMA") and by Federal Home Loan Mortgage
Corporation ("FHLMC"). FNMA, a federally chartered and privately-owned
corporation, issues mortgage-backed pass-through securities which are guaranteed
as to timely payment of principal and interest by FNMA. FHLMC, a corporate
instrumentality of the United States whose stock is owned by the Federal Home
Loan Banks, issues two types of pass-through securities: mortgage participation
certificates ("PCs") and guaranteed mortgage certificates ("GMCs"). Both PCs and
GMCs represent an undivided interest in a pool of conventional mortgages from
FHLMC's portfolio. With respect to PCs, FHLMC guarantees the timely payment of
interest and the ultimate collection of principal. With respect to GMCs, FHLMC
guarantees that these securities will pay interest semi-annually and return
principal annually in a guaranteed minimum amount. Securities guaranteed by FNMA
and FHLMC are not backed by the full faith and credit of the United States
Treasury. If either fixed or variable rate pass-through securities issued by the
United States Government or its agencies or instrumentalities are developed in
the future, the Funds reserve the right to invest in them.
The Government Securities Fund and the Global Income Fund may also invest
in other types of mortgage-related securities issued by governmental entities.
These other instruments include collateralized mortgage obligations
("CMOs"),mortgage-backed bonds and real estate mortgage investment conduits
("REMICs"). However, the Government Securities Fund and the Global Income Fund
will not invest in residual interests of REMICs or CMOs due to the volatile
nature of such instruments. CMOs are obligations fully collateralized directly
or indirectly by a pool of mortgages on which payment of principal and interest
are passed through to the holders of CMOs on the same schedule as they are
received, although not necessarily on a pro rata basis.
Mortgage-backed bonds are direct obligations of their issuers, payable out
of the issuers' general funds and fully collateralized directly or indirectly by
a pool of mortgage loans. The mortgages serve as collateral for the issuer's
payment obligations on the mortgage-backed bonds, but interest and principal
payments on the mortgages are not passed through directly (as with GNMA
certificates and FNMA and FHLMC pass-through securities) or on a modified basis
(as with CMOs). Accordingly, a change in the rate of prepayments on the pool of
mortgages could change the effective maturity of a CMO but not the effective
maturity of a mortgage-backed bond (although, like many bonds, mortgage-backed
bonds may be callable by the issuer prior to maturity).
REMICs were created through provisions in the Tax Reform Act of 1986 in
order to clarify certain ambiguities concerning the tax treatment of mortgage
related securities. A REMIC is an entity that holds a fixed pool of mortgages
and issues multiple classes of interests. If an issuer elects to come under the
REMIC provisions, its sale of "REMIC securities" will be treated as the sale of
the mortgages for tax purposes, regardless of whether such securities are issued
in the form of pass-throughs or collateralized debt and regardless of the
financial accounting treatment used. Investors in REMICs may purchase two types
of REMIC securities: (i) "regular interests", which have the characteristics of
pass- throughs or CMOs (i.e., fixed interest and principal), or (ii) "residual
interests", the value of which are affected by mortgage prepayments or other
contingencies. Again, the Government Securities Fund and Global Income Fund will
not invest in any residual interests of REMICs or CMOs.
In reliance on an SEC interpretation of the Act, the Company's investments
in certain qualifying CMOs, including CMOs that have elected to be treated as
REMICs, are not subject to the Act's limitation on acquiring interests in other
investment companies. In order to be able to rely on the SEC's interpretation,
the CMOs and REMICs must be unmanaged, fixed-asset issuers that (i) invest
primarily in mortgage-related securities, (ii) do not issue redeemable
securities, (iii) operate under general exemptive orders exempting them from all
provisions of the Act, and (iv) are not registered or regulated under the Act as
investment companies. To the extent that a Fund selects CMOs or REMICs that do
not meet the above requirements, the Fund may not invest more than 10% of its
assets in all such entities and may not acquire more than 3% of the voting
securities of any single such entity.
Prepayment of mortgages underlying mortgage-backed securities may reduce
their current yield and total return. Mortgage-related securities may not be an
effective means of "locking-in" long-term interest rates because of the need to
invest and reinvest scheduled and unscheduled principal payments. At the time
principal payments or prepayments are received by the Fund and reinvested,
prevailing interest rates may be higher or lower than the Fund's current yield.
However, the Investment Manager intends to invest in these securities only when
the potential benefits to a Fund are deemed to outweigh the risks. Like other
bond invest-
10
ments, the value of mortgage-related securities will tend to rise when interest
rates fall, and fall when rates rise. Their value may also change because of
changes in the market's perception of the creditworthiness of the organization
that issued or guaranteed them or changes in the value of the underlying
mortgages. In addition, the mortgage securities market in general may be
adversely affected by changes in governmental regulation or tax policies.
WARRANTS
All the Funds may invest in warrants, which are rights to buy certain
securities at set prices during specified time periods. If, prior to the
expiration date, the Fund is not able to exercise a warrant at a cost lower than
the underlying securities, the Fund will suffer a loss of its entire investment
in the warrant. See investment restriction 18 for additional limitations on the
use of warrants.
LOW RATED DEBT SECURITIES
The existence of limited markets for particular high yield bonds or low
rated securities may diminish a Fund's ability to sell such securities at fair
value either to meet redemption requests or to respond to a specific economic
event such as a deterioration in creditworthiness of the issuer. Reduced
secondary market liquidity for certain low rated or unrated debt securities may
also make it more difficult for a Fund to obtain accurate market quotations for
the purpose of valuing the Fund's portfolio. Market quotations are generally
available on many low rated or unrated securities only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or prices
for actual sales.
Adverse publicity and investor perceptions, whether or not based on
fundamental analysis, may decrease the values and liquidity of low rated
securities, especially in a thinly traded market. Analysis of the
creditworthiness of issuers of debt securities that are low rated securities may
be more complex than for issuers of higher rated securities, and the ability of
the fund to achieve its investment objective may, to the extent of investment in
low rated securities, be more dependent upon such creditworthiness analysis than
would be the case if the fund were investing in higher rated securities.
Low rated securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment grade securities.
The prices of low rated securities have been found to be less sensitive to
interest rate changes than higher rated investments, but more sensitive to
adverse economic downturns or individual corporate developments. If the issuer
of low rated securities defaults, the Fund may incur additional expenses to seek
recovery. The low rated bond market is relatively new, and many of the
outstanding low rated bonds have not endured a major business recession.
INVESTMENT COMPANIES
All the Funds may, subject to their respective investment restrictions,
under certain circumstances acquire the securities of other open-end and
closed-end investment companies. Such investments often result in duplicate fees
and expenses.
PORTFOLIO TURNOVER
Portfolio turnover for each Fund may vary from year to year or within a
year depending upon economic, market and business conditions. A Fund having a
higher portfolio turnover rate may realize larger amounts of gains or losses and
more brokerage commissions or other transaction related costs than it would with
a lower portfolio turnover rate. If there are gains, they are passed through to
the shareholders as capital gains distributions and, as such, are taxable to the
shareholders.
INVESTMENT RESTRICTIONS
Each Fund has adopted the following restrictions relating to the
investments of each Fund. The investment restrictions numbered 1 through 7, 10
and 13 are fundamental policies of each Fund and may not be changed without
approval of a majority of the outstanding shares of each affected Fund. Each
restriction applies to each Fund of the Company, unless otherwise indicated. A
change in policy affecting only one Fund may be effected with the approval of a
majority of the outstanding shares of that Fund only. (As used in the Prospectus
and this Statement of Additional Information, the term "majority of the
outstanding voting shares" means the lesser of (1) 67% of the shares represented
at a meeting of which more than 50% of the outstanding share are represented or
(2) more than 50% of the outstanding shares.) All other investment restrictions
are operating policies and are subject to
11
change by the Company's Board of Directors without shareholder approval. No
investment restriction which involves a maximum percentage of securities or
assets will be considered to be violated unless the excess over the percentage
occurs immediately after and is caused by an acquisition or borrowing of
securities or assets by the Fund. A Fund will not:
1. Issue securities senior to its common stock, except to the extent that
permissible borrowings may be so construed. For purposes hereof,
writing covered call options and entering into futures contracts, to
the extent permitted by restrictions 8 and 10 below, shall not involve
the issuance of senior securities or borrowings.
2. Buy securities on margin, except that it may: (a) obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities, and (b) make margin deposits in connection
with futures contracts, subject to restrictions 10 and 11 below.
3 Borrow money, except each Fund may, as a temporary measure for
extraordinary or emergency purposes, including to cover net
redemptions, and not for investment purposes, borrow from banks and
then only in amounts not exceeding 5% of its total assets. In
addition, no Fund may pledge, mortgage or hypothecate its assets
except in connection with permissible borrowings and then only in
amounts not exceeding 10% of the value of its total assets. A Fund
will not pledge, mortgage or hypothecate its assets to the extent that
at any time the percentage of pledged assets plus the sales commission
will exceed 10% of the value of its total assets. This restriction
will not prevent a Fund from (a) purchasing securities on a "forward
commitment", "delayed delivery" or "when-issued" basis or (b) entering
into futures contracts as set forth below in restriction 10 or as
regards the Global Income Fund entering into reverse repurchase
agreements, provided that a segregated account consisting of cash or
liquid high grade debt securities in an amount equal to the total
value of the securities underlying such agreement is established and
maintained.
4. Act as an underwriter of securities of other issuers except to the
extent that it may be deemed to be an underwriter within the meaning
of the Securities Act of 1933 (a) in reselling securities, such as
restricted securities, acquired in private transactions and
subsequently registered under the Securities Act of 1933, and (b) in
connection with the purchase of government securities directly from
the issuer, or (c) with respect to the Capital Appreciation Fund and
Global Income Fund, except to the extent that the disposition of a
security may technically cause it to be considered an underwriter as
that term is defined under the Securities Act of 1933.
5. Invest 25% or more of the value of the total assets of any Fund,
except the Global Income Fund, in securities of issuers having their
principal business activities in the same industry. This restriction
also shall not apply to: (i) securities issued or guaranteed by the
United States Government, its agents or instrumentalities and (ii)
tax-exempt securities issued by governments or political subdivisions
of governments. For purposes of this restriction industrial
development bonds issued by non-governmental issuers will not be
considered to be tax-exempt securities.
6. Invest in real estate, although the Funds may buy securities of
companies which deal in real estate, and securities which are secured
by readily marketable interests in real estate, including interests in
real estate investment trusts, real estate limited partnerships, real
estate investment conduits or mortgage related instruments issued or
backed by the United States Government, its agencies or its
instrumentalities.
7. Make loans, except the Funds may: (a) purchase bonds, debentures,
notes and other debt obligations customarily either publicly
distributed or distributed privately to institutional investors and
within the limits imposed on the acquisition of restricted securities
set forth in restriction 11, and (b) enter into repurchase agreements
with respect to its portfolio securities.
8. Write options, except that all the Funds may write covered call
options, and the Global Income Fund may write put options, provided
that as a result of such sale, a Fund's securities covering all call
options or subject to put options would not exceed 25% of the value of
the Fund's total assets.
9. Purchase options, except that all the Funds may purchase put options
and the Global Income Fund may purchase put and call options provided
that the total premiums paid for such outstanding options owned by a
Fund does not exceed 5% of its total assets. No Fund, except the
Global Income Fund, may write put options on securities other than to
close out previously purchased put options.
12
10. Enter into commodity contracts, except that all the Funds may enter
into financial futures contracts and the Global Income Fund may also
enter into foreign currency hedging contracts and stock index futures
contracts if, immediately thereafter: (a) the total of the initial
margin deposits required with respect to all open futures positions at
the time such positions were established, plus the sum of the premiums
paid for all unexpired options on futures contracts would not exceed
5% of the value of a Fund's total assets, and (b) a segregate account
consisting of cash or liquid high-grade debt securities in an amount
equal to the total market value of any futures contract purchased by a
Fund, less the amount of any initial margin, is established.
11. Invest more than 10%, or in the case of the Global Income Fund 15%, of
the net asset value of any Fund in securities which are not readily
marketable, such as repurchase agreements having a maturity of more
than 7 days, restricted securities, time deposits with maturities of
more than 7 days, and other securities which are not otherwise readily
marketable, provided, however, that the Global Income Fund and Capital
Appreciation Fund may invest without limitation in restricted
securities issued under Rule 144A of the Securities Act of 1933
provided the Board of Directors or the Adviser under the direction of
the Board of Directors has determined that each such security is
liquid.
12. Invest more than 10% of the value of its total assets in securities of
other open-end and closed end investment companies, except by
purchases in the open market involving only customary broker's
commissions or as part of a merger, consolidation, or acquisition, or
as otherwise permitted by the Act and rules thereunder.
13. Except with respect to the Global Income Fund, make an investment
unless, when considering all its other investments, 75% of the value
of the Fund's total assets would consist of cash, cash items, United
States Government securities, securities of other investment
companies, and other securities. For purposes of this restriction, the
purchase of "other securities" is limited so that (a) no more than 5%
of the value of the Fund's total assets would be invested in any one
issuer and (b) no more than 10% of the issuer's outstanding voting
securities would be held by the Company. As a matter of operating
policy, the Company will not consider repurchase agreements to be
subject to this 5% limitation if all the collateral underlying the
repurchase agreements are United States Government Securities.
14. Enter into a repurchase agreement with Jefferson Pilot Financial
Insurance Company of America, ("Jefferson Pilot") The Chubb
Corporation, or a subsidiary of either such corporation.
15. Participate on a joint or joint and several basis in any trading
account in securities, although transactions for the Funds and any
other account under common management may be combined or allocated
between the Fund and such account.
16. Invest in companies for the sole purpose of exercising control or
management.
17. Invest in interests, other than debentures or equity stock interests,
in oil and gas or other mineral exploration or development programs.
18. Invest more than 5% of the value of the total assets of the Fund in
warrants, whether or not the warrants are listed on the New York or
American Stock Exchanges. Warrants acquired in units or attached to
securities are not included in this restriction.
19. Invest in securities of foreign issuers, except that the Total Return
Fund and the Growth and Income Fund may invest up to 20% of the value
of their total assets in securities of foreign issuers including ADRs.
The Global Income Fund may invest an unlimited percentage of its
assets in securities of foreign issuers, developed or undeveloped, or
whether listed on an exchange or unlisted.
20. Invest in securities of any issuer if the officers and directors of
the Company or the Adviser or Administrator own individually more than
1/2 of 1% of such issuer's securities or together own more than 5% of
such issuer's securities.
21. Effect short sales of securities, except short sales against the box.
13
INVESTMENT ADVISORY SERVICES
INVESTMENT MANAGEMENT AND ADMINISTRATION
The Company has entered into an Investment Management Agreement with
respect to each Fund with Chubb Asset Managers, Inc. (the "Adviser"), pursuant
to which the Adviser serves as investment adviser to the Funds. Under the terms
of the agreements, the Adviser, subject to review by the Company's Board of
Directors, has the day-to-day responsibility for making decisions to buy, sell,
or hold any particular security for all the Funds. See "MANAGEMENT" in the
Prospectus.
The agreements for the Government Securities Fund, Growth and Income Fund,
Tax-Exempt Fund and Total Return Fund were approved by a majority of the
shareholders of the appropriate Fund at the meeting of shareholders held April
21, 1988. The agreement for Global Income Fund was approved by the appropriate
Fund at a meeting of shareholders held August 31, 1995. The term of each
agreement is one year, but it will continue in effect from year to year if
approved at least annually by a vote of a majority of the Board of Directors of
the Company (including a majority of the directors who are not parties to the
contract or interested persons of any such parties) cast in person at a meeting
called for the purpose of voting on such renewal, or by the vote of a majority
of the outstanding shares of a Fund. The agreements may be terminated, without
the payment of any penalty, by any party, by the vote of the Board of Directors,
or by vote of a majority of the outstanding shares of a Fund, on 60 days'
written notice to the Adviser, or automatically in the event of an assignment.
The Company has entered into an Administration Agreement dated October 1,
1997 with respect to all of the Funds with Van Eck Associates Corporation (the
"Administrator"), pursuant to which the Administrator, subject to review by the
Company's Board of Directors, is responsible for providing administrative and
accounting functions to the Funds, including certain legal, accounting,
regulatory and compliance services, state registration services, corporate
secretary and board of directors administration, tax compliance services and
reporting. The agreement may be terminated, without the payment of any penalty,
by any party, by the vote of the Board of Directors, or by vote of a majority of
the outstanding shares of a Fund, on 60 days' written notice to the
Administrator, or automatically in the event of an assignment.
For providing investment advisory, management, and administrative services
to the Fund, the Adviser and the Administrator are entitled to receive monthly
compensation based on a percentage of the average net asset value of each Fund
as described more fully under "MANAGEMENT" in the Prospectus. The fees, net of
waivers, paid to the Adviser and Administrator are set forth below:
ADVISER'S FEES
FUND 1998 1999 2000
Government Securities Fund $149,905 $ 62,563 $ 60,702
Total Return Fund $224,891 $ 77,708 $ 75,619
Tax-Exempt Fund $146,718 $ 60,856 $ 56,937
Growth and Income Fund $335,159 $130,692 $175,191
Global Income $366,005 $164,552 $141,502
Capital Appreciation Fund $184,976 $ -- $ --
ADMINISTRATOR'S FEES
FUND 1998 1999 2000
Government Securities Fund $ 64,275 $147,009 $139,566
Total Return Fund $ 94,561 $187,470 $178,784
Tax-Exempt Fund $ 62,837 $143,233 $131,038
Growth and Income Fund $140,378 $317,818 $412,140
Global Income Fund $156,395 $390,566 $331,174
$ 78,902 $ -- $ --
14
FEES PAID TO THE ADVISER
An Expense Limitation Agreement implemented certain expense limits between
the Company and the Adviser.
For the year ended December 31, 1998, the rates of expenses borne by the
Fund was limited to: Van Eck/Chubb Global Income Fund 1.35%, Van Eck/Chubb
Growth and Income Fund and the Van Eck/Chubb Total Return Fund 1.25%, Van
Eck/Chubb Government Securities Fund and Van Eck/Chubb Tax Exempt Fund 1.00% of
the average daily net assets. For the years ended December 31, 1999 and 2000,
Van Eck/Chubb Global Income Fund, Van Eck/Chubb Government Securities Fund and
Van Eck/Chubb Tax-Exempt Fund, such limitation was 1.35%. For the years ended
December 31, 1999 and 2000, such limitations were 1.32% and 1.35%, respectively,
for the Van Eck/Chubb Growth and Income Fund and Van Eck/Chubb Total Return
Fund.
THE DISTRIBUTOR
Van Eck Securities Corporation (the "Distributor"), a wholly-owned
subsidiary of the Administrator, serves as distributor of the shares of each of
the Funds pursuant to a Distribution Agreement dated October 1, 1997, approved
by action of the Board of Directors at a meeting held on October 1, 1997.
Under the terms of the Distribution Agreement, the Distributor will use its
best efforts to distribute the Company's shares among investors and
broker-dealers with which it has contracted to sell the Company's shares. The
shares are sold only at the public offering price in effect at the time of the
sale ("Offering Price"), which is determined in the manner set forth in the
Prospectus under "PURCHASE OF SHARES". The Company will receive not less than
the full net asset value of the shares of each Fund sold, which amount is
determined in the manner set forth in this Statement of Additional Information
under "DETERMINATION OF NET ASSET VALUE." The amount between the Offering Price
and the net asset value of each Fund may be retained by the Distributor or it
may be reallowed in whole or in part to broker-dealers effecting sales of the
Company's shares. See "PURCHASE OF SHARES" in the Prospectus.
For the year ended December 31, 1998, the Distributor retained $46,920
after reallowance to authorized persons of $339,298. For the year ended December
31, 1999, the Distributor retained $111,365 after reallowances of $21,090. For
the year ended December 31, 2000, the Distributor retained $17,759 after
reallowances of $97,024.
The Company pays the costs and expenses incident to registering and
qualifying its shares for sale under the Federal securities laws and under the
applicable state Blue Sky laws of the jurisdictions in which the Distributor
desires to distribute such shares and, pursuant to the Distribution Plan, the
costs of preparing, printing, and distributing prospectuses, reports and other
marketing materials to prospective investors.
The Company has adopted a plan of distribution pursuant to Rule 12b-1 under
the Act as to each Class of its shares ("Distribution Plans"), which provide
that the Company may, directly or indirectly, engage in activities primarily
intended to result in the sale of the Company's shares.
The maximum expenditure the Company may make under the Distribution Plans
will be the lesser of (i) the actual expenses incurred in distribution related
activities permissible under the Distribution Plans ("Rule 12b-1 activities"),
as determined by the Board of Directors of the Company, or (ii) 0.50% per annum
of the net asset value of each Fund's shares. Payments under the Distribution
Plan will be accrued daily and paid quarterly in arrears.
The National Association of Securities Dealers, Inc. ("NASD") adopted
amendments to Article III, Section 26 of its Rules of Fair Practice which, among
other things, (i) impose certain limits on "asset based sales charges" paid to
finance sales or sales promotion expenses) in order to regulate such charges
under the maximum sales load limitations applicable to investment companies and
(ii) treat "service fees"; payments made for personal shareholder services
and/or maintenance of shareholder accounts) as distinguishable from asset based
sales charges and, therefore, outside the scope of the maximum sales load
limitations. The Company's Distribution Plans contemplate that activities to
both (i) finance the sale of Company shares and (ii) compensate persons who
render shareholder support services are Rule 12b-1 activities within the meaning
of the Distribution Plans.
In light of the NASD rule amendments, the Board of Directors, and
separately a majority of the non-interested directors, determined it would be
appropriate and in the best interest of the Company and its shareholders to
clearly identify that portion of the
15
maximum expenditure under the Distribution Plan that should be considered to be
asset based sales charges and that portion should be considered to be service
fees. Consequently, it was determined that 0.25% per annum of the average daily
net asset value of each Fund be considered to be asset based sales charges, as
defined by Article III, Section 26 of the NASD's Rules of Fair Practice, and
0.25% per annum of the average daily net asset value of each Fund be considered
to be service fees, as defined by Article III, Section 26 of the NASD's Rules of
Fair Practice. No payment of a service fee will be made to a securities dealer
unless that dealer has sold shares of the Company that are then outstanding for
a minimum of 12 months and that are valued in excess of $1,000.
The Distribution Plans do not provide for any charges to the Company for
excess amounts expended by the Distributor and, if the Distribution Plans are
terminated in accordance with their terms, the obligation of the Company to make
payments to the Distributor pursuant to the Distribution Plans will cease. The
Distribution Plans do not provide for the reimbursement of the Distributor for
any expenses of the Distributor attributable to the Distributor's "overhead".
For the years ended December 31, 2000, 1999 and 1998, $975,717, $635,183
and $745,850 was the net amount paid by the Company to the Distributor, under
the Class A Plan of Distribution.
The Distribution Plan as to the Class A shares was approved on September 4,
1987 by the Board of Directors, and separately by all directors who are not
interested persons of the Company and who have no direct or indirect interest in
the Distribution Plan or related arrangements (the "Rule 12b-1 Directors"). That
Distribution Plan was approved by the shareholders of each Fund at the meeting
of shareholders held April 21, 1988. The Distribution Plans will continue in
effect from year to year if approved by the votes of a majority of the Company's
Board of Directors and the Rule 12b-1 Directors, cast in person at a meeting
called for the purpose of voting on such approval. All material amendments to
the Distribution Plans must be likewise approved by the Board of Directors and
the Rule 12b-1 Directors. The Distribution Plans may be terminated, without
penalty, at any time by vote of a majority of the Rule 12b-1 Directors or by
vote of a majority of the outstanding shares of the Company, on 60 days written
notice. The Distribution Plans may not be amended to increase materially the
amount of expenditures under the Distribution Plans unless such amendment is
approved by a vote of the voting securities of each Fund. A Plan will
automatically terminate in the event of its assignment (as defined in the Act).
So long as the Plan is in effect, the election and nomination of Directors who
are not "interested persons" of the Company shall be committed to the discretion
of the Directors who are not "interested persons." The Directors have determined
that, in their judgment, there is a reasonable likelihood that the Plans will
benefit the Funds and their shareholders. The Company will preserve copies of
the Plans and any agreement or report made pursuant to Rule 12b-1 under the Act,
for a period of not less than six years from the date of the Plan or such
agreement or report, the first two years in an easily accessible place. For
additional information regarding the Plans, see the Prospectus.
16
VAN ECK SECURITIES CORPORATION
12b-1 ACCOUNTING--VE/CHUBB FUNDS
YEAR ENDED DECEMBER 31, 2000
GLOBAL GOV'T TOTAL TAX GROWTH
INCOME SECURITIES RETURN EXEMPT & Income Total
------- ------- ------- ------- ------- -------
TOTAL 12b-1 EXPENSE PER BOOKS 353,756 151,800 189,048 142,344 437,577 1,274,525
PAYMENT TO SECURITIES DEALERS 32,169 5,895 38,595 8,742 74,716 160,117
------- ------- ------- ------- ------- -------
NET 12b-1 FEES 297,206 120,529 127,683 109,883 320,416 975,717
------- ------- ------- ------- ------- -------
DISTRIBUTION EXPENDITURES:
General Printing 134 134 134 134 5,418 5,954
Reports 408 408 408 408 407 2,039
Dealer Fact Sheets 167 167 167 167 1,299 1,967
Prospectus 246 246 246 246 246 1,230
Marketing Support Telephone 2,797 515 1,941 526 4,239 10,017
Marketing Dept Expenses 257,462 103,633 129,041 97,107 282,890 870,132
Telemarketing Dept Expenses 36,271 15,567 19,384 14,587 44,897 130,705
------- ------- ------- ------- ------- -------
TOTAL EXPENDITURES 297,484 120,669 151,320 113,174 339,397 1,022,045
------- ------- ------- ------- ------- -------
EXCESS EXPENSES OVER
PAYMENTS TO VESC ($) (279) (141) (23,637) (3,292) (18,981) (46,328)
======= ======= ======= ======= ======= =======
PORTFOLIO TRANSACTIONS AND BROKERAGE
Under the Investment Management Agreement, the Adviser has the day-to-day
responsibility for selecting broker-dealers through which securities are to be
purchased and sold.
The money market securities and other debt securities purchased by the
Government Securities Fund and the Tax-Exempt Fund usually will be purchased on
a principal basis directly from issuers, underwriters, or dealers. Accordingly,
no brokerage charges are expected to be paid on such transactions. However,
purchases from an underwriter on a principal basis generally include a
concession paid to the underwriter, and transactions with a dealer usually
include the dealer's "mark-up" or "mark-down".
Insofar as known to management, no director or officer of the Company, or
of the Adviser or any person affiliated with them has any material direct or
indirect interest in any broker employed by or on behalf of the Company except
as officers or directors of the Distributor.
In selecting broker-dealers to execute transactions with respect to each
Fund, the Adviser is obligated to use its best efforts to obtain for each Fund
the most favorable overall price and execution available, considering all the
circumstances. Such circumstances include the price of the security, the size of
the broker-dealer's "spread" or commission, the willingness of the broker-dealer
to position the trade, the reliability, financial strength and stability and
operational capabilities of the broker-dealer, the ability to effect the
transaction at all where a large block is involved, availability of the
broker-dealer to stand ready to execute possibly difficult transactions in the
future, and past experience as to qualified broker-dealers. Such considerations
are judgmental and are weighed by the Adviser in seeking the most favorable
overall economic result to the Company.
Subject to the foregoing standards, the Adviser has been authorized by the
Company's Board of Directors to allocate brokerage to broker-dealers who have
provided brokerage and research services, as such services are defined in
Section 28(e) of the Securities Exchange Act of 1934. Pursuant to that
authorization, the Adviser may cause each Fund to pay any broker- dealer a
commission in excess of the amount another broker-dealer would have charged for
effecting the same transaction if the Adviser determines in good faith that such
amount of commission is reasonable in relation to the value of the brokerage an
research services provided by such broker-dealer to the Adviser, viewed in terms
of either that particular transaction or the Adviser's overall responsibilities
with respect
17
to the Company and other accounts as to which it exercises investment
discretion. Such brokerage and research services may include, among other
things, analyses and reports concerning issuers, industries, securities,
economic factors and trends, and strategies for the Funds. Such research
services may be used by the Adviser in connection with any other advisory
accounts managed by it. Conversely, research services to any other advisory
accounts may be used by the Adviser in managing the investments of the Company.
During the year ended December 31, 2000, 1999 and 1998, the Fund paid no
commissions to an affiliated broker/dealer and no commissions were contingent
upon the sale of Fund shares. As of December 31, 2000, the Growth and Income
Fund held 20,000 shares of Capital One Financial Corp., 36,333 shares of
Citigroup, Inc., 20,000 shares of Providian Financial Corp., 45,000 shares of
Washington Mutual, Inc., and 50,000 shares of Wells Fargo & Company.
The Adviser will use its best efforts to recapture all available tender
offer solicitation fees and similar payments in connection with tenders of the
securities of the Company and to advise the Company of any fees or payments of
whatever type which it may be possible to obtain for the Company's benefit in
connection with the purchase or sale of the Company's securities.
The Adviser and its affiliates may provide investment advice to other
clients, including, but not limited to, mutual funds, individuals, pension funds
and institutional investors. In addition, persons employed by the Adviser, who
are also investment personnel of Chubb & Son, an affiliate of The Chubb
Corporation, currently provide investment advice to and supervision and
monitoring of investment portfolios for The Chubb Corporation and its
affiliates, including general accounts of the insurance affiliates of The Chubb
Corporation. In addition, certain investment personnel employed by the Adviser
currently provide advice to other investment portfolios of entities not
affiliated with The Chubb Corporation or its affiliates in their capacity as
officers or directors of certain registered investment advisers not related to
the Adviser. Some of these investment portfolios, as well as the portfolios of
other clients, may have investment objectives and investment programs similar to
the Funds. Accordingly, occasions may arise when the Adviser and investment
personnel of Chubb & Son, may select securities for purchase or sale by a Fund
that are also held by other advisory accounts, or that are currently being
purchased or sold for other advisory accounts. It is the practice of the Adviser
and its investment personnel, its affiliates, and the investment personnel of
Chubb & Son, Inc. to allocate such purchases or sales insofar as feasible, among
their advisory clients in a manner they deem equitable. It is the policy of the
Adviser, its affiliates and the investment personnel of Chubb & Son not to favor
any one account over the other.
On those occasions when such simultaneous investment decisions are made,
the Adviser, its affiliates, and the investment personnel of Chubb & Son, will
allocate purchase and sale transactions in an equitable manner according to
written procedures approved by the Company's Board of Directors. Specifically,
such written procedures provide that, in allocating purchase and sale
transactions made on a combined basis, the Adviser, its affiliates, and the
investment personnel of Chubb & Son, will seek to achieve the same average unit
price of securities for each advisory account and will seek to allocate, as
nearly as practicable, such transactions on a pro-rata basis substantially in
proportion to the amounts ordered to be purchased or sold by each advisory
account. Such procedures may, in certain instances, either advantageous or
disadvantageous to the Funds. While it is conceivable that in certain instances
this procedure could adversely affect the price or number of shares involved in
the Company's transaction, it is believed that the procedure generally
contributes to better overall execution of the Company's portfolio transactions.
18
DIRECTORS AND OFFICERS
The directors and officers of the Company, their addresses, their ages, their
positions with the Company, and their principal occupations for the past five
years are set forth below:
- --------------------------------------------------------------------------------
John C. van Eck@* (85) Chairman of Chairman of the Board and President of
575 Park Avenue the Board other Investment Companies advised by
New York, NY and Director the Administrator, Chairman, Van Eck
adviser) and Van Eck Securities
Corporation (broker-dealer); former
Director, Eclipse Financial Assets Trust
(Mutual Fund), Former President of the
Adviser and its affiliated companies,
Former director of Abex Inc. (aerospace)
- --------------------------------------------------------------------------------
Michael O'Reilly@* (57) President Executive Vice President and Chief
15 Mountain View Road and Director Investment Officer of The Chubb
Warren, New Jersey 07061 Corporation; Director, President and
Chief Operating Officer of the Adviser.
- --------------------------------------------------------------------------------
Jeremy H. Biggs#@ (65) Director Trustee of other investment companies
1220 Park Avenue advised by the Administrator, Vice
New York, NY 10128 Chairman, Director, and Chief Investment
Officer of Fiduciary Trust Company
International (investment manager),
parent company of Fiduciary
International, Inc., Chairman of the
Davis Funds Group (mutual funds
management company) Treasurer and
Director of Royal Oak Foundation (the UK
National Trust); Director and former
Chairman of the Union Settlement
Association (the community service
organization); First Vice President,
Trustee and Chairman of Finance
Committee of the St. James School, St.
James Maryland.
- --------------------------------------------------------------------------------
Richard D. Stamberger Director Trustee of other investment companies
888 17th Street, advised by the Adviser; President,
N.W. 12th Fl. SmartBrief.Com; former Principal,
Washington, D.C. 20006 National Strategies, Inc., Partner and
Co-Founder, Quest Partners, LLC,
Executive Vice President, Chief
Operating Officer and a Director of
NuCable Resources Corporation.
- --------------------------------------------------------------------------------
David J. Olderman#+ (66) Director Trustee of other investment companies
40 Country Club Road advised by the Administrator; former
Village of Golf, FL 33436 Chairman of the Board, American Copy
Company (1991-present); former Chairman
of the Board, Brighton Partners Inc.
- --------------------------------------------------------------------------------
Bruce J. Smith (46) Vice President Officer of other investment companies
99 Park Avenue and Treasurer advised by the Administrator; Chief
New York, New York Financial Officer, Senior Vice
Presidentof Van Eck Associates
Corporation.
- --------------------------------------------------------------------------------
Thomas H. Elwood (53) Vice President Officer of other investment companies
99 Park Avenue and Secretary advised by the Administrator; Vice
New York, New York President, Secretary and General Counsel
of Van Eck Associates Corporation and
Van Eck Securities; former Assistant
Counsel Jefferson Pilot Financial
Insurance Company and officer of other
investment companies advised by
Jefferson Pilot Financial Insurance and
its affiliates.
- --------------------------------------------------------------------------------
19
Susan C. Lashley (46) Vice President Officer of other investment companies
99 Park Avenue advised by the Administrator; Managing
New York, New York Director, Mutual Fund Operations of Van
Eck Associates Corporation and Van Eck
Securities Corporation.
- --------------------------------------------------------------------------------
Alex W. Bogaenko (38) Controller Controller of other investment companies
99 Park Avenue advised or administered by the Adviser;
New York, New York Director of Portfolio Administration of
Van Eck Associates Corporation.
- --------------------------------------------------------------------------------
@ An "interested person" as defined in the Act.
* Member of Executive Committee--exercises general powers of Board of
Directors between meetings of the Board.
# Member of the Nominating Committee.
+ Member of the Audit Committee--reviews fees, services, procedures,
conclusions and recommendations of independent auditors.
The Company pays no salaries or compensation to any of its officers, all of whom
are officers or employees of the Adviser or the Administrator. The Company pays
to each director who is not affiliated with the Adviser or the Administrator or
their affiliates an annual director's retainer of $2,000 and a payment of $750
plus expenses per Board and Committee meeting attended.
20
2000 COMPENSATION TABLE
PENSION OR
RETIREMENT TOTAL COMPENSATION
NAME OF AGGREGATE BENEFITS ACCRUED FROM FUND AND FUND
PERSON COMPENSATION AS PART OF COMPLEX(a) PAID
POSITION FROM FUND FUND EXPENSES TO DIRECTORS
- ------- ------------ ---------------- ------------------
John C. van Eck $0 $0 $0
Chairman
Michael O'Reilly $0 $0 $0
Director
Jeremy Biggs $5,000 $5,000 $36,000
Director
Richard D. Stamberger $0 $0 $36,000
Director
David Olderman $5,750 $5,750 $39,250
Director
- --------------------------------------------------------------------------------
(a) The term "fund complex" refers to the funds of the Company, and of Van Eck
Funds and Van Eck Worldwide Insurance Trust, which are managed by the
Administrator. The directors are paid a fee for their services to the Company.
No other compensation, including pension or other retirement benefits, is paid
to the directors by the fund complex.
As of February 26, 2001, the directors and officers of the Company, as a
group, owned less than 1% of the outstanding shares of the Company and less than
1% of any of the Funds individually with the exception that Mr. John van Eck
owns 2.68% of the Tax-Exempt Fund.
As of February 26, 2001, the following persons owned 5% or more of the
shares of the Fund(s) indicated below:
GLOBAL INCOME FUND-CLASS A
Federal Insurance Company 31.36%
c/o Chubb and Son Inc.
15 Mountain View Road
Warren, NJ07059
Federal Insurance Company 25.74%
Attn: Michael O'Reilly
15 Mountain View Road
Warren, NJ07059
GOVERNMENT SECURITIES FUND-CLASS A
Federal Insurance Company 74.82%
Attn: Michael O'Reilly
15 Mountain View Road
Warren, NJ07059
The Chubb Corporation 8.67%
Attn: Michael O'Reilly
15 Mountain View Road
Warren, NJ07059
GROWTH & INCOME FUND-CLASS A
Federal Insurance Company 58.91%
Attn: Michael O'Reilly
15 Mountain View Road
Warren, NJ07059
Chubb Corporation 10.50%
Attn: Treasurers Dept.
15 Mountain View Road
Warren, NJ07059
Vigilant Insurance Company 6.56%
Attn: Investment Department
c/o Chubb and Son Inc.
15 Mountain View Road
Warren, NJ07059
TAX-EXEMPT FUND-CLASS A
Federal Insurance Company 76.88%
Attn: Michael O'Reilly
15 Mountain View Road
Warren, NJ07059
TOTAL RETURN FUND-CLASS A
Federal Insurance Company 51.51%
Attn: Michael O'Reilly
15 Mountain View Road
Warren, NJ07059
21
PURCHASE OF SHARES
GROUP PURCHASES
An individual who is a member of a qualified group may purchase shares of
the Funds at the reduced commission applicable to the group taken as a whole.
The commission is based upon the aggregate dollar value, at the current offering
price, of shares owned by the group, plus the securities currently being
purchased. For example, if members of the group held $80,000, calculated at
current offering price, of Global Income Fund-A's shares and now were investing
$25,000, the sales charge would be 3.75%. Information concerning the current
sales charge applicable to a group may be obtained by contacting the
Distributor.
A "qualified group" is one which (i) has been in existence for more than
six months, (ii) has a purpose other than acquiring a Fund's shares at a
discount and (iii) satisfies uniform criteria which enables the Distributor to
realize economies of scale in its cost of distributing shares. A qualified group
must have more than 10 members, must be available to arrange for group meetings
between representatives of the Distributor and the members of the group, must
agree to include sales and other materials related to the Funds in its
publications and mailings to members at reduced or no cost to the Distributor,
and must seek to arrange the use of Automatic Investment Plan.
COMBINED PURCHASES
Shares of funds in the Van Eck Global Group of Funds (except the Van Eck
U.S. Government Money Fund series of Van Eck Funds) may be purchased at the
initial series charged applicable to the quantity purchased levels shown above
by combining concurrent purchases.
LETTER OF INTENT
Purchasers who anticipate that they will invest (other than through
exchanges) $100,000 or more in one or more of the funds in the Van Eck Global
Group of Funds (except the Van Eck. U.S. Government Money fund) within thirteen
months may execute a Letter of Intent on the form in the Application. the
execution of a Letter of Intent will result in the purchaser paying a lower
initial sales charge, at the appropriate quantity purchase level shown above, on
all purchases during a thirteen month period. A purchase not originally made
pursuant to a Letter of Intent may be included under a backdated Letter of
Intent executed within 90 days after such purchase.
RIGHT OF ACCUMULATION
The above scale of initial sales charges also applies to an investor's
current purchase of shares of any of the funds in the Van Eck Global Group of
Funds (except the Van Eck U.S. Government Money Fund) where the aggregate value
of those shares plus shares of the funds previously purchased and still owned,
determined at the current offering price, is more than $100,000, provided the
Distributor of DST is notified by the investor or the Broker or Agent each time
a purchase is made which would so qualify.
AVAILABILITY OF DISCOUNTS
An investor or the Broker or Agent must notify DST or the Distributor at
the time or purchase whenever a quantity discount or reduced sales charge is
applicable to a purchase. Quantity discounts described above may be modified or
terminated at any time without prior notice.
VALUATION OF SHARES
The net asset value of the shares of each Fund of the Company is normally
determined immediately as of the close of trading on the New York Stock Exchange
(usually 4:00 p.m. New York Time) on each day during which the New York Stock
Exchange is open for trading and at such other times when both the degree of
trading in a Fund's portfolio securities would materially affect the net asset
value of that Fund's shares and shares of that Fund were tendered for redemption
or a repurchase order was received. The New York Stock Exchange is open from
Monday through Friday except on the following national holidays: New
22
Years Day, Martin Luther King Jr.'s Birthday, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Dividends paid by the Fund with respect to Class A and Class B shares will
be calculated in the same manner, at the same time and on the same day and will
be in the same amount, except that the higher distribution services fee and any
incremental transfer agency costs relating to Class B shares will be borne
exclusively by that Class. The directors have determined that currently no
conflict of interest exists between the Class A and Class B shares. On an
ongoing basis, the Board of Directors, pursuant to their fiduciary duties under
the Act and state laws, will seek to ensure that no such conflict arises.
Class A shares of the Funds are sold at the public offering price which is
determined once each day the Funds are open for business, which is the net asset
value per share plus a sales charge in accordance with the schedule set forth in
the Prospectus. Class B shares are sold with a contingent deferred sales charge.
Portfolio securities which are traded on national securities exchanges are
valued at the last quoted sale price as of the close of business of the New York
Stock Exchange or, lacking any quoted sales, at the mean between the closing bid
and asked prices.
Securities traded in the over-the-counter market as part of the NASDAQ
National Market system are valued at the last quoted sale price (at the close of
the New York Stock Exchange) obtained from a readily available market quotation
system or securities pricing services. If no sale took place, such securities
are valued at the mean between the bid and asked prices.
Long-term U.S. Treasury securities and other obligations issued or
guaranteed by the United States Government, its agencies or instrumentalities
are valued at representative quoted prices from bond pricing services.
Long-term publicly traded corporate bonds are valued at prices obtained
from a bond pricing service when such prices are available or, when appropriate,
from over-the-counter exchange quotations or from broker-dealers who make a
market in that security.
Foreign securities denominated in foreign currencies are valued at
representative quoted prices on the principal exchange of the country of origin
and are converted to United States dollar equivalents using that day's current
exchange rate (New York closing spot). Occasionally, events affecting the values
of such securities may occur between the times at which they are determined and
the close of the New York Stock Exchange, which events may not be reflected in
the computation of a Portfolio's net asset value. If, during such periods,
events occur which materially affect the value of the securities of a Portfolio,
and during such periods either shares are tendered for redemption or a purchase
or sale order is received by the Company, such securities will be valued at fair
value as determined in good faith by the Board.
All non-U.S. securities traded in the over-the-counter securities market
are valued at the last sale quote, if market quotations are available, or at the
mean between the closing bid and asked prices, if there is no active trading in
a particular security for a given day. Where market quotations are not readily
available for such non-U.S. over-the-counter securities, then such securities
will be valued in good faith by a method that the Board of Directors, or its
delegates, believes accurately reflects fair value.
Options and convertible preferred stocks listed on national securities
exchanges are valued as of their last sale price or, if there is no sale, at the
mean between the closing bid and asked prices.
Futures contracts are valued as of their last sale price or, if there is no
sale, at the mean between the closing bid and asked prices.
Securities and assets for which market quotations are not readily available
are valued at fair value as determined in good faith by the Board of Directors
of the Company using its best judgment.
EXCHANGE PRIVILEGE
Class A shareholders of the Funds may exchange their shares for shares of
the same class of other of the funds in the Van Eck Global Group of Funds. The
Exchange Privilege will not be available if the proceeds from a redemption of
shares of a fund whose shares qualify are paid directly to the shareholder. The
Exchange Privilege is not available for shares which are not on deposit with DST
or State Street Bank and Trust Company ("SSBT"), or shares which are held in
escrow pursuant to a Letter of Intent.
23
If certificates representing shares of the Fund accompany a written exchange
request, such shares will be deposited into an account with the same
registration as the certificates upon receipt by DST.
The Fund reserves the right to (i) charge a fee of not more than $5.00 per
exchange payable to the Fund or charge a fee reasonably intended to cover the
costs incurred in connection with the exchange; (ii) establish a limit on the
number and amount of exchanges made pursuant to the Exchange Privilege and (iii)
terminate the Exchange Privilege without written notice. In the event of such
termination, shareholders who have acquired their shares pursuant to the
Exchange Privilege will be afforded the opportunity to re-exchange such shares
for shares of the fund originally purchased without sales charge, for a period
of not less than three (3) months.
By exercising the Exchange Privilege each shareholder whose shares are
subject to the Exchange Privilege will be deemed to have agreed to indemnify and
hold harmless the Trust and each of its funds, their investment adviser,
sub-investment adviser (if any), distributor, transfer agent, SSBT and the
officers, directors, employees and agents thereof against any liability, damage,
claim or loss, including reasonable costs and attorneys' fees, resulting from
acceptance of, or acting or failure to act upon, or acceptance of unauthorized
instructions or non-authentic telephone instructions given in connection with,
the Exchange Privilege, so long as reasonable procedures are employed to confirm
the authenticity of such communications. (For more information on the Exchange
Privilege, see the Prospectus).
TAX-SHELTERED RETIREMENT PLANS
The Trust offers several prototype tax-sheltered retirement plans through
which shares of a Fund may be purchased. These plans are more fully described
below. State Street Bank and Trust Company, P.O. Box 218407, Kansas City,
Missouri 64121, acts as the trustee and/or custodian (the "Trustee") under the
retirement plans offered by the Trust. Persons who wish to establish a
tax-sheltered retirement plan should consult their own tax advisors or attorneys
regarding their eligibility to do so and the laws applicable thereto, such as
the employee coverage and nondiscrimination rules, fiduciary responsibility
provisions, diversification requirements and the reporting and disclosure
obligations under the Employee Retirement Income Security Act of 1974 and
applicable state tax laws. The Trust is not responsible for compliance with such
laws. Further information regarding the retirement plans, including applications
and fee schedules, may be obtained upon request to the Trust.
REGULAR INDIVIDUAL RETIREMENT ACCOUNT AND SPOUSAL INDIVIDUAL RETIREMENT
ACCOUNT. The Regular IRA is available to all individuals under age 701/2,
including self-employed individuals, who receive compensation for services
rendered and wish to purchase shares of a Fund. Spousal Individual Retirement
Accounts ("SPIRA") are available to individuals who are otherwise eligible to
establish a Regular IRA for themselves and whose spouses are treated as having
no compensation of their own.
The amount an individual contributes to a Regular IRA reduces the amount
the individual can contribute to a Roth IRA for the same year.
In general, the maximum deductible contribution to an IRA which may be made
for any one year is $2,000 or 100% of annual compensation includible in gross
income, whichever is less. If an individual establishes a SPIRA, the maximum
aggregate deductible amount that the individual may contribute annually is the
lesser of $4000 or 100%. However, that no more than $2,000 per year for either
the individual or the spouse may be contributed to either the IRA or SPIRA.
In the case of a taxpayer who is deemed to be an active participant in an
employer-sponsored retirement plan, no deduction is available for contributions
to a Regular IRA or SPIRA if his adjusted gross income exceeds the annual
maximum. For 1998, the annual maximum is $60,000 for married taxpayers filing
jointly, $40,000 for single taxpayers, and $10,000 for married taxpayers filing
separately. For each year after 1998, the annual maximum for married taxpayers
filing jointly and single taxpayers is increased $1,000. In 2006, the annual
maximum filing jointly increases $5,000 and in 2007 increases $15,000. (Married
taxpayers who file joint tax returns will not be deemed to be active
participants solely because their spouse is an active participant under an
employer-sponsored retirement plan. However, when one spouse is an active
participant and the other is not, no deduction is available for contributions to
a Regular IRA by the nonactive participant spouse if the spouses' combined
adjusted gross income exceeds $160,000.) Taxpayers who are active participants
in employer-sponsored retirement plans will be able to make fully deductible IRA
contributions at the same levels discussed above, if their adjusted gross income
is less than the annual minimum. For 1998, the annual minimum is $50,000 for
married taxpayers filing jointly and $30,000 for single taxpayers. For mar-
24
ried taxpayers filing jointly and single taxpayers, the annual minimum is
increased at the same rate as the annual maximum through the year 2005. After
2005, the annual minimum for married taxpayers filing jointly is increased
$5,000 in 2006 and for 2007.
In the case of taxpayerswhoare active participants in employer-sponsored
retirement plans and who have adjusted gross income between the applicable
annual minimum and maximum, deductible IRA contributions will be phased out. In
general and before 2007, the $2,000 IRA deduction is reduced by $200 for each
$1,000 of adjusted gross income in excess of the applicable minimum. In general,
in the case of a taxpayer who contributes to an IRA and a SPIRA, the $4000 IRA
deduction is reduced by $400 for each $1,000 of adjusted gross income in excess
of the applicable minimum.
Individuals who are ineligible to make fully deductible contributions may
make nondeductible contributions up to an aggregate of $2,000 in the case of
contributions (deductible and nondeductible) to a Regular IRA and up to an
aggregate of $4,000 in the case of contributions (deductible and nondeductible)
to a Regular IRA and SPIRA. The income upon all such contributions will
accumulate tax free until distribution.
In addition, a separate rollover' IRA may be established by a "rollover"
contribution, which may permit the tax-free transfer of assets from qualified
retirement plans under specified circumstances. A "rollover contribution" from a
qualified retirement plan includes a lump sum distribution received by an
individual, because of severance of employment, from a qualified plan and paid
into an individual retirement account within 60 days after receipt or
transferred directly in a trust-to-trust transfer. A rollover IRA can be
established even if the individual is over age 701/2.
Dividends and capital gains earned on amounts invested in either an IRA or
SPIRA are automatically reinvested by the Trustee in shares of a Fund and
accumulate tax-free until distribution. Distributions from a Regular IRA, SPIRA
or rollover IRA, to the extent taxable, are taxable as ordinary income.
Distributions from either an IRA or SPIRA prior to age 591/2 may result in
adverse tax consequences and penalties. In addition, there may be a penalty on
contributions in excess of the contribution limits and other penalties are
imposed on insufficient payouts after age 701/2.
ROTH INDIVIDUAL RETIREMENT ACCOUNT AND SPOUSAL ROTH INDIVIDUAL RETIREMENT
ACCOUNT. The Roth IRA is available to all individuals who wish to purchase Fund
shares regardless of their age, including self-employed individuals, and whose
adjusted gross income is less than $160,000 for married taxpayers filing
jointly, $10,000 for married taxpayers filing jointly, $10,000 for married
taxpayers filing separately, and $110,000 for single taxpayers. Spousal Roth
IRAs ("SPRIRA") are available to individuals who are otherwise eligible to
establish a Roth IRA for themselves and whose spouses are treated as having no
compensation of their own.
Contributions to a Roth IRA or SPRIRA are not deductible. In general, the
maximum annual contribution to a Roth IRA which may be made for any one year is
$2,000 or 100% of annual compensation includible in gross income, whichever is
less, minus any contributions made for the year to a Regular IRA. If an
individual establishes a SPRIRA, the aggregate maximum amount that the
individual may contribute annually is the lesser of $4,000 or 100% of the
combined compensation of individual and spouse, minus any deductible Regular IRA
or Roth IRA contributions made by the individual to his own Regular or Roth IRA
for the taxable year. The amount an individual contributes to a Roth IRA reduces
the amount such individual can contribute to a Regular IRA for the same year.
Taxpayers can make the full annual contribution to a Roth IRA if their
adjusted gross income for the year is less than $150,000 if married filing
jointly, or less than $95,000 if single.
Taxpayers who are eligible to establish a Roth IRA, but whose adjusted
gross incomes exceed the amount for making a full annual contribution, can make
a reduced contribution to the Roth IRA. In general, to determine the reduced
contribution: (i) subtract the base amount ($95,000 for single, $150,000 for
married filing jointly, $0 for married filing separately) from adjusted gross
income; (ii) subtract the amount in (i) above from $15,000 ($10,000 if married
filing jointly or married filing separately); (iii) divide the amount in (ii) by
$15,000 ($10,000 if married filing jointly or married filing separately); and
(iv) multiply the fraction from (iii) by $2,000 ($4,000 for a SPRIRA).
In addition, if the adjusted gross income of married taxpayers who file
joint returns or a single taxpayer is less than $100,000, they may convert a
non-Roth IRA to a Roth IRA. Married couples filing separate returns cannot make
such a conversion. A taxpayer converts a non Roth IRA into a Roth IRA by
withdrawing the funds from his non Roth IRA and rolling them over into a Roth
IRA within 60 days, or by directing his non Roth IRA trustee or custodian to
convert the existing non Roth IRA with such
25
custodian or trustee. Except for conversions made during 1998, the amount rolled
over from the non Roth IRA to the Roth IRA is includible in income and subject
to income tax in the year of conversion. For non Roth IRAs converted into Roth
Conversion IRAs during 1998, special rules apply. The amount rolled over is
includible in Federal gross income (and subject to Federal income taxes) over a
four year period.
In addition, an individual can rollover a Roth IRA into another Roth IRA
within 60 days after receipt of the funds (or directly in a trustee-to-trustee
transfer).
Dividends and capital gains earned on amounts invested in either a Roth IRA
or SPRIRA are automatically reinvested by the Trustee in shares of a Fund and
accumulate tax free until distribution.
"Qualified distribution" from either a Roth IRA or SPRIRA are not included
in federal gross income and not subject to federal income tax. Any non-qualified
distribution is includible in federal gross income and subject to federal income
tax only to the extent it is a distribution of earnings. These earnings are
taxable as ordinary income. To be a "qualified distribution" the amounts must be
withdrawn after the "5-year holding period" and must be withdrawn when you are
age 591/2 or older, because of death or permanent disability, or to pay for
qualifying "first-time homebuyer expenses." For Roth IRAs, SPRIRAs and rollover
Roth IRAs, the "5-year holding period" is the five tax year period beginning
with the first tax year for which the taxpayer made a contribution to his or her
Roth IRA. For non Roth IRAs converted into Roth IRAs, the "5-year holding
period" is the five tax year period beginning with the first tax year in which
the non Roth IRA was converted to a Roth IRA.
Withdrawals are deemed to be made first from contributions to the Roth IRA
and then from earnings. Thus, until the full amount contributed has been
withdrawn, withdrawals are not includible for federal gross income. Special
rules apply to withdrawals from Regular IRAs converted in 1998 to a Roth IRA.
The taxable portion of distributions from either a Roth IRA or SPRIRA prior
to age 591/2 may result in adverse tax consequences and penalties. In addition,
there may be a penalty on contributions in excess of the contribution limits.
SIMPLIFIED EMPLOYEE PENSION PLAN. An SEP may be utilized by employers to
provide retirement income to employees by making contributions to employee SEP
IRAs. Owners and partners may qualify as employees. The employee is always 100%
vested in contributions made under an SEP. Subject to certain limitations, an
employer may also make contributions to an SEP-IRA under a salary reduction
arrangement, by which the employee elects contributions to an SEP-IRA in lieu of
immediate cash compensation. After December 31, 1996, contributions under a
salary reduction arrangement are permitted only into SEP plans in existence on
December 31, 1996. The maximum contribution to an SEP-IRA (an IRA established to
receive SEP contributions) is the lesser of $30,000 or 15% of taxable
compensation from the employer, excluding contributions made pursuant to a
salary reduction arrangement.
Contributions by employers under an SEP arrangement up to the maximum
permissible amounts are deductible by employers for federal income tax purposes.
Contributions up to the maximum permissible amounts are not includible in the
gross income of the employee. Dividends and capital gains on amounts invested in
SEP-IRAs are automatically reinvested by the Trustee in shares of the mutual
fund that paid such amounts, and accumulate tax-free until distribution.
Withdrawals of amounts prior to age 591/2 may result in adverse tax
consequences. In addition, there may be a penalty on contributions in excess of
the contribution limits, and other penalties are imposed on insufficient payouts
after age 701/2.
QUALIFIED PENSION PLANS. International Investors Fund offers forms of
prototype profit sharing and money purchase pension plans (together, the
"Qualified Pension Plans") that can be utilized by self-employed individuals,
partnerships and corporations (for this purpose called "Employers") and their
employees who wish to purchase shares of a Fund under a retirement program.
The maximum combined contribution which may be made to all Qualified
Pension Plans in any one year on behalf of a participant is, depending on the
types of plans and benefit formula selected by the Employer, up to the lesser of
$30,000 or 25 percent of compensation (net earned income in the case of a
self-employed individual). Contributions by Employers to Qualified Pension Plans
up to the maximum permissible amounts are deductible for Federal income tax
purposes. Amounts contributed by employers on behalf of employees are not taxed
to the employees until the time of distribution, except that contributions in
excess of permissible amounts may result in adverse tax consequences and
penalties to the Employer. Dividends and capital gains earned on
26
amounts invested in Qualified Pension Plans are automatically reinvested by the
Trustee in shares of a Fund and accumulate tax-free until distribution.
Amounts contributed by employers on behalf of employees are not taxed to
the employees until the time of distribution, except that withdrawals of
contributions prior to age 591/2 may result in adverse tax consequences and
penalties.
403(b)(7) PROGRAM. The Tax-Deferred Annuity Program and Custodial Account
offered by the Fund (the "403(b)(7) Program") allows employees of certain tax
exempt organizations and schools to have a portion of their compensation set
aside for their retirement years in shares held in an investment company
custodial account.
In general, the maximum limit on annual contributions for each employee is
the lesser of $30,000 per year (as adjusted by the IRS for cost-of-living
increases), 25% of the employee's compensation, or the employee's exclusion
allowance specified in Section 403(b) of the Code. However, an employee's salary
reduction contributions to a 403(b)(7) Program may not exceed $9,500 a year (as
adjusted for cost of living expenses). Amounts contributed by employers on
behalf of employees are not taxed to the employees until the time of
distribution, except that contributions in excess of permissible amounts may
result in adverse tax consequences and penalties. Dividends and capital gains on
amounts invested in the 403(b)(7) Program are automatically reinvested in shares
of a Fund. It is intended that dividends and capital gains on amounts invested
in the 403(b)(7) Program will accumulate tax-free until distribution.
Employees will receive distributions from their accounts under the
403(b)(7) Program following termination of employment by retirement or at such
other time as the employer shall designate, but in no case later than an
employee reaching age 65. Withdrawals of contributions prior to age 591/2 may
result in adverse tax consequences and penalties. Employees will also receive
distributions from their accounts under the 403(b)(7) Program in the event they
become disabled.
INVESTMENT PROGRAMS
DIVIDEND REINVESTMENT PLAN. Reinvestments of dividends of the Funds will
occur on a date selected by the Board of Directors.
AUTOMATIC EXCHANGE PLAN. Investors may arrange under the Exchange Plan to
have DST collect a specified amount once a month or quarter from the investor's
account in one of the funds and purchase full and fractional shares of another
fund at the public offering price next computed after receipt of the proceeds.
Further details of the Automatic Exchange Plan are given in the application
which is available from DST or the Funds. This does not apply to Class B shares.
An investor should realize that the Funds' securities are subject to market
fluctuations, and accordingly the Automatic Exchange Plan does not assure a
profit or protect against depreciation in declining markets. The Automatic
Exchange Plan contemplates the systematic purchase of securities at regular
intervals regardless of price levels.
The expenses of the Automatic Exchange Plan are general expenses of the
Funds and will not involve any direct charge to the participating shareholder.
The Automatic Exchange Plan is completely voluntary and may be terminated on
fifteen days notice to DST.
AUTOMATIC INVESTMENT PLAN. Investors may arrange under the Automatic
Investment Plan to have DST collect a specified amount once a month or quarter
from the investor's checking account and purchase full and fractional shares of
the Funds at the public offering price next computed after receipt of the
proceeds. Further details of the Automatic Investment Plan are given in the
application which is available from DST or the Fund.
An investor should realize that the Funds' securities are subject to market
fluctuations, and accordingly the Automatic Investment Plan does not assure a
profit or protect against depreciation in declining markets. The Automatic
Investment Plan contemplates the systematic purchase of securities at regular
intervals regardless of price levels.
The expenses of the Automatic Investment Plan are general expenses of the
Funds and will not involve any direct charge to the participating shareholder.
The Automatic Investment Plan is completely voluntary. The Automatic Investment
Plan may be terminated on thirty days notice to DST.
27
AUTOMATIC WITHDRAWAL PLAN. The Automatic Withdrawal Plan is designed to
provide a convenient method of receiving fixed redemption proceeds at regular
intervals from shares of the Funds deposited by the investor under this Plan.
This Plan is not available to Class B shareholders. Further details of the
Automatic Withdrawal Plan are given in the application which is available from
DST or the Funds.
In order to open an Automatic Withdrawal Plan, the investor must complete
the Application and deposit, or purchase for deposit, with DST, agent for the
Automatic Withdrawal Plan, shares of Funds having a total value of not less than
$10,000 based on the offering price on the date the Application is accepted.
Income dividends and capital gains distributions on shares under an
Automatic Withdrawal Plan will be credited to the investor's Automatic
Withdrawal Plan account in full and fractional shares at the net asset value in
effect on the reinvestment date.
Periodic checks for a specified amount will be sent to the investor, or any
person designated by the investor, monthly or quarterly (January, April, July
and October). The Funds will bear the cost of administering the Automatic
Withdrawal Plan.
Redemption of shares of the Funds deposited under the Automatic Withdrawal
Plan may deplete or possibly use up the initial investment plus income dividends
and distributions reinvested, particularly in the event of a market decline. In
addition, the amounts received by an investor cannot be considered as an actual
yield or income on the investment since part of such payments may be a return of
capital. The redemption of shares under the Automatic Withdrawal Plan may give
rise to a taxable event.
The maintenance of an Automatic Withdrawal Plan concurrently with purchases
of additional shares of the Funds would be disadvantageous because of the sales
charge payable with respect to such purchases. An investor may not have an
Automatic Withdrawal Plan in effect and at the same time have in effect an
Automatic Investment Plan or an Automatic Exchange Plan. If an investor has an
Automatic Investment Plan or an Automatic Exchange Plan, such service must be
terminated before an Automatic Withdrawal Plan may take effect.
The Automatic Withdrawal Plan may be terminated at any time (1) on 30 days'
notice to DST or from DST to the investor, (2) upon receipt by DST of
appropriate evidence of the investor's death or (3) when all shares under the
Automatic Withdrawal Plan have been redeemed. Upon termination, unless otherwise
requested, certificates representing remaining full shares, if any, will be
delivered to the investor or his or her duly appointed legal representatives.
TAXES
TAXATION OF THE FUND--IN GENERAL
Each of the Funds intends to continue to continue to qualify and elect to
be treated each taxable year as a "regulated investment company" under
Subchapter M of the Code. To so qualify, each Fund must, among other things, (a)
derive at least 90% of its gross income from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, or other income (including gains from options,
futures or forward contracts) derived with respect to its business of investing
in such stock, securities or currencies; and (b) satisfy certain diversification
requirements.
As a regulated investment company, a Fund will not be subject to federal
income tax on its net investment income and capital gain net income (capital
gains in excess of its capital losses) that it distributes to shareholders if at
least 90% of its net investment income and short-term capital gains for the
taxable year are distributed. However, if for any taxable year a Fund does not
satisfy the requirements of Subchapter M of the Code, all of its taxable income
will be subject to tax at regular corporate rates without any deduction for
distribution to shareholders, and such distributions will be taxable to
shareholders as ordinary income to the extent of the Fund's current or
accumulated earnings or profits.
Each Fund will be liable for a nondeductible 4% excise tax on amounts not
distributed on a timely basis in accordance with a calendar year distribution
requirement. To avoid the tax, during each calendar year the Fund must
distribute, or be deemed to have distributed, (i) at least 98% of its ordinary
income (not taking into account any capital gains or losses) for the calendar
year, (ii) at least 98% of its capital gains in excess of its capital losses
(adjusted for certain ordinary losses) for the twelve month period ending on
October 31 (or December 31, if the Fund so elects), and (iii) all ordinary
income and capital gains for previous years that were not distributed during
such years. For this purpose, any income or gain retained by the Fund that is
subject to corpo-
28
rate tax will be considered to have been distributed by year-end. The Funds
intend to make sufficient distributions to avoid this 4% excise tax.
TAXATION OF THE FUNDS' INVESTMENTS
ORIGINAL ISSUE DISCOUNT. For federal income tax purposes, debt securities
purchased by the Funds may be treated as having an original issue discount.
Original issue discount represents interest for federal income tax purposes and
can generally be defined as the excess of the stated redemption price at
maturity of a debt obligation over the issue price. Original issue discount is
treated for federal income tax purposes as income earned by the Funds, whether
or not any income is actually received, and therefore is subject to the
distribution requirements of the Code. Generally, the amount of original issue
discount included in the income of the Funds each year is determined on the
basis of a constant yield to maturity which takes into account the compounding
of accrued interest.
Debt securities may be purchased by the Funds at a discount which exceeds
the original issue discount remaining on the securities, if any, at the time the
Funds purchased the securities. This additional discount represents market
discount for income tax purposes. In the case of any debt security issued after
July 18, 1984, having a fixed maturity date of more than one year from the date
of issue and having market discount, the gain realized on disposition will be
treated as interest to the extent it does not exceed the accrued market discount
on the security (unless the Funds elect to include such accrued market discount
in income in the tax year to which it is attributable). Generally, market
discount is accrued on a daily basis. The Funds may be required to capitalize,
rather than deduct currently, part or all of any direct interest expense
incurred or continued to purchase or carry any debt security having market
discount, unless the it makes the election to include market discount currently.
Because the Funds must include original issue discount in income, it will be
more difficult for the Funds to make the distributions required for them to
maintain their status as a regulated investment company under Subchapter M of
the Code or to avoid the 4% excise tax described above.
OPTIONS AND FUTURES TRANSACTIONS. Certain of the Funds' investments may be
subject to provisions of the Code that (i) require inclusion of unrealized gains
or losses in the Funds' income for purposes of the 90% test, the excise tax and
the distribution requirements applicable to regulated investment companies, (ii)
defer recognition of realized losses, and (iii) characterize both realized and
unrealized gain or loss as short-term or long-term gain or loss. Such provisions
generally apply to options and futures contracts. The extent to which the Funds
make such investments may be materially limited by these provisions of the Code.
FOREIGN CURRENCY TRANSACTIONS. Under Section 988 of the Code, special rules
are provided for certain foreign currency transactions. Foreign currency gains
or losses from foreign currency contracts (whether or not traded in the
interbank market), from futures contracts that are not "regulated futures
contracts," and from unlisted options are treated as ordinary income or loss
under Section 988. The Funds may elect to have foreign currency-related
regulated futures contracts and listed options subject to ordinary income or
loss treatment under Section 988. In addition, in certain circumstances, the
Funds may elect capital gain or loss for foreign currency transactions. The
rules under Section 988 may also affect the timing of income recognized by the
Funds.
TAXATION OF THE SHAREHOLDERS
Distributions of net investment income and the excess of net short-term
capital gain over net long-term capital loss are taxable as ordinary income to
shareholders. Distributions of net capital gain (the excess of net long-term
capital gain over net short-term capital loss) are taxable to shareholders as
long-term capital gain, regardless of the length of time the shares of the Fund
have been held by such shareholders. Any loss realized upon a taxable
disposition of shares within six months from the date of their purchase will be
treated as a long-term capital loss to the extent of any long-term capital gain
distributions received by shareholders during such period. In addition, any loss
realized upon a taxable disposition of shares of the Tax-Exempt Fund within six
months from the date of their purchase will be disallowed to the extent of any
tax-exempt dividends previously paid with respect to such shares.
Distributions of net investment income and capital gain net income will be
taxable as described above whether received in cash or reinvested in additional
shares. When distributions are received in the form of shares issued by the
Funds, the amount of the distribution deemed to have been received by
participating shareholders is the fair market value of the shares received
rather than the amount of cash which would otherwise have been received. In such
case, participating shareholders will have a basis for federal income tax
purposes in each share received from the Funds equal to the fair market value of
such share on the payment date.
29
Distributions by the Funds result in a reduction in the net asset value of
the Funds' shares. Should a distribution reduce the net asset value below a
shareholder's cost basis, such distribution nevertheless would be taxable to the
shareholder as ordinary income or long-term capital gain as described above,
even though, from an investment standpoint, it may constitute a partial return
of capital. In particular, investors should be careful to consider the tax
implications of buying shares just prior to a distribution. The price of shares
purchased at that time includes the amount of any forthcoming distribution.
Those investors purchasing shares just prior to a distribution will then receive
a return of their investment upon distribution which will nevertheless be
taxable to them.
If a shareholder (i) incurs a sales load in acquiring shares in the Funds,
and (ii) by reason of incurring such charge or making such acquisition acquires
the right to acquire shares of one or more regulated investment companies
without the payment of a load or with the payment of a reduced load
("reinvestment right"), and (iii) disposes of the shares before the 91st day
after the date on which the shares were acquired, and (iv) subsequently acquires
shares in that regulated investment company or in another regulated investment
company and the otherwise applicable load charge is reduced pursuant to the
reinvestment right, then the load charge will not be taken into account for
purposes of determining the shareholder's gain or loss. To the extent such
charge is not taken into account in determining the amount of gain or loss, the
charge will be treated as incurred in connection with the subsequently acquired
shares and will have a corresponding effect on the shareholder's basis in such
shares.
Income received by the Funds may give rise to withholding and other taxes
imposed by foreign countries. If more than 50% of the value of the Funds' assets
at the close of a taxable year consists of securities of foreign corporations,
the Funds may make an election that will permit an investor to take a credit
(or, if more advantageous, a deduction) for foreign income taxes paid by the
Funds, subject to limitations contained in the Code. As an investor, you would
then include in gross income both dividends paid to you and the foreign taxes
paid by the Funds on their foreign investments.
The Funds cannot assure investors that they will be eligible for the
foreign tax credit. The Funds will advise shareholders annually of their share
of any creditable foreign taxes paid by the Funds.
The Funds may be required to withhold federal income tax at a rate of 31%
from dividends made to any shareholder who fails to furnish a certified taxpayer
identification number ("TIN") or who fails to certify that he or she is exempt
from such withholding or who the Internal Revenue Service notifies the Funds as
having provided the Funds with an incorrect TIN or failed to properly report for
federal income tax purposes. Any such withheld amount will be fully creditable
on each shareholder's individual federal income tax return.
The foregoing discussion is a general summary of certain of the current
federal income tax laws affecting the Funds and investors in the shares. The
discussion does not purport to deal with all of the federal income tax
consequences applicable to the Funds, or to all categories of investors, some of
which may be subject to special rules. Investors should consult their own
advisors regarding the tax consequences, including state and local tax
consequences, to them of investment in the Funds.
REDEMPTIONS IN KIND
The Company has elected to have the ability to redeem its shares in kind,
committing itself to pay in cash all requests for redemption by any shareholder
of record limited in amount with respect to each shareholder of record during
any ninety-day period to the lesser of (i) $250,000 or (ii) 1% of the net asset
value of such company at the beginning of such period.
PERFORMANCE
From time to time, in reports and sale literature: (1) each Fund's
performance or P/E ratio may be compared to: (i) the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") and Dow Jones Industrial Average
so that the investor may compare that Fund's results with those of a group of
unmanaged securities widely regarded by investors as representative of the
United States stock market in general; (ii) other groups of mutual funds tracked
by: (A) Lipper Analytical Services, Inc., a widely-used independent research
firm which ranks mutual funds by overall performance, investment objectives, and
asset size; (B) Forbes Magazine's Annual Mutual Funds Survey and Mutual Fund
Honor Roll; or (C) other financial or business publications, such as the Wall
Street Journal, Business Week, Money Magazine, and Barron's, which provide
similar information; (iii) indices of stocks comparable to those in which the
particular Fund invests; (2) the Consumer Price Index (measure for inflation)
may be used to assess the real rate of return from an investment in each Fund;
(3) other government statistics such as Gross Domestic Product, and net import
and export figures derived from governmental publications, e.g., The Survey of
Current Business, may be used to
30
illustrate investment attributes of each Fund or the general economic, business,
investment, or financial environment in which each Fund operates; and (4) the
effect of tax-deferred compounding on the particular Fund's investment returns,
or on returns in general, may be illustrated by graphs, charts, etc. where such
graphs or charts would compare, at various points in time, the return from an
investment in the particular Fund (or returns in general) on a tax-deferred
basis (assuming reinvestment of capital gains and dividends and assuming one or
more tax rates) with the return on a taxable basis.
From time to time advertisements and sales literature may refer to rankings
and ratings of the Adviser, Chubb Corporation and Chubb & Sons related to their
size, performance, management and/or service as prepared by various trade
publications, such as Dalbar, Pensions and Investments, SEI, CDA, Bests, and
others.
Each Fund's performance may also be compared to the performance of other
mutual funds by Morningstar, Inc., which ranks mutual funds on the basis of
historical risk and total return. Morningstar rankings are calculated using the
mutual fund's average annual returns for certain periods and a risk factor that
reflects the mutual fund's performance relative to three-month Treasury bill
monthly returns. Morningstar's rankings range from five stars (highest) to one
star (lowest) and represent Morningstar's assessment of the historical risk
level and total return of a mutual fund as a weighted average for 3, 5, and
10-year periods. In each category, Morningstar limits its five star rankings to
10% of the funds it follows and its four star rankings to 22.5% of the funds it
follows. Rankings are not absolute or necessarily predictive of future
performance. The Fund's performance may also be ranked by Standard & Poor's
Micropal. Micropal's ranking and performance analysis ranks funds on the basis
of total return, assuming reinvestment of distribution, but does not take sales
charges or redemption fees into consideration and is prepared without regard to
tax consequences.
When Lipper's rankings or performance results are used, a Fund will be
compared to Lipper's appropriate fund category by portfolio holdings. For
instance, the Growth and Income Fund will be compared to funds within Lipper's
multi-cap core fund category; the Government Securities Fund will be compared to
funds within Lipper's general U.S. government fund category; and so on. Rankings
may be listed among one or more of the asset-size classes as determined by
Lipper. Since the assets in the Funds may change, a Fund may be ranked within
one Lipper asset-sized class at one time and in another Lipper asset-size class
at some other time. The Lipper rankings and performance analysis ranks funds on
the basis of total return, assuming reinvestment of distribution, but does not
take sales charges or redemption fees into consideration and is prepared without
regard to tax consequences. Lipper also issues a monthly yield analysis for
fixed-income funds. Footnotes in advertisements and other marketing literature
will include the time period and Lipper asset-size class, as applicable, for the
ranking in question.
As noted above, the performance of a Fund may be compared, for example, to
the record of the S&P 500 Index, as well as the Russell 2000 Index, the S&P
MidCap 400 Index, the Bear Stearns Foreign Bond Index, the NASDAQ Composite
Index and the Morgan Stanley Capital International's Europe Australia, Far
Eastern ("EAFE") Index. The S&P 500 Index is a well known measure of the price
performance of 500 leading larger domestic stocks which represent approximately
80% of the market capitalization of the United States equity market. The NASDAQ
Composite Index is comprised of all stocks on NASDAQ's National Market Systems,
as well as other NASDAQ domestic equity securities. The NASDAQ Composite Index
has typically included smaller, less mature companies representing 10% or 15% of
the capitalization of the entire domestic equity market. The EAFE Index is
comprised of more than 900 companies in Europe, Australia and the Far East. All
of these indices are unmanaged and capitalization weighted. In general, the
securities comprising the NASDAQ Composite Index are more growth oriented and
have a somewhat higher beta and P/E ratio than those in the S&P 500 Index.
The total returns of all indices noted above will show the changes in
prices for the stocks in each index. Where applicable, the performance data will
assume reinvestment of all capital gains distributions and dividends paid by the
stocks in each data base. Tax consequences will not be included in such
illustration, nor will brokerage or other fees or expenses of investing be
reflected.
The yield for the 30-day period ended December 31, 2000 for Tax-Exempt
Fund, Government Securities Fund and the Global Income Fund was 3.94%, 5.21% and
4.81%, respectively. The tax equivalent yield for the Tax-Exempt Fund for the
same period assuming federal tax brackets of 36%, and 39.6% was 6.16% and 6.52%
for Class A shares. These figures reflect a portion of fees and other expenses
of the Company which were waived or assumed during the stated period. Absent any
waiver or assumption of fees and expenses, the yields the Tax-Exempt Fund,
Government Securities Fund and the Global Income Fund would have been 3.41% for
Class A, 4.71% for Class A and 4.74% for Class A shares, respectively, and the
tax equivalent yields for the Tax-Exempt Fund of 36% and 39.6% tax brackets
would have been 5.33% for Class A and 5.65% for Class A, respectively.
31
This yield figure represents the net annualized yield based on a specified
30-day (or one month) period assuming a reinvestment and semiannual compounding
of income. Yield is calculated by dividing the average daily net investment
income per share earned during the specified period by the maximum offering
price per share on the last day of the period, according to the following
formula:
YIELD = 2[(A-B/CD + 1)6-1]
Where: A = dividends and interest earned during the period
B = expenses accrued for the period (net of reimbursement)
C = the average daily number of shares outstanding during
the period that were entitled to receive dividends
D = the maximum offering price per share on the last day
of the period after adjustment for payment of dividends
within 30 days thereafter
A tax equivalent yield is calculated by dividing that portion of the 30-day
yield figure which is tax-exempt by one minus the effective federal income tax
rate and adding the product to that portion, if any, of the yield of the Fund
that is not tax-exempt.
The average annual total return quotations for the Class A shares of the
Government Securities Fund, the Total Return Fund, the Tax-Exempt Fund, the
Growth and Income Fund and the Global Income Fund (after maximum sales charge)
for the 12 months ended December 31, 2000 were 5.38%, -10.87%, 4.67%, -24.44%
and -4.01%, respectively. The average annual total return quotations for the
Government Securities Fund, the Total Return Fund, the Tax-Exempt Fund, the
Growth and Income Fund and the Global Income Fund for the 3 years ended December
31, 2000 were 3.80%, 2.77%, 2.36%, -0.81% and -0.06%, respectively. The average
annual total return quotations for the Government Securities Fund, the Total
Return Fund, the Tax-Exempt Fund, the Growth and Income Fund and the Global
Income Fund for the 5 years ended December 31, 2000 were 4.78%, 9.53%, 3.95%,
8.52% and 1.13%, respectively. The average annual total return quotations for
the Government Securities Fund, the Total Return Fund, the Tax-Exempt Fund and
the Growth and Income Fund, for the 10 years ended December 31, 2000 were 6.92%,
11.97%, 6.03% and 12.34%, respectively. The average annual total return
quotations for these Funds since the Company's inception on December 1, 1987
through December 31, 2000 were 7.76%, 11.79%, 7.04% and 12.25%, respectively.
Additionally the Global Income Fund's average total return since inception on
September 1, 1995 through December 31, 2000 was 1.66%. These figures reflect a
portion of fees and other expenses of the Company which were waived or assumed
during the stated period.
These average annual total return figures represent the average annual
compound rate of return for the stated period. Average annual total return
quotations reflect the percentage change between the beginning value of a static
account in the specified Fund at the maximum public offering price and the
ending value of that account measured by the then current net asset value of
that Fund assuming that all dividends and capital gains distributions during the
stated period were reinvested in shares of the Fund when paid. Total return is
calculated by finding the average annual compound rates of return of a
hypothetical investment that would compare the initial amount to the ending
redeemable value of such investment according to the following formula:
P(1+T)n = ERV
Where: P = A hypothetical initial payment of $1,000
T = Average annual total return
n = Number of years
ERV = Ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the
1, 5, or 10 year periods at the end of the
year or period
The Funds also may advertise non-standardized total return quotations,
calculated in the same manner as the quotations stated above, except that the
initial value used is the net asset value. Under this total return calculation,
the average annual total return quotations for the Government Securities Fund,
the Total Return Fund, the Tax-Exempt Fund, the Growth and Income Fund, and the
Global Income Fund for the 12 months ended December 31, 2000 were 10.67%,
- -5.43%, 9.89%, -19.83% and 0.74%, respectively. Under this same calculation, the
average annual total return quotations for the Government Securities Fund, the
Total Return
32
Fund, the Tax-Exempt Fund, the Growth and Income Fund and the Global Income Fund
for the 5 years ended December 31, 2000 were 5.81%, 10.83%, 4.95%, 9.81% and
2.12%, respectively. Under this same calculation, the average annual total
return quotations for these Funds (excluding the Global Income Fund) for the 10
years ended December 31, 2000 were 7.45%, 12.63%, 6.55% and 13.01%,
respectively. In addition under the same calculation the average annual total
return for the Global Income Fund since its inception September 1, 1995 through
December 31, 2000 is 2.60%.
DESCRIPTION OF THE COMPANY
The Company was incorporated in Maryland on April 27, 1987. Prior to
October 1, 1997, the Company's name was Chubb Investment Funds, Inc. The Company
is composed of five funds, four are open-end diversified management investment
companies and one is a non-diversified company. The five funds are the Global
Income Fund, Government Securities Fund, Growth and Income Fund, Tax-Exempt Fund
and Total Return Fund. The Company issues a separate series of capital stock for
each Fund. In the future, the Company may establish additional funds. Each share
of capital stock when issued will be fully paid and non-assessable. Each share
of capital stock issued with respect to a Fund has a pro rata interest in the
assets of the Fund and is entitled to such dividends and distributions of income
belonging to that Fund as are declared by the Board of Directors. Each share of
capital stock is entitled to one vote on all matters submitted to a vote of all
shareholders of the Company, and fractional shares are entitled to a
corresponding fractional vote. Shares of a particular Fund will be voted
separately from shares of the other Funds on matters affecting only that Fund,
including approval of the investment management agreements and changes in the
fundamental investment objectives or restrictions of that Fund. The underlying
assets of each Fund are required to be segregated on the books of account, and
are charged with the liabilities of that particular Fund and a proportionate
share of the general liabilities of the Company based on the average net asset
value of the respective Funds for each quarter. Shareholders of the Company will
not be entitled to preemptive rights or cumulative voting rights. All shares may
be redeemed at any time by the Company.
As a Maryland corporate entity, the Company is not required to hold regular
annual shareholder meetings and, in the normal course, does not expect to hold
such meetings. The Company is, however, required to hold shareholder meetings
for such purposes as, for example: (i) approving certain agreements as required
by the Act; (ii) changing fundamental investment objectives and restrictions of
the Funds; and (iii) filling vacancies on the Board of Directors in the event
that less than a majority of the directors were elected by shareholders. The
Company expects that there will be no meetings of shareholders for the purpose
of electing directors unless and until such time as less than a majority of the
directors holding office have been elected by shareholders. At such time, the
directors then in office will call a shareholder meeting for the election of
directors. In addition, holders of record of not less than two-thirds of the
outstanding shares of the Company may remove a director.
ADDITIONAL INFORMATION
CUSTODIAN. Citibank, N.A., 111 Wall Street, New York City, New York 10043,
acts as custodian of the Company's assets. Citibank is responsible for holding
all securities and cash of each Fund, receiving and paying for securities
purchased, delivering against payment securities sold, receiving and collecting
income from investments, making all payments covering expenses of the Company
and performing other administrative duties, all as directed by persons
authorized by the Company. Citibank does not exercise any supervisory function
in such matters as the purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of the Company. The Company, with respect to
each Fund, may also appoint from time to time, with the approval of the
Company's Board of Directors, qualified domestic sub-custodians for all the
Funds and foreign sub-custodians qualified under Rule 17f-5 of the Act with
respect to certain foreign securities which may be purchased by the Funds.
INDEPENDENT AUDITORS. Ernst & Young LLP, 787 Seventh Avenue, New York, NY
10019, has been selected as the independent auditors of the Company.
COUNSEL. Goodwin Procter LLP, Exchange Place, Boston, Massachusetts 02109,
serves as counsel to the Company.
TRANSFER AGENT. The Company has contracted with DST Systems, Inc. ("DST"),
210 W. 10th St., 8th Floor, Kansas City, Missouri 64105, to act as its transfer
agent, registrar, and dividend disbursing agent. DST will service shareholder
accounts, and its duties will include: (i) effecting sales redemptions and
exchanges of Company shares; (ii) distributing dividends and capital gains
associated with Company accounts; and (iii) maintaining account records and
responding to shareholder inquiries.
33
NAME AND SERVICE MARK. The Chubb Corporation has granted the Company the
right to use the "Chubb" name and service mark.
CAPITAL STOCK
The authorized capital stock of the Company consists of 1,000,000,000
shares of common stock, par value $.01, which are divided into five series: Van
Eck/Chubb Government Securities Fund, Van Eck/Chubb Total Return Fund, Van
Eck/Chubb Tax-Exempt Fund, Van Eck/Chubb Growth and Income Fund and Van
Eck/Chubb Global Income Fund. Each Fund currently consists of 100,000,000
authorized shares. The Company has the right to issue additional shares without
the consent of the shareholders, and may allocate its issued and reissued shares
to new Funds or to one or more of the six existing Funds.
The assets received by the Company for the issuance or sale of shares of
each Fund and all income, earnings, profits and proceeds thereof are
specifically allocated to each Fund. They constitute the underlying assets of
each Fund, are required to be segregated on the books of account, and are to be
charged with the expense of such Fund. Any assets which are not clearly
allocable to a particular Fund are allocated among the Funds in proportion to
their relative net assets before adjustment for such unallocated liabilities.
Each issued and outstanding share in a Fund is entitled to participate equally
in dividends and distributions declared with respect to such Fund and in the net
assets of such Fund upon liquidation or dissolution remaining after satisfaction
of outstanding liabilities.
Chubb Life Insurance Company of New Hampshire, a wholly-owned subsidiary of
the Jefferson-Pilot Corporation a North Carolina Corporation, provided the
initial capital for the Company by purchasing shares of each of the original
five Funds valued at $100,000 prior to the date shares of the Company were
offered to the public. On July 1, 1991, Chubb Life Insurance Company of New
Hampshire and Chubb Life Insurance Company of America were merged into an
affiliate, The Volunteer State Life Insurance Company ("Volunteer"), which
simultaneously changed its name to Chubb Life Insurance Company of America
("Chubb Life"). Chubb Life provided the initial investment for the Capital
Appreciation Fund and the Global Income Fund by purchasing 10,000 shares of each
Fund at a cost of $10.00 per share. Chubb Life was purchased by Jefferson Pilot
Corporation in 1997 and changed its name to Jefferson Pilot Financial Insurance
Company and is no longer affiliated with the Chubb Corporation or the Company.
As of February 26, 2001, the Chubb Corporation (a New Jersey corporation), and
its wholly-owned subsidiaries, Federal Insurance Company ("Federal Insurance")
and Vigilant Insurance Company ("Vigilant Insurance"), together owned 69.94% of
the outstanding shares of the Company.
FINANCIAL STATEMENTS
The financial statements contained in the Company's December 31, 2000
Annual Report to shareholders are incorporated herein by reference. The Annual
Report is available at no charge upon written or telephone request to the
Company at the address or telephone numbers set forth on the first page of this
Statement of Additional Information.
34
APPENDIX
DESCRIPTION OF INVESTMENT RATINGS
MOODY'S--BOND RATINGS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edge". Interest payments are protected by a large, or by an exceptionally
stable, margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are not likely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, fluctuation of protective
elements may be of greater amplitude, or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present, but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
RATING REFINEMENTS. Moody's may apply numerical modifiers, 1, 2 and 3, in each
generic rating classification from Aa through B in its municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic category; the modifier 2 indicates a mid-range ranking; and a
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.
SHORT-TERM NOTES. The four ratings of Moody's for short-term notes are MIG 1,
MIG 2, MIG 3 and MIG 4. MIG 1 denotes "best quality, enjoying strong protection
from established cash flows." MIG 2 denotes "high quality" with "ample margins
of protection." MIG 3 notes are of "favorable quality...but lacking the
undeniable strength of the preceding grades." MIG 4 notes are of "adequate
quality, carrying specific risk but having protection...and not distinctly or
predominantly speculative."
MOODY'S COMMERCIAL PAPER RATINGS
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of 9
months. Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment capacity of rated issuers:
Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations.
Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short term promissory obligations.
Issuers rated Prime-3 (or related supporting institutions) have an acceptable
capacity for repayment of short-term promissory obligations.
Issuers rated Not Prime do not fall within any of the Prime rating categories.
35
STANDARD & POOR'S--BOND RATINGS
A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.
The debt rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from sources Standard & Poor's considers reliable. Standard
& Poor's does not perform an audit in connection with any rating and may, on
occasion, rely on unaudited financial information. The ratings may be changed,
suspended, or withdrawn as a result of changes in, or unavailability of, such
information, or for other reasons.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligations.
II. Nature of and provisions of the obligations.
III. Protection afforded by, and relative position of, the obligations in the
event of bankruptcy, reorganization, or other arrangement under the laws
of bankruptcy and other laws affecting creditor's rights.
AAA. Debt rated "AAA" has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA. Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the highest-rated issues only in small degree.
A. Debt rated "A" has a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher-rated
categories.
BBB. Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher-rated categories.
Plus (+) or Minus (-): The ratings from "AA" to "BBB" may be modified by the
addition of a plus or minus sign to show relative
standing within the major rating categories.
STANDARD & POOR'S COMMERCIAL PAPER RATINGS
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days. Ratings are graded into four categories, ranging from "A" for the
highest quality obligations to "D" for the lowest. Ratings are applicable to
both taxable and tax-exempt commercial paper. The four categories are as
follows:
A. Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designation 1, 2, and 3 to indicate the relative degree of
safety.
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong.
36
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for
issues designated "A-1."
A-3. Issues carrying this designation have a satisfactory capacity or timely
payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
The Commercial Paper Rating is not a recommendation to purchase or sell a
security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
Standard & Poor's rating categories with respect to certain municipal note
issues with a maturity of less than 3 years are as follows:
SP-1. A very strong, or strong, capacity to pay principal and interest. Issues
that possess overwhelming safety characteristics will be given a "+"
designation.
SP-2. A satisfactory capacity to pay principal and interest.
SP-3. A speculative capacity to pay principal and interest. Standard & Poor's
may continue to rate note issues with a maturity greater than 3 years in
accordance with the same rating scale currently employed for municipal
bond ratings.
37
SUPPLEMENT DATED JANUARY 1, 2002 TO
VAN ECK/CHUBB FUNDS
STATEMENT OF ADDITIONAL INFORMATION
GROWTH AND INCOME FUND
TOTAL RETURN FUND
DATED MAY 1, 2001
Effective January 1, 2002, Van Eck/Chubb Funds, Inc. changed its name to Van Eck
Funds, Inc. (the "Company"), the Van Eck/Chubb Growth and Income Fund changed
its name to the Van Eck Growth and Income Fund (the "Growth and Income Fund")
and the Van Eck/Chubb Total Return Fund changed its name to the Van Eck Total
Return Fund (the "Total Return Fund" and with the Growth and Income Fund, the
"Funds").
The first two paragraphs of the Statement of Additional Information under the
caption "Investment Advisory Services-Investment Management and Administration"
are deleted in their entirety and replaced with the following:
The Company has entered into an Interim Investment Management Agreement with
respect to each Fund with Van Eck Associates Corporation (the "Adviser"),
pursuant to which the Adviser serves as investment adviser to the Funds. The
Company and the Adviser have entered into Interim Investment Sub-Advisory
Agreements with John A. Levin & Co., Inc. ("Levin") under which Levin acts as
investment sub-adviser to the Funds. Levin, subject to review by the Adviser and
the Company's Board of Directors, has the day-to-day responsibility for
furnishing an investment program for the Funds and making decisions to buy,
sell, or hold any particular security for the Funds. Levin is a wholly owned
subsidiary of BKF Capital Group, Inc., which is a company listed on the New York
Stock Exchange.
Van Eck has agreed to pay Levin an advisory fee at the annual rate of 0.20% of
the first $200 million of average daily net assets, 0.19% of the next $1.1
billion, and 0.18% of assets in excess of $1.3 billion. Levin has agreed to
waive all sub-advisory fees through September 30, 2002.
Each of the Interim Investment Management Agreement and the Investment
Sub-Advisory Agreements will remain in effect until the earlier of (i) the
effective date of an agreement that has been approved by a vote of a majority of
the outstanding voting securities of the Fund and (ii) May 31, 2002. The Interim
Investment Management Agreement may be terminated, without the payment of any
penalty by the vote of the Board of Directors, or by the vote of a majority of
the outstanding shares of a Fund, on 60 days' written notice to the Adviser, by
the Adviser on 60 days' written notice to the Fund and will terminate
automatically in the event of its assignment.
The Interim Investment Sub-Advisory Agreements may be terminated without the
payment of any penalty by the vote of the Board of Directors or by vote of a
majority of the Funds' outstanding voting securities on 10 days' written notice
to Levin or by the Adviser or Levin at any time upon 60 days' notice to the
other parties. The Interim Investment Sub-Advisory Agreements will terminate
automatically in the event of their assignment.
The paragraph in the Statement of Additional Information under the caption
"Additional Information - Name and Service Mark" and the third paragraph under
the caption "Additional Information - Capital Stock" are each deleted in their
entirety.
[GRAPHIC OMITTED]
VAN ECK CHUBB FUNDS
ANNUAL REPORT
DECEMBER 31, 2001
GROWTH AND INCOME FUND
TOTAL RETURN FUND
THE VAN ECK PARTNERSHIP SERIES
VAN ECK/CHUBB GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
THE VAN ECK/CHUBB GROWTH AND INCOME FUND'S PRIMARY OBJECTIVE IS LONG-TERM
CAPITAL APPRECIATION THROUGH INVESTMENT IN STOCKS OF LEADING LARGE- AND
MEDIUM-CAPITALIZATION U.S. COMPANIES. THE FUND MANAGER LOOKS FOR VALUE BY
INVESTING IN ESTABLISHED COMPANIES THAT ARE SELLING AT A DISCOUNT TO THE MARKET
IN TERMS OF SEVERAL MEASURES--INCLUDING PRICE EARNINGS RATIOS--AND THAT HAVE
SOLID FUTURE PROSPECTS (PRIMARILY DEFINED AS FUTURE GROWTH POTENTIAL ABOVE THE
S&P 500 INDEX). THIS STRATEGY HELPS KEEP THE FUND'S VOLATILITY BELOW THAT OF THE
U.S. STOCK MARKET IN GENERAL. AS A SECONDARY OBJECTIVE, THE FUND SEEKS A
REASONABLE LEVEL OF CURRENT INCOME THROUGH STOCK DIVIDENDS.
For the second year in a row, U.S. stock markets suffered a down year. The
benchmark Standard & Poor's 500 Index,* which had already declined 9.10% in
2000, fell another 11.88% in 2001. This marked the broader market's worst
performance since the early 1970s. This disappointing showing was also reflected
in the performance of the Van Eck/Chubb Growth and Income Fund which, for the
twelve months ended December 31, 2001, lost 14.31%. During the same period, the
Fund's peer mutual funds, as measured by the Lipper Large-Cap Core Fund Index,**
declined 12.83%. Long-term performance results for the Fund are included in the
table that follows.
MARKET REVIEW
The U.S. economy (along with many of the world's economies) slowed sharply in
2001 and officially moved into recession for the first time since 1991 (based on
two consecutive quarters of negative gross domestic product)--thus ending the
phenomenal decade-long expansion. In past recessions, a falloff in consumer
spending has generally signaled the end to boom times, but the current recession
was created in large part by overly enthusiastic business models and the excess
capacity that resulted. Throughout the year, the Federal Reserve Board tried to
invigorate the economy through an aggressive campaign of interest rate cuts. The
Fed slashed rates 11 times over the course of the year, reducing the federal
funds rate from 6.50% to 1.75%--its lowest level since 1961. Lower interest
rates, however, did not succeed in fully fixing what ailed the markets this past
year, although they may have helped avert a deeper recession. Fed action did
succeed in buoying consumer spending and created a kind of "profitless recovery"
among retailers and auto makers, who drastically reduced prices and offered 0%
financing in order to move inventory. An additional bright note on the consumer
front was the continued strength of the housing market; lower interest rates
spurred both new home sales and record numbers of refinancings. But Fed policy
did not translate into increased corporate capital spending--and both consumer
and corporate spending have been key stimulants to the strong U.S. economy over
the past decade. In addition, corporate bankruptcies increased in 2001 and
several major firms had headline-making troubles, including Enron, Kodak,
Polaroid, and Bethlehem Steel (we did not hold any of these stocks in the
portfolio during the year).
For most of 2001, investors remained optimistic that stocks would turn around
and the economy would rebound despite mounting negative indicators. The year was
characterized by significant volatility and movement among sectors as investors
shifted assets between defensive stocks (in industries such as pharmaceuticals,
utilities and healthcare) and more growth-oriented stocks (software,
biotechnology and wireless communications) in anticipation of an economic
recovery and the next big move. Subsequently, the events of September 11 sobered
most investors and forced an adjustment of expectations. The markets faltered
for several days after the attacks. However, probably due to the government's
fiscal stimulus package and the Fed's aggressive action, the fourth quarter
witnessed a surprising market rally. Still, this year-end rally did not succeed
in lifting most of the major market indices out of negative performance
territory for the year. Stock valuations had been propelled far above rational
levels during the technology bubble of late 1999 and early 2000. Slowly and
painfully, Americans came to accept that the bursting of one of the biggest
financial bubbles in history was a major cause for the current recession, and
that the resumption of rapid growth might be slow in coming. All of the major
U.S. equity indices suffered
1
VAN ECK/CHUBB GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
substantial declines in 2001, with the exception of the small-cap Russell 2000
Index. The S&P 500 Index (large-caps) was off 11.88%, the Dow Jones Industrial
Average*** (blue chips) fell 5.43%, the Russell Mid-Cap Index+ (mid-caps)
declined 7.03%, and the Nasdaq Composite Index++ (technology) fell 20.80%; by
contrast, the Russell 2000 Index## (small-caps) gained 2.63%. With 2001
concluding as another down year, the two-year period of 2000-2001 goes on record
as the worst two years for U.S. stocks since 1973-1974 (as measured by the S&P
500 Index).
During the year, the worst performing sector was energy stocks, hurt by the drop
in oil prices and the collapse of Enron. Telecommunications companies also
suffered; many had taken on substantial debt in order to build costly
infrastructure and several now face bankruptcy. While software and
semiconductors did well toward the end of the year, the overall technology
sector had a terrible 2001. At the same time, consumer cyclicals, staples,
housing-related companies (builders and furnishings) and electronics goods
retailers all benefited from Americans' increased desire to remain close to home
following the events of September 11.
FUND REVIEW
As we reported to you at midyear, in the first half of the year we made fairly
significant changes to your Fund's portfolio, working to improve overall quality
and better position it for uncertain times. We purposefully opted to take a more
defensive posture in order to ride out the market's volatility and to avert any
major pitfalls. Throughout the year, we concentrated on careful stock selection
rather than making specific industry bets, and all in all the Fund's sector
weightings did not shift significantly over the course of 2001, although
individual company names did. We remained committed to our discipline of
searching for leading companies with proven track records, quality management
and solid future growth prospects that are reasonably priced.
Your portfolio benefited from the sale of several positions in the second half
of 2001. These included Costco Wholesale Corp., a national discount-merchandise
warehouse chain, and Baxter International, which is engaged in the development,
manufacturing and distribution of products used in the healthcare industry (both
companies were profiled in the June 30 Semi-Annual Report). The Fund profited
from the sale of defense contractors General Dynamics and Northrop Grumman
Corp., as the defense sector benefited from the increased military activity that
followed September 11. On the other hand, we sold several financial services
positions, including Citigroup, Capital One Financial and Providian Financial,
that continued to suffer as the economic outlook failed to improve. We also sold
several of the Fund's electronics/ telecommunications/technology holdings,
including Flextronics International Ltd., the electronics and semiconductor
manufacturer, as these firms continued to come under pressure. We did maintain a
Fund position, however, in technology, believing that technology and
telecommunications are a key part of the economy over the longer term. Last
year, these holdings were a drag on performance.
We also added several holdings to the Fund's portfolio in the second half,
companies that had been beaten down and that we believed could benefit from
positive trends. Many of the companies we looked at had stock prices that were
off as much as 40% from their highs, and were selling at a level as low as 10 to
15 times earnings. Among the notable companies we purchased for the Fund after
midyear were Gillette, the manufacturer of household and personal hygiene
products (3.1% of the Fund's total net assets as of December 31); Barnes &
Noble, the retail bookseller (1.9% of net assets); and Abercrombie & Fitch (2.2%
of net assets) and American Eagle Outfitters (1.7% of net assets), both retail
clothing distributors. We also bought BellSouth Corp (2.8% of net assets), which
provides more than 37 million customers in 20 countries with Internet network
access services and wireless communications. We added Estee Lauder Co. (2.4% of
net assets), the manufacturer and marketer of skin care, makeup, fragrance and
hair care products sold under brand names such as Estee Lauder, Clinique, and
Aramis; and Clear Channel (2.3% of net assets), a diversified media company with
broadcasting, live entertainment and outdoor advertising business segments.
2
VAN ECK/CHUBB GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
THE OUTLOOK
We are cautiously optimistic as we move forward. It is anticipated that the
economy should begin to rebound some time in the second half of this year, once
the effects of the Fed's monetary policy and fiscal stimulus are felt. Progress
will hinge on the continued strength of the U.S. consumer, improved health of
corporate earnings and an increase in the level of capital spending. However, we
recommend that investors be patient. Although there are some signs that the
economic picture is improving, the unemployment rate has increased from a low of
3.9% in October 2000 to 5.8% in December 2001. In addition, both American
individuals and corporations are shouldering a huge amount of debt; this
excessive debt burden could prove to be a drag on our economy for some time to
come. At the same time, overseas economies will need to show improvement. As we
have stated in the past, we expect that the stock market will continue to remain
volatile. This creates a suitable environment for the patient stock picker
willing to seek out pockets of opportunity.
We thank you for your investment in the Van Eck/Chubb Growth and Income Fund.
[GRAPHIC OMITTED]
/s/ ROBERT WITKOFF
- ------------------
ROBERT WITKOFF
SENIOR VICE PRESIDENT
CHUBB ASSET MANAGERS, INC.
January 26, 2002
The Standard & Poor's 500 Index, Lipper Large-Cap Core Fund Index, Dow Jones
Industrial Average, Russell Mid-Cap Index, Nasdaq Composite Index and Russell
2000 Index are managed indices and include the reinvestment of all dividends,
but do not reflect the payment of transaction costs, advisory fees or expenses
that are associated with an investment in the Fund. The Indices' performance is
not illustrative of the Fund's performance. Indices are not securities in which
investments can be made.
* The S&P 500 Index consists of 500 widely held common stocks, covering four
broad sectors (industrials, utilities, financial and transportation). It is
a market value-weighted index (stock price times shares outstanding), with
each stock affecting the index in proportion to its market value.
Construction of the S&P 500 Index proceeds from industry group to the
whole. Since some industries are characterized by companies of relatively
small stock capitalization, the Index is not comprised of the 500 largest
companies on the New York Stock Exchange. This Index, calculated by
Standard & Poor's, is a total return index with dividends reinvested.
** The Lipper Large-Cap Core Fund Index is an index comprised of funds that,
by portfolio practice, invest at least 75% of their equity assets in
companies with market capitalizations (on a three-year weighted basis)
greater than 300% of the dollar-weighted median market capitalization of
the middle 1,000 securities of the S&P SuperComposite 1500 Index. Large-cap
core funds have more latitude in the companies in which they invest. These
funds typically have an average price-to-earnings ratio, price-to-book
ratio, and three-year sales-per-share growth value comparable to the S&P
500 Index.
*** The Dow Jones Industrial Average is a price-weighted average of 30
blue-chip stocks that are generally the leaders in their industry. It has
been a widely followed indicator of the stock market since October 1, 1928.
+ The Russell Mid-Cap Index measures the performance of the 800 smallest
companies in the Russell 1000 Index. The average market capitalization is
approximately $4.2 billion; the median market capitalization is
approximately $3.2 billion.
++ The Nasdaq Composite Index is a broad-based capitalization-weighted index
of all Nasdaq national market and small-cap stocks.
# The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index, which represents approximately 98% of the investable
U.S. equity market.
3
VAN ECK/CHUBB GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERFORMANCE RECORD AS OF 12/31/01
- --------------------------------------------------------------------------------
AFTER
MAXIMUM BEFORE
AVERAGE ANNUAL SALES SALES
TOTAL RETURN CHARGE* CHARGE
- --------------------------------------------------------------------------------
Life (since 12/1/87) 10.12% 10.59%
- --------------------------------------------------------------------------------
10 Year 7.49% 8.12%
- --------------------------------------------------------------------------------
5 Year 1.03% 2.23%
- --------------------------------------------------------------------------------
1 Year (19.23%) (14.31%)
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT INDICATIVE OF FUTURE
RESULTS. Investment return and principal value of an investment in the Fund will
vary so that shares, when redeemed, may be worth more or less than the original
cost.
The Adviser is currently waiving certain or all expenses of the Fund. Had the
Fund incurred all expenses, investment returns would have been reduced.
* A shares: maximum sales charge is 5.75%.
[THE FOLLOWING DATA IS PRESENTED AS A PIE CHART IN THE PRINTED DOCUMENT]
% OF PORTFOLIO(1)
Common Stocks: 94.0%
Other Net Assets: 6.0%
% OF
TOP TEN EQUITIES PORTFOLIO(1)
Washington Mutual, Inc. 4.1%
Wells Fargo & Company 4.0%
UnitedHealth Group, Inc. 3.9%
Wellpoint Health Networks, Inc. 3.4%
SBC Communications, Inc. 3.2%
Wal-Mart Stores, Inc. 3.2%
Gillette Co. 3.1%
HCA, Inc. 2.8%
BellSouth Corp. 2.8%
Transocean Sedco Forex, Inc. 2.8%
% OF
TOP TEN INDUSTRIES PORTFOLIO(1)
Telecommunications 12.1%
Financial 10.7%
Retail 7.2%
Healthcare Services 6.7%
Oil & Gas Equipment and Services 6.5%
Electronics 6.1%
Household Products 5.4%
Medical Services 5.4%
Apparel 3.8%
Banking 3.8%
(1) As a percentage of total net assets at December 31, 2001.
4
VAN ECK/CHUBB GROWTH AND INCOME FUND
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
This graph compares a hypothetical $10,000 investment in the Van Eck/Chubb
Growth and Income Fund made ten years ago with a similar investment in the
Standard & Poor's 500 Index, the Lipper Large-Cap Core Fund Index and the Lipper
Multi-Cap Core Fund Index.
[THE FOLLOWING DATA IS PRESENTED AS A LINE GRAPH IN THE PRINTED DOCUMENT]
VAN ECK/CHUBB GROWTH AND INCOME FUND
Performance Comparison
Van Eck
Chubb Growth
and Income Lipper Lipper
Fund (with S&P 500 Large-Cap Multi-Cap
Date sales charge)(1) Index Core Fund Index Core Fund Index
- --------------------------------------------------------------------------------
Dec-90 9428 10000 10000 10000
9584 9748 9917 9911
9350 9933 9802 9855
Sep-91 9421 10246 10078 10128
10073 10761 10933 10770
10558 11230 11320 11226
Jun-92 10645 11284 11442 11361
11117 11575 11930 11736
11613 11843 12282 11999
Mar-93 11275 11395 11944 11593
11147 11442 11800 11486
11537 12001 12403 11996
Dec-93 11113 11999 12169 11870
12035 13166 13151 12805
13568 14421 14248 13864
Sep-94 14741 15566 15433 14896
15046 16502 16088 15639
15459 17388 17063 16444
Jun-95 16188 18167 17628 17040
16520 18729 18203 17582
18432 20289 19381 18742
Mar-96 18617 20834 19491 18897
21771 24468 22339 22072
24277 26300 24661 23767
Dec-96 23197 27055 24473 24219
26266 30827 27605 27487
25917 31844 27900 28587
Sep-97 19504 28683 24170 25311
23154 34787 29047 30742
23433 36519 29766 32075
Jun-98 25830 39093 32136 33849
24477 36655 30110 31640
29966 42106 35085 36690
Mar-99 31770 43070 37671 38256
29047 41929 36488 37384
28399 41523 36686 37254
Dec-99 24022 38276 33909 33987
21322 33741 30028 29751
22002 35714 32171 31337
Sep-00 18837 30474 26690 26859
Dec-00 20584 33730 30260 29625
- --------------------------------------------------------------------------------------------
Average Annual Total Return 12/31/01 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------------------
VE/C Growth and Income Fund (w/o sales charge) (14.31%) 2.23% 8.12%
- --------------------------------------------------------------------------------------------
VE/C Growth and Income Fund (with sales charge)(1) (19.23%) 1.03% 7.49%
- --------------------------------------------------------------------------------------------
Standard & Poor's 500 Index (11.88%) 10.69% 12.91%
- --------------------------------------------------------------------------------------------
Lipper Multi-Cap Core Fund Index (10.76%) 9.32% 11.71%
- --------------------------------------------------------------------------------------------
Lipper Large-Cap Core Fund Index (12.83%) 9.59% 11.47%
- --------------------------------------------------------------------------------------------
INCEPTION DATE FOR THE VAN ECK/CHUBB GROWTH AND INCOME FUND WAS 12/1/87.
(1) The maximum sales charge is 5.75%. Returns for the Van Eck/Chubb Growth and
Income Fund reflect all recurring expenses and include the reinvestment of all
dividends and distributions. Performance does not fully reflect the impact of
the Fund's expenses, as they have been partially reimbursed by the Adviser at
certain times since the Fund's inception.
The Standard & Poor's 500 Index, the Lipper Large-Cap Core Fund Index and the
Lipper Multi-Cap Core Fund Index are unmanaged indices and include the
reinvestment of all dividends, but do not reflect the payment of transaction
costs, advisory fees or expenses that are associated with an investment in the
Fund. The Indices' performance is not illustrative of the Fund's performance.
Indices are not securities in which investments can be made. The S&P 500 Index
consists of 500 widely held common stocks, covering four broad sectors
(industrials, utilities, financial and transportation). It is a market
value-weighted index (stock price times shares outstanding), with each stock
affecting the index in proportion to its market value. Construction of the S&P
500 Index proceeds from industry group to the whole. Since some industries are
characterized by companies of relatively small stock capitalization, the Index
is not comprised of the 500 largest companies on the New York Stock Exchange.
This Index, calculated by Standard & Poor's, is a total return index with
dividends reinvested.
The Lipper Large-Cap Core Fund Index is an index comprised of funds that, by
portfolio practice, invest at least 75% of their equity assets in companies with
market capitalizations (on a three-year weighted basis) greater than 300% of the
dollar-weighted median market capitalization of the middle 1,000 securities of
the S&P SuperComposite 1500 Index. Large-cap core funds have more latitude in
the companies in which they invest. These funds typically have an average
price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share
growth value comparable to the S&P 500 Index.
The Lipper Multi-Cap Core Fund Index is an index comprised of funds that invest
in a variety of market capitalization ranges, without concentrating 74% of their
equity assets in any one market capitalization range over an extended period of
time. Multi-cap funds will generally have between 25% to 75% of their assets
invested in companies with market capitalizations (on a three-year weighted
basis) above 300% of the dollar-weighted median market capitalization of the
middle 1,000 securities of the S&P 1500 Index. Multi-cap core funds have more
latitude in the companies in which they invest. These funds will normally have
an average price-to-earnings ratio, price-to-book ratio, and three-year sales
growth figure comparable to the S&P 1500 Index.
We compare the Fund to both the Lipper Large-Cap Core Fund Index and the Lipper
Multi-Cap Core Fund Index in the graph above because, in 2000, Lipper included
the Fund in the Multi-Cap Core category, but this year, moved it to the
Large-Cap Core category.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Performance data quoted
represents past performance; the investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
5
VAN ECK/CHUBB TOTAL RETURN FUND
- --------------------------------------------------------------------------------
THE VAN ECK/CHUBB TOTAL RETURN FUND SEEKS TO PROVIDE BOTH INCOME AND CAPITAL
APPRECIATION USING A STRATEGIC COMBINATION OF HIGH-QUALITY BONDS AND THE COMMON
STOCKS OF BOTH LARGE- AND MEDIUM-CAPITALIZATION COMPANIES. STOCKS ARE SELECTED
USING A RELATIVE VALUE APPROACH. FUND MANAGERS MONITOR AND ADJUST THE ASSET MIX
BASED ON CONTINUOUS ANALYSIS OF THE FINANCIAL MARKETS. IN MOST MARKETS, ABOUT
60% TO 70% OF THE FUND'S ASSETS WILL BE INVESTED IN COMMON STOCKS.
When we last reported to you at midyear, the Van Eck/Chubb Total Return Fund had
experienced a frustrating six months, falling 6.38% by June 30, 2001. Both the
weak stock market and the somewhat tepid bond market contributed to these
results. We are pleased to report, however, that your Fund managed to recoup a
bit of these losses in the second half, ending the year down 5.80%. For the
year, however, your Fund's average peer mutual fund fared better, as measured by
the -3.24% return of the Lipper Balanced Fund Index.* Although your Fund's
results may seem disappointing in absolute terms, they reflect the lackluster
performance of the U.S. stock market in 2001, which fell 11.88% despite a
year-end rally; at the same time, bonds turned in a strong performance in the
second half and ended the year up 7.23% as measured by the Lehman Brothers
Government Bond Index.** Longer-term performance results for your Fund are
included in the table that follows.
MARKET REVIEW
Despite a surprising fourth quarter rally that followed the horrific events of
September 11, most equity investments turned in negative returns for the year as
the U.S. economy (and most other world economies) slowed sharply, falling into
what is now recognized as a recession. With the exception of the small-cap
Russell 2000 Index, all the major U.S. equity indices posted declines in 2001.
The S&P 500 Index*** (large-capitalization stocks) was off 11.88%, the Dow Jones
Industrial Average+ (blue chips) fell 5.43%, the Russell Mid-Cap Index++
(mid-caps) declined 7.03% and the Nasdaq Composite Index# (technology) fell
20.80%; by contrast the Russell 2000 Index## (small-caps) gained 2.63%. With
2001 concluding as another down year for U.S. stocks, the two-year period of
2000-2001 goes on record as the worst two years for stocks since 1973-1974 (as
measured by the S&P 500 Index). At the same time, foreign stock markets also
stumbled.
On a more positive note for investors, bonds outperformed stocks for the second
year in a row (only the fourth time on record that this has happened in the
U.S.). Several factors contributed to the strong performance of bonds, including
the weak stock market, nervousness over the events of September 11 and monetary
policy. Throughout the year the Federal Reserve Board tried to invigorate the
economy through an aggressive campaign of interest rate cuts. The Fed slashed
rates 11 times over the course of the year, reducing the federal funds rate from
6.50% to 1.75%--its lowest level in decades. The positive performance of bonds
helped to remind investors of the importance of diversification, which had been
ignored in recent years as investors came to expect double-digit stock returns.
Throughout the year, both institutional and individual investors shifted assets
from stocks to bonds, seeking a safer haven.
While U.S. Treasury bonds were the top performers in 2000, investment-grade
corporate bonds were the top-performing fixed income asset class in 2001,
gaining 10.7%. An investor holding a basket of treasuries over the two-year
period would have enjoyed a return of more than 20% compared to a loss of 9.9%
for the Dow Jones Industrial Average and 19.9% for the S&P 500 Index. But
despite these strong returns, 2001 was a volatile year for bond markets. After
rallying for most of the year as the economy faltered and the threat of
inflation eased (yields declined and bond prices rose), bond prices began to
plunge in early November when signs of strength emerged in the U.S. economy.
Fears arose that the Fed would stop cutting interest rates, and perhaps even
raise them toward yearend. The sell-off in November and December cost investors
a sizable portion of the gains made earlier in the year. Although it was a good
year for bonds, the yield on the 10-year U.S. Treasury note changed little over
the course of the year--down just nine basis points, from 5.11% at the beginning
of 2001 to 5.02% at yearend.
6
VAN ECK/CHUBB TOTAL RETURN FUND
- --------------------------------------------------------------------------------
FUND REVIEW
Throughout the year, we maintained a defensive posture with regard to the Fund's
portfolio. At the beginning of the year, the Fund was 54.6% invested in common
stocks, 34.7% invested in government and government agency bonds, and 15.9%
invested in corporate bonds. Over the course of the year, your Fund's allocation
shifted in favor of bonds, with 61.8% invested in bonds at yearend (with 42.4%
in goverments and 19.4% in corporates) and 36.3% in stocks. These changes
reflect both appreciation and depreciation of holdings, as well as new purchases
and sales of existing holdings.
In the second half of the year, we made several changes to your Fund's stock
holdings. Your portfolio benefited from the sale of Costco Wholesale Corp., a
national discount-merchandise warehouse chain. The Fund also profited from the
sale of a portion of the Fund's holding in the defense contractor Northrop
Grumman Corp. (1.1% of the Fund's total net assets as of December 31) as the
defense sector benefited from the increased military activity that followed
September 11. On the other hand, we sold the financial services giant Citigroup,
which continued to suffer as the economic outlook failed to improve. Other
notable sales included Intel Corp., United Technologies Corp., RadioShack, and
National Oilwell. We also sold the Fund's position in Flextronics International
Ltd., the electronics and semiconductor manufacturer, as its industry sector
continues to come under pressure. As we stated in July, the Fund's technology
holdings were a drag on performance in 2001. Even so, we remained committed to
technology and telecommunications over the longer-term, as we continue to focus
on leading companies with a proven track record, quality management, solid
future growth prospects and a reasonable stock price.
We also added several new positions in the second half of the year which are
reflected in the Fund's list of top ten equities at the end of this letter. New
additions include Caremark Rx, Inc. (1.5% of net assets), a provider of pharmacy
benefit management services and therapeutic pharmaceutical services; Transocean
Sedco Forex (1.3% of net assets), an international provider of deepwater and
harsh environment contract drilling services for oil and gas wells; Laboratory
Corp. of America (1.2% of net assets), a leading independent clinical laboratory
company; Estee Lauder Co. (1.2% of net assets), the manufacturer and marketer of
skin care, makeup, fragrance and hair care products, sold under brand names such
as Estee Lauder, Clinique, and Aramis; and Advanced Micro Devices (1.2% of net
assets), a semiconductor manufacturer with manufacturing facilities in the U.S.
and Asia and global sales offices.
As was the case at mid-year, we continued to take a fairly conservative approach
to the Fund's bond allocation, concentrating on high quality government and
corporate bonds. To a great extent we maintained our average maturity structure
and only made slight changes to our duration stance.
THE OUTLOOK
We remain cautiously optimistic on the markets in the year to come. It is
anticipated that the economy should begin to rebound some time in the second
half of this year once the effects of the Fed's monetary policy and fiscal
stimulus are felt. Even given a stronger economy sometime in 2002, most experts
agree that inflation is likely to stay low, perhaps even dropping as low as
1%--and low inflation is good news for fixed-income investments. But we caution
investors to keep in mind that economic progress will hinge on the continued
strength of the U.S. consumer, and on the improved health of corporate earnings
and an increase in the level of capital spending. Given this, patience is
needed. Although there are some signs that the economic picture is improving,
the unemployment rate has increased from a low of 3.9% in October 2000 to 5.8%
in December 2001. In addition, both American individuals and corporations are
shouldering a huge amount of debt; this excessive debt burden could prove to be
a drag on our economy for some time to come. At the same time, overseas
economies will need to show improvement. We expect the markets to remain
volatile.
7
VAN ECK/CHUBB TOTAL RETURN FUND
- --------------------------------------------------------------------------------
We thank you for your investment in the Van Eck/Chubb Total Return Fund.
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
/s/ Michael O'Reilly /s/ Robert Witkoff
- -------------------- --------------------
MICHAEL O'REILLY ROBERT WITKOFF
PRESIDENT SENIOR VICE PRESIDENT
VAN ECK/CHUBB FUNDS CHUBB ASSET MANAGERS, INC.
January 26, 2001
The Lipper Balanced Fund Index, Lehman Brothers Government Bond Index, Standard
& Poor's 500 Index, Dow Jones Industrial Average, Nasdaq Composite Index,
Russell Mid-Cap Index and the Russell 2000 Index are unmanaged indices and
include the reinvestment of all dividends, but do not reflect the payment of
transaction costs, advisory fees or expenses that are associated with an
investment in the Fund. The Indices' performance is not illustrative of the
Fund's performance. Indices are not securities in which investments can be made.
* The Lipper Balanced Fund Index includes funds with a primary objective of
conserving principal by maintaining at all times a balanced portfolio of
both stocks and bonds. Typically, the stock/bond ratio ranges around
60%/40%. The Index is an equally-weighted performance index adjusted for
capital gains distributions and income dividends of the largest qualifying
funds in the balanced category.
** The Lehman Brothers Government Bond Index includes all public obligations
of the U.S. Treasury, excluding flower bonds and foreign-targeted issues,
all publicly issued debt of U.S. Government agencies and quasi-federal
corporations, and corporate debt guaranteed by the U.S. government. All
issues have at least one year to maturity and an outstanding par value of
at least $100 million. All returns are market value-weighted inclusive of
accrued interest.
*** The S&P 500 Index consists of 500 widely held common stocks covering four
broad sectors (industrials, utilities, financial and transportation). It is
a market value-weighted index (stock price times shares outstanding), with
each stock affecting the index in proportion to its market value.
Construction of the S&P 500 Index proceeds from industry group to the
whole. Since some industries are characterized by companies of relatively
small stock capitalization, the Index is not comprised of the 500 largest
companies on the New York Stock Exchange. This Index, calculated by
Standard & Poor's, is a total return index with dividends reinvested.
+ The Dow Jones Industrial Average is a price-weighted average of 30
blue-chip stocks that are generally the leaders in their industry. It has
been a widely followed indicator of the stock market since October 1, 1928.
++ The Russell Mid-Cap Index measures the performance of the 800 smallest
companies in the Russell 1000 Index. The average market capitalization is
approximately $4.2 billion; the median market capitalization is
approximately $3.2 billion.
# The Nasdaq Composite Index is a broad-based capitalization-weighted index
of all Nasdaq national market and small-cap stocks.
## The Russell 2000 Index is comprised of the smallest 2000 companies in the
Russell 3000 Index, which represents approximately 98% of the investable
U.S. equity market.
8
VAN ECK/CHUBB TOTAL RETURN FUND
- --------------------------------------------------------------------------------
PERFORMANCE RECORD AS OF 12/31/01
- --------------------------------------------------------------------------------
AFTER
MAXIMUM BEFORE
AVERAGE ANNUAL SALES SALES
TOTAL RETURN CHARGE* CHARGE
- --------------------------------------------------------------------------------
Life (since 12/1/87) 10.44% 10.90%
- --------------------------------------------------------------------------------
10 Year 8.49% 9.13%
- --------------------------------------------------------------------------------
5 Year 4.87% 6.12%
- --------------------------------------------------------------------------------
1 Year (11.24%) (5.80%)
- --------------------------------------------------------------------------------
THE PERFORMANCE DATA REPRESENTS PAST PERFORMANCE AND IS NOT INDICATIVE OF FUTURE
RESULTS. Investment return and principal value of an investment in the Fund will
vary so that shares, when redeemed, may be worth more or less than the original
cost.
The Adviser is currently waiving certain or all expenses of the Fund. Had the
Fund incurred all expenses, investment returns would have been reduced.
* A shares: maximum sales charge is 5.75%
[THE FOLLOWING DATA IS REPRESENTED AS A PIE CHART IN THE PRINTED DOCUMENT]
% OF INVESTMENTS(1)
Other Net Assets: 1.9%
U.S. Government Obligations: 42.4%
Corporate Bonds: 19.4%
Common Stocks: 36.3%
% OF
TOP TEN EQUITIES PORTFOLIO(1)
General Electric Co. 1.7%
Caremark Rx, Inc. 1.5%
Baker Hughes, Inc. 1.4%
Wellpoint Health Networks, Inc. 1.3%
Transocean Sedco Forex, Inc. 1.3%
Laboratory Corp. of America Holdings 1.2%
Estee Lauder Companies, Inc. 1.2%
Nokia Oyj 1.2%
Federal National Mortgage Association 1.2%
Advanced Micro Devices, Inc. 1.2%
% OF
TOP TEN INDUSTRIES PORTFOLIO(1)
Oil & Gas Equipment and Services 3.7%
Telecommunications 3.6%
Electrical Equipment 3.3%
Electronics 3.1%
Pharmaceuticals 2.6%
Medical Services 2.5%
Financial Services 2.2%
Computer Software 2.1%
Banking 1.9%
Healthcare Services 1.8%
(1) As a percentage of total net assets at December 31, 2001.
9
VAN ECK/CHUBB TOTAL RETURN FUND
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
This graph compares a hypothetical $10,000 investment in the Van Eck/Chubb Total
Return Fund made ten years ago with a similar investment in the Standard &
Poor's 500 Index and the Lipper Balanced Fund Index.
[THE FOLLOWING DATA IS PRESENTED AS A LINE GRAPH IN THE PRINTED DOCUMENT]
VAN ECK/CHUBB TOTAL RETURN FUND
Performance Comparison
Van Eck
Chubb Total Lipper
Return Fund Balanced
(with sales S&P 500 Fund
Date charge)(1) Index Index
- --------------------------------------------------------------------------------
Dec-90 9428 10000 10000
9406 9748 9882
Jun-91 9407 9933 10040
9613 10246 10357
Dec-91 10098 10761 10746
10576 11230 11252
Jun-92 10731 11284 11482
11174 11575 11902
Dec-92 11516 11843 12030
11196 11395 11663
Jun-93 11105 11442 11575
11338 12001 11914
Dec-93 11028 11999 11784
11854 13166 12495
Jun-94 13056 14421 13370
13899 15566 14088
Dec-94 14342 16502 14717
14604 17388 15046
Jun-95 15065 18167 15352
15322 18729 15756
Dec-95 16786 20289 16638
16875 20834 16716
Jun-96 19117 24468 18517
21135 26300 19707
Dec-96 20830 27055 20015
22726 30827 21598
Jun-97 22457 31844 21927
19288 28683 20658
Dec-97 21399 34787 23034
21288 36519 23404
Jun-98 22661 39093 24456
22156 36655 23442
Dec-98 25374 42106 25102
26639 43070 25850
Jun-99 25779 41929 25539
25432 41523 26046
Dec-99 23982 38276 25702
22451 33741 24414
Jun-00 22451 35714 25271
21628 30474 23355
Dec-00 22592 33730 24870
- --------------------------------------------------------------------------------------------
Average Annual Total Return 12/31/01 1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------------------
VE/C Total Return Fund (w/o sales charge) (5.80%) 6.12% 9.13%
- --------------------------------------------------------------------------------------------
VE/C Total Return Fund (with sales charge)(1) (11.24%) 4.87% 8.49%
- --------------------------------------------------------------------------------------------
Standard & Poor's 500 Index (11.88%) 10.69% 12.91%
- --------------------------------------------------------------------------------------------
Lipper Balanced Fund Index (3.24%) 8.37% 9.54%
- --------------------------------------------------------------------------------------------
INCEPTION DATE FOR THE VAN ECK/CHUBB TOTAL RETURN FUND WAS 12/1/87.
(1) The maximum sales charge is 5.75%.
Returns for the Van Eck/Chubb Total Return Fund reflect all recurring expenses
and include the reinvestment of all dividends and distributions. Performance
does not fully reflect the impact of the Fund's expenses, as they have been
partially reimbursed by the Adviser at certain times since the Fund's inception.
The Standard & Poor's 500 Index and the Lipper Balanced Fund Index are unmanaged
indices and include the reinvestment of all dividends, but do not reflect the
payment of transaction costs, advisory fees or expenses that are associated with
an investment in the Fund. The Indices' performance is not illustrative of the
Fund's performance. Indices are not securities in which investments can be made.
The S&P 500 Index consists of 500 widely held common stocks, covering four broad
sectors (industrials, utilities, financial and transportation). It is a market
value-weighted index (stock price times shares outstanding), with each stock
affecting the index in proportion to its market value. Construction of the S&P
500 Index proceeds from industry group to the whole. Since some industries are
characterized by companies of relatively small stock capitalization, the Index
is not comprised of the 500 largest companies on the New York Stock Exchange.
This Index, calculated by Standard & Poor's, is a total return index with
dividends reinvested.
The Lipper Balanced Fund Index includes funds with a primary objective of
conserving principal by maintaining at all times a balanced portfolio of both
stocks and bonds. Typically, the stock/bond ratio ranges around 60%/40%. The
Index is an equally-weighted performance index adjusted for capital gains
distributions and income dividends of the largest qualifying funds in the
balanced category.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Performance data quoted
represents past performance; the investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than the original cost.
10
VAN ECK/CHUBB GROWTH AND INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS DECEMBER 31, 2001
NUMBER MARKET
OF VALUE
COMPANY SHARES (NOTE B)
- --------- --------- --------
COMMON STOCKS-94.0%
APPAREL-3.8%
American Eagle Outfitters, Inc.+ .............. 35,000 $ 915,950
Abercrombie & Fitch Co.
(Class A)+ .................................. 45,000 1,193,850
-----------
2,109,800
-----------
BANKING-3.8%
MBNA Corp. .................................... 35,000 1,232,000
PNC Financial Services Group, Inc. ............ 15,000 843,000
-----------
2,075,000
-----------
BEVERAGES-2.2%
Coca-Cola Co. ................................. 25,000 1,178,750
-----------
BREWERS-2.5%
Anheuser-Busch Companies, Inc. ................ 30,000 1,356,300
-----------
BROADCAST MEDIA-2.3%
Clear Channel Communications, Inc. ............ 25,000 1,272,750
-----------
COMPUTERS & COMPUTER SOFTWARE-3.1%
Advanced Micro Devices, Inc.+ ................. 70,000 1,110,200
Citrix Systems, Inc.+ ......................... 25,000 566,500
Copper Mountain Networks, Inc.+ ............... 11,000 18,590
-----------
1,695,290
-----------
COSMETICS-2.4%
Estee Lauder Companies, Inc. (Class A) ........ 1,282,400
-----------
ELECTRICAL EQUIPMENT-3.6%
General Electric Co. .......................... 36,000 1,442,880
Honeywell International, Inc. ................. 15,000 507,300
-----------
1,950,180
-----------
ELECTRONICS-6.1%
Emerson Electric Co. .......................... 15,000 856,500
LSI Logic Corp.+ .............................. 50,000 789,000
Nokia Oyj (Sponsored ADR) ..................... 40,000 981,200
Sanmina-SCI Corp.+ ............................ 36,000 716,400
-----------
3,343,100
-----------
ENERGY-0.6%
Mirant Corp. .................................. 19,880 318,478
-----------
ENTERTAINMENT & LEISURE TIME-1.8%
AOL Time Warner, Inc.+ ........................ 30,000 963,000
-----------
FINANCIAL SERVICES-10.7%
Federal National Mortgage Association ......... 18,000 1,431,000
Washington Mutual, Inc. ....................... 67,500 2,207,250
Wells Fargo & Company ......................... 50,000 2,172,500
-----------
5,810,750
-----------
FOOD PROCESSING--0.0%
Archer-Daniels-Midland Co. .................... 7 100
-----------
HEALTHCARE SERVICES-6.7%
HCA, Inc. ..................................... 40,000 1,541,600
UnitedHealth Group, Inc. ...................... 30,000 2,123,100
-----------
3,664,700
-----------
HOUSEHOLD PRODUCTS-5.4%
Gillette Company .............................. 50,000 1,670,000
Procter & Gamble Co. .......................... 16,000 1,266,080
-----------
2,936,080
-----------
MEDICAL PRODUCTS & SUPPLIES-0.2%
Edwards Lifesciences Corp.+ ................... 4,000 110,520
-----------
MEDICAL SERVICES-5.4%
Laboratory Corp. of America Holdings+ ......... 13,000 1,051,050
Wellpoint Health Networks, Inc.+ .............. 16,000 1,869,600
-----------
2,920,650
-----------
OIL & GAS EQUIPMENT AND SERVICES-6.5%
Baker Hughes, Inc. ............................ 20,000 729,400
GlobalSantaFe Corp. ........................... 31,853 908,448
Halliburton Co. ............................... 27,600 361,560
Transocean Sedco Forex, Inc. .................. 45,000 1,521,900
-----------
3,521,308
-----------
PAPER & FOREST PRODUCTS-1.6%
Kimberly-Clark Corp. .......................... 15,000 897,000
-----------
RETAIL-7.2%
Barnes & Noble, Inc.+ ......................... 35,000 1,036,000
Caremark RX, Inc. ............................. 70,000 1,141,700
Wal-Mart Stores, Inc. ......................... 30,000 1,726,500
-----------
3,904,200
-----------
See Notes to Financial Statements
11
VAN ECK/CHUBB GROWTH AND INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS DECEMBER 31, 2001 (continued)
NUMBER MARKET
OF VALUE
COMPANY SHARES (NOTE B)
- --------- --------- --------
TECHNOLOGY-2.9%
Amkor Technology, Inc. ........................ 33,500 $ 537,005
Cisco Systems, Inc.+ .......................... 38,000 688,180
Taiwan Semiconductor Manufacturing Co. (ADR)+ . 20,000 343,400
-----------
1,568,585
-----------
TELECOMMUNICATIONS-12.1%
ADC Telecommunications, Inc.+ ................. 62,000 285,200
AT&T Wireless Services Corp. .................. 50,000 718,500
BellSouth Corp. ............................... 40,000 1,526,000
Lucent Technologies, Inc. ..................... 85,000 534,650
Nortel Networks Corp. ......................... 70,000 525,000
SBC Communications, Inc. ...................... 45,000 1,762,650
Scientific-Atlanta, Inc. ...................... 29,000 694,260
WorldCom, Inc.+ ............................... 36,500 513,920
-----------
6,560,180
-----------
UTILITIES-3.1%
AES Corp. ..................................... 25,000 408,750
Southern Co. .................................. 50,000 1,267,500
-----------
1,676,250
-----------
TOTAL INVESTMENTS
(Cost: $56,828,694*) ........................ 94.0% 51,115,371
Other assets less liabilities ............... 6.0% 3,280,924
------ -----------
TOTAL NET ASSETS ............................ 100.0% $54,396,295
====== ===========
- ----------
* Aggregate cost for Federal income tax purposes.
+ Non-Income producing
Abbreviation:
ADR--American Depositary Receipt
See Notes to Financial Statements
12
VAN ECK/CHUBB TOTAL RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS DECEMBER 31, 2001
NUMBER MARKET
OF VALUE
COMPANY SHARES (NOTE B)
- --------- --------- --------
COMMON STOCKS-36.3%
AEROSPACE & DEFENSE-1.1%
Northrop Grumman Corp. ........................ 3,000 $ 302,430
-----------
APPAREL-1.0%
American Eagle Outfitters, Inc.+ .............. 10,000 261,700
-----------
BANKING-1.9%
FleetBoston Financial Corp. ................... 6,000 219,000
PNC Financial Services Group, Inc. ............ 5,000 281,000
-----------
500,000
-----------
BREWERS-1.6%
Adolph Coors Co. .............................. 3,000 160,200
Anheuser-Busch Companies, Inc.+ ............... 6,000 271,260
-----------
431,460
-----------
COMPUTER SOFTWARE-2.1%
Advanced Micro Devices, Inc.+ ................. 20,000 317,200
Citrix Systems, Inc.+ ......................... 10,000 226,600
Copper Mountain Networks, Inc.+ ............... 10,000 16,900
Tippingpoint Technologies, Inc. ............... 134 986
-----------
561,686
-----------
COSMETICS-1.2%
Estee Lauder Companies, Inc. (Class A) ........ 10,000 320,600
-----------
ELECTRICAL EQUIPMENT-3.3%
General Electric Co. .......................... 11,000 440,880
Honeywell International, Inc. ................. 5,000 169,100
Southern Co. .................................. 10,000 253,500
-----------
863,480
-----------
ELECTRONICS-3.1%
Emerson Electric Co. .......................... 5,000 285,500
Nokia Oyj (Sponsored ADR) ..................... 13,000 318,890
Sanmina-SCI Corp.+ ............................ 10,000 199,000
-----------
803,390
-----------
ENERGY-0.2%
Mirant Corp. .................................. 3,976 63,696
FINANCIAL SERVICES-2.2%
Federal National Mortgage Association ......... 4,000 318,000
Washington Mutual, Inc. ....................... 7,500 245,250
-----------
563,250
-----------
HEALTHCARE SERVICES-1.8%
HCA, Inc. ..................................... 5,000 192,700
UnitedHealth Group, Inc. ...................... 4,000 283,080
-----------
475,780
-----------
HOUSEHOLD PRODUCTS-1.2%
Procter & Gamble Co. .......................... 4,000 316,520
-----------
MEDICAL SERVICES-2.5%
Laboratory Corp. of America Holdings+ ......... 4,000 323,400
Wellpoint Health Networks, Inc.+ .............. 3,000 350,550
-----------
673,950
-----------
OIL & GAS EQUIPMENT AND SERVICES-3.7%
Baker Hughes, Inc. ............................ 10,000 364,700
GlobalSantaFe Corp. ........................... 10,000 285,200
Transocean Sedco Forex, Inc. .................. 10,000 338,200
-----------
988,100
-----------
PHARMACEUTICALS-2.6%
Cardinal Health, Inc. ......................... 4,500 290,970
Caremark Rx, Inc. ............................. 25,000 407,750
-----------
698,720
-----------
RETAIL-1.1%
Barnes & Noble, Inc.+ ......................... 10,000 296,000
-----------
TECHNOLOGY-1.8%
Amkor Technology, Inc. ........................ 10,000 160,300
Cisco Systems, Inc.+ .......................... 12,000 217,320
Palm, Inc.+ ................................... 25,000 97,000
-----------
474,620
-----------
TELECOMMUNICATIONS-3.6%
ADC Telecommunications, Inc.+ ................. 30,000 138,000
Lucent Technologies, Inc. ..................... 20,000 125,800
Nortel Networks Corp. ......................... 10,000 75,000
SBC Communications, Inc. ...................... 5,000 195,850
Scientific-Atlanta, Inc. ...................... 12,000 287,280
WorldCom, Inc.+ ............................... 9,000 126,720
-----------
948,650
-----------
See Notes to Financial Statements
13
VAN ECK/CHUBB TOTAL RETURN FUND
SCHEDULE OF PORTFOLIO INVESTMENTS DECEMBER 31, 2001 (continued)
NUMBER MARKET
OF VALUE
COMPANY SHARES (NOTE B)
- --------- --------- --------
UTILITIES-0.3%
AES Corp. ..................................... 5,000 $ 81,750
-----------
TOTAL COMMON STOCKS
(Cost: $11,668,320) ......................... 9,625,782
-----------
PRINCIPAL
ISSUER AMOUNT
- ------ ---------
U.S. GOVERNMENT AND
AGENCY OBLIGATIONS-42.4%
Federal National Mortgage Association
6.50%, due 8/15/04 .......................... $ 750,000 802,864
U.S. Treasury Notes
7.25%, due 8/15/04 .......................... 2,900,000 3,167,685
6.875%, due 5/15/06 ......................... 5,200,000 5,732,189
6.50%, due 10/15/06 ......................... 200,000 217,883
6.25%, due 2/15/03 .......................... 1,250,000 1,305,860
-----------
TOTAL U.S. GOVERNMENT AND
AGENCY OBLIGATIONS
(Cost: $10,489,104) ......................... 11,226,481
-----------
COMPANY
- -------
CORPORATE BONDS-19.4% PRINCIPAL MARKET VALUE
AMOUNT (NOTE 8)
--------- ------------
Alliant Energy Resource Corp.
7.375%, due 11/09/09 ........................ 1,000,000 1,001,294
First Union Corp.
7.50%, due 4/15/35 .......................... 2,000,000 2,130,794
Tennessee Gas Pipeline
7.00%, due 3/15/27 .......................... 2,000,000 1,991,312
-----------
TOTAL CORPORATE BONDS
(Cost: $5,164,666) .......................... 5,123,400
-----------
TOTAL INVESTMENTS
(Cost: $27,322,090*) ........................ 98.1% 25,975,663
Other assets less liabilities ............... 1.9% 498,756
-----------
NET ASSETS .................................. 100.0% $26,474,419
====== ===========
- ----------
* Aggregate cost for Federal income tax purposes.
+ Non-Income producing
Abbreviation:
ADR--American Depositary Receipt
See Notes to Financial Statements
14
VAN ECK/CHUBB FUNDS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2001
VAN ECK/CHUBB
GROWTH AND VAN ECK/CHUBB
INCOME TOTAL RETURN
FUND FUND
------------- -------------
ASSETS
Investments at cost ......................... $56,828,694 $27,322,090
=========== ===========
Investments at market value (Notes B & C) ... $51,115,371 $25,975,663
Cash ........................................ 3,398,879 583,610
Securities sold ............................. 40,444 --
Dividends and interest ...................... 19,401 266,340
Capital shares sold ......................... 1,173 4,718
----------- -----------
Total Assets .............................. 54,575,268 26,830,331
----------- -----------
LIABILITIES
Capital share redeemed ...................... 84,196 25,091
Dividends payable ........................... -- 277,612
Due to adviser .............................. 681 177
Accounts payable ............................ 94,096 53,032
----------- -----------
Total Liabilities ......................... 178,973 355,912
----------- -----------
NET ASSETS ................................ $54,396,295 $26,474,419
=========== ===========
NET ASSETS CONSIST OF:
Par value ................................... $ 29,981 $ 18,861
Capital paid in excess of par ............... 64,724,293 28,743,044
Overdistributed net investment income ....... (5,398) (8,632)
Accumulated net realized loss ............... (4,639,258) (932,427)
Net unrealized loss from investments (Note C) (5,713,323) (1,346,427)
----------- -----------
Net Assets ................................ $54,396,295 $26,474,419
=========== ===========
CLASS A SHARES
Net Assets .................................... $54,396,295 $26,474,419
=========== ===========
Shares Outstanding
($.01 par value, 100,000,000
shares per Fund authorized) ............... 2,998,125 1,886,118
=========== ===========
Net Asset Value Per Share ..................... $18.14 $14.04
=========== ===========
Maximum Offering Price Per Share
(NAV / (1 - maximum sales commission)) $19.25 $14.90
=========== ===========
See Notes to Financial Statements
15
VAN ECK/CHUBB FUNDS, INC.
STATEMENTS OF OPERATIONS
Year Ended December 31, 2001
VAN ECK/CHUBB
GROWTH AND VAN ECK/CHUBB
INCOME TOTAL RETURN
FUND FUND
------------- -------------
INVESTMENT INCOME
Income:
Interest .................................... $ 108,919 $ 1,024,461
Dividends ................................... 552,697 102,786
Foreign taxes withheld ...................... (5,311) (814)
----------- -----------
Total investment income ................... 656,305 1,126,433
----------- -----------
Expenses:
Administrative fees (Note D) ................ 283,462 134,113
Investment management fees (Note D) ......... 119,218 56,452
Distribution fees Class A (Note D) .......... 298,044 141,131
Transfer agency ............................. 81,619 52,747
Professional fees ........................... 20,925 23,388
Shareholder reports ......................... 20,811 12,407
Registration fees ........................... 6,522 7,445
Directors' fees and expenses ................ 3,461 1,650
Custodian fees .............................. 3,479 3,147
Miscellaneous expenses ...................... 18,844 5,145
----------- -----------
Total expenses ............................ 856,385 437,625
----------- -----------
Fees waived and expenses
assumed by affiliates (Note D) ............ (51,666) (56,572)
----------- -----------
Net expenses .............................. 804,719 381,053
----------- -----------
Net investment income (loss) .............. (148,414) 745,380
----------- -----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments ............ (1,584,719) (622,938)
Net change in unrealized
loss on investments ....................... (7,858,682) (1,962,829)
----------- -----------
Net realized and unrealized
loss on investments ....................... (9,443,401) (2,585,767)
----------- -----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................. $(9,591,815) $(1,840,387)
=========== ===========
See Notes to Financial Statements
16
VAN ECK/CHUBB FUNDS, INC.
STATEMENTS OF CHANGES IN NET ASSETS
VAN ECK/CHUBB
GROWTH AND VAN ECK/CHUBB
INCOME TOTAL RETURN
FUND FUND
-------------------------- --------------------------
YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER
31, 2001 31, 2000 31, 2001 31, 2000
------------- ---------- ------------- ----------
DECREASE IN NET ASSETS:
From operations:
Net investment income (loss) .......................... $ (148,414) $ (400,741) $ 745,380 $ 670,282
Net realized gain (loss) on investments ............... (1,584,719) 3,622,941 (622,938) 4,486,387
Net change in unrealized loss on investments .......... (7,858,682) (21,180,656) (1,962,829) (7,143,192)
----------- ----------- ----------- -----------
Net decrease in net assets resulting from operations .. (9,591,815) (17,958,456) (1,840,387) (1,986,523)
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS:
From net investment income ............................ -- -- (745,658) (683,663)
From net realized gain ................................ -- (3,400,745) (580,401) (4,240,966)
----------- ----------- ----------- -----------
Total dividends and distributions ..................... -- (3,400,745) (1,326,059) (4,924,629)
DECREASE IN NET ASSETS DERIVED FROM
SHAREHOLDER TRANSACTIONS (Note E) ..................... (5,102,619) (4,389,639) (2,063,553) (1,443,865)
----------- ----------- ----------- -----------
Net decrease in net assets ............................ (14,694,434) (25,748,840) (5,229,999) (8,355,017)
Net Assets:
Beginning of year ..................................... 69,090,729 94,839,569 31,704,418 40,059,435
----------- ----------- ----------- -----------
End of year ........................................... $54,396,295 $69,090,729 $26,474,419 $31,704,418
=========== =========== =========== ===========
OVERDISTRIBUTED NET INVESTMENT INCOME ................... $ (5,398) $ (15,202) $ (8,632) $ (1,471)
=========== =========== =========== ===========
See Notes to Financial Statements
17
VAN ECK/CHUBB FUNDS, INC.
FINANCIAL HIGHLIGHTS
For a share outstanding throughout each year:
VAN ECK/CHUBB GROWTH AND INCOME FUND
-----------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Net Asset Value, Beginning of Year .......... $21.17 $27.73 $23.96 $24.56 $21.04
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) .............. (0.050) (0.123) (0.030) 0.110 0.096
Net Gains (Losses) on Investments
(both Realized and Unrealized) ......... (2.980) (5.377) 7.080 (0.156) 5.286
------ ------ ------ ------ ------
Total from Investment Operations .......... (3.030) (5.500) 7.050 (0.046) 5.382
------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from Net Investment Income ...... -- -- -- (0.111) (0.096)
Dividends in Excess of Net
Investment Income ...................... -- -- -- -- (0.004)
Distributions from Net Realized Gains ..... -- (1.060) (3.280) (0.443) (1.762)
------ ------ ------ ------ ------
Total Distributions ....................... -- (1.060) (3.280) (0.554) (1.862)
------ ------ ------ ------ ------
Net Asset Value, End of Year ................ $18.14 $21.17 $27.73 $23.96 $24.56
====== ====== ====== ====== ======
Total Return(A) ............................. (14.31%) (19.83%) 29.42% (0.18%) 25.85%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(B) ......................... 1.44% 1.38% 1.50% 1.57% 1.49%
Net Expenses .............................. 1.35% 1.35% 1.32% 1.25% 1.25%
Net Investment Income (Loss)(C) ........... (0.25%) (0.46%) (0.16%) 0.44% 0.49%
Portfolio Turnover Rate ..................... 62.69% 124.93% 133.63% 43.42% 21.02%
Net Assets, At End of Year (000) ............ $54,396 $69,091 $94,840 $67,478 $66,762
- ----------
(A) Total return assumes reinvestment of all distributions during the year and
does not reflect deduction of sales charge. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth
more or less than the original cost.
(B) Had fees not been waived and expenses not been assumed.
(C) Ratios would have been (0.34%), (0.49%), (0.34%), 0.12%, and 0.25%,
respectively, had the Investment Manager not waived fees and had expenses
not been assumed.
See Notes to Financial Statements
18
VAN ECK/CHUBB FUNDS, INC.
FINANCIAL HIGHLIGHTS (continued)
For a share outstanding throughout each year:
VAN ECK/CHUBB TOTAL RETURN FUND
-----------------------------------------------------------------
CLASS A
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
Net Asset Value, Beginning of Year .......... $15.67 $19.26 $19.27 $20.22 $17.41
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income ..................... 0.390 0.343 0.417 0.393 0.365
Net Gains (Losses) on Investments (both
Realized and Unrealized) .................. (1.320) (1.363) 3.113 0.158 3.778
------ ------ ------ ------ ------
Total from Investment Operations .......... (0.930) (1.020) 3.530 0.551 4.143
------ ------ ------ ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS
Dividends from Net Investment Income ...... (0.390) (0.350) (0.410) (0.390) (0.365)
Dividends in Excess of
Net Investment Income .................. -- -- -- -- (0.004)
Distributions from Capital Gains .......... (0.310) (2.220) (3.130) (1.111) (0.964)
------ ------ ------ ------ ------
Total Distributions ....................... (0.700) (2.570) (3.540) (1.501) (1.333)
------ ------ ------ ------ ------
Net Asset Value, End of Year ................ $14.04 $15.67 $19.26 $19.27 $20.22
====== ====== ====== ====== ======
Total Return(A) ............................. (5.80%) (5.43%) 18.57% 2.73% 24.09%
RATIOS TO AVERAGE NET ASSETS:
Gross Expenses(B) ......................... 1.55% 1.49% 1.49% 1.61% 1.51%
Net Expenses .............................. 1.35% 1.35% 1.32% 1.25% 1.25%
Net Investment Income(C) .................. 2.64% 1.77% 2.07% 1.87% 1.92%
Portfolio Turnover Rate ..................... 26.44% 74.95% 59.16% 15.78% 15.80%
Net Assets, At End of Year (000) ............ $26,474 $31,704 $40,059 $42,524 $49,934
- ----------
(A) Total return assumes reinvestment of all distributions during the year and
does not reflect deduction of sales charge. Investment returns and
principal values will fluctuate and shares, when redeemed, may be worth
more or less than the original cost.
(B) Had fees not been waived and expenses not been assumed.
(C) Ratios would have been 2.44%, 1.63%, 1.90%, 1.51% and 1.66%, respectively,
had the Investment Manager not waived fees and had expenses not been
assumed.
See Notes to Financial Statements
19
VAN ECK/CHUBB FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001
- --------------------------------------------------------------------------------
NOTE A--ORGANIZATION
Van Eck/Chubb Funds, Inc. (the "Company"), formerly known as Chubb Investment
Funds, Inc., was incorporated under the laws of the State of Maryland on April
27, 1987, and is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end series management investment company. The
Company consists of two funds (the "Funds"): Van Eck/Chubb Growth and Income
Fund and Van Eck/Chubb Total Return Fund.
At December 31, 2001, The Chubb Corporation and its affiliates owned the
following shares of each Fund:
SHARES % OF
OWNED SHARES
--------- --------
Van Eck/Chubb Growth and Income Fund
Class A shares ........................... 1,836,326 61.25%
Van Eck/Chubb Total Return Fund
Class A shares ........................... 1,014,721 53.80%
NOTE B--SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires the Company's management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
The following is a summary of significant accounting policies:
VALUATION OF INVESTMENTS: Equity securities are valued at the closing sales
price on the exchange on which such securities are principally traded; or, if
traded in the over-the-counter market or on a national exchange for which no
sales took place on the day of valuation, at the mean of the bid and ask prices
at the close of trading.
Securities or other assets for which market quotations are not readily available
are valued at fair value in accordance with procedures established by the Board
of Directors. Debt instruments are valued on the basis of quotes provided by a
pricing service that determines the current value for institutional size trading
units of securities, without exclusive reliance upon quoted prices. These
valuations are believed to reflect fair market value more accurately. Short-term
debt instruments with a remaining maturity of less than 60 days are valued using
the amortized cost method, which approximates market value, unless the Board of
Directors determine it does not represent fair value.
Trading in securities on most foreign exchanges and over-the-counter markets is
normally completed before the close of the domestic market and may also take
place on days in which the domestic market is closed.
All U.S. dollar denominated cash is held in an interest bearing account.
SECURITY TRANSACTIONS AND INVESTMENT INCOME: Security transactions are recorded
on a trade date basis. Realized gains and losses on investments sold are
recorded on the basis of the specific identification method. Interest income,
including, where applicable, amortization of discount or premium on investments,
is recorded on an accrual basis. Dividend income is recorded on the ex-dividend
date, except for certain dividends from foreign securities, which are recorded
as soon after the ex-dividend date as the respective Funds, using reasonable
diligence, become aware of such dividends.
DIVIDENDS TO SHAREHOLDERS: Dividends to shareholders from net investment income
are declared and distributed quarterly for the Van Eck/Chubb Total Return Fund
and declared and distributed annually for the Van Eck/Chubb Growth and Income
Fund, if available. Dividends from net realized capital gains are declared and
distributed at least once annually, if available. Dividends distributed to
shareholders are recorded on the ex-dividend date.
Income and capital gain distributions are determined in accordance with income
tax regulations, which may differ from such amounts reported in accordance with
accounting principles generally accepted in the United States.
NOTE C--INVESTMENTS
As of December 31, 2001, gross unrealized gains and losses on investments for
tax purposes, for each Fund, were as follows:
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES LOSSES
---------- ---------- ----------
Van Eck/Chubb
Growth and Income Fund ...... $4,148,307 $9,861,630 $5,713,323
Van Eck/Chubb
Total Return Fund ........... 1,405,786 2,752,213 1,346,427
Purchases and sales of investment securities for the year ended December 31,
2001, other than short-term obligations, were as follows:
PROCEEDS
COST OF FROM
INVESTMENT INVESTMENT
SECURITIES SECURITIES
PURCHASED SOLD
---------- -----------
Van Eck/Chubb Growth and Income Fund ...... $36,185,066 $42,034,557
Van Eck/Chubb Total Return Fund ........... 7,340,222 12,063,043
At December 31, 2001 the components of accumulated earnings on a tax basis, for
each Fund, were as follows:
ACCUMULATED NET
CAPITAL AND UNREALIZED
OTHER LOSSES LOSSES
------------ ------------
Van Eck/Chubb Growth and Income Fund ...... $12,854,817 $5,713,323
Van Eck/Chubb Total Return Fund ........... 930,978 1,346,427
20
VAN ECK/CHUBB FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 (CONTINUED)
- --------------------------------------------------------------------------------
The tax character of distributions paid to shareholders during the fiscal
periods ended December 31, 2001 and December 31, 2000, for each Fund, were as
follows:
VAN ECK/CHUBB GROWTH AND INCOME FUND
--------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------ -----------------
Ordinary Income $ -- $ --
Long Term Capital Gains 27,909 3,401,894
VAN ECK/CHUBB TOTAL RETURN FUND
--------------------------------------
DECEMBER 31, 2001 DECEMBER 31, 2000
------------------ -----------------
Ordinary Income $ 742,015 $ 2,144,106
Long Term Capital Gains 578,952 2,780,523
At December 31, 2001, Van Eck/Chubb Growth and Income Fund had $9,488,588 of
accumulated realized losses, $8,215,559 expiring in 2006, which are limited
under the tax rules, and $1,273,029 expiring in 2009. These losses are available
to be used to offset future realized capital gains.
Net capital losses incurred after October 31, and within the taxable year are
deemed to arise on the first day of the Fund's next taxable year. For the year
ended December 31, 2001, the Van Eck/Chubb Growth and Income Fund and Van
Eck/Chubb Total Return Fund intend to defer to January 1, 2002 for U.S. Federal
income tax purposes post-October capital losses of $3,366,229 and $930,978,
respectively.
During the year ended December 31, 2001, as a result of permanent book to tax
differences, the Van Eck/Chubb Growth and Income Fund decreased overdistributed
net investment income by $158,218, decreased accumulated net realized loss on
investments by $27,909 and decreased capital paid in excess of par by $186,127.
Net assets were not affected by this reclassification.
During the year ended December 31, 2001, as a result of permanent book to tax
differences, the Van Eck/Chubb Total Return Fund increased overdistributed net
investment income by $6,883 and decreased accumulated net realized loss on
investments by $6,883. Net assets were not affected by this reclassification.
NOTE D--MANAGEMENT AGREEMENTS AND EXPENSES
Chubb Asset Managers, Inc., the Investment Manager, a wholly-owned subsidiary of
The Chubb Corporation, is responsible for the overall investment management of
each Fund's portfolio, consistent with each Fund's investment objectives,
policies and restrictions. Chubb Asset Managers, Inc. resigned as Investment
Manager effective December 31, 2001. At a meeting of the Fund's Board of
Directors held on December 11, 2001, the Board voted to approve Van Eck
Associates Corporation ("VEAC") as the interim Investment Manager effective
January 1, 2002. Additionally, the Board approved the interim sub-advisory
agreement among the Fund, VEAC and John A. Levin & Co., Inc.
Van Eck Associates Corporation ("Investment Administrator") also provides
certain administrative services and facilities for the Company.
Van Eck Securities Corporation (the "Distributor"), a wholly owned subsidiary of
the Investment Administrator, for the year ended December 31, 2001, received
$28,855 in sales loads of which $4,907 was reallowed to broker-dealers. Also,
the Company has a plan of distribution pursuant to Rule 12b-1 that provides that
the Company may, directly or indirectly, engage in activities primarily intended
to result in the sale of the Company's shares. The maximum expenditure the
Company may make under the plan is 0.50% per annum on Class A shares.
Investment management and administration fees are computed at the following
annual percentages for each of the Funds:
AVERAGE DAILY INVESTMENT INVESTMENT
NET ASSETS MANAGER ADMINISTRATOR
- -------------- ---------- -------------
First $200 Million ........................ 0.20% 0.45%
Next $1.1 Billion ......................... 0.19% 0.41%
Over $1.3 Billion ......................... 0.18% 0.37%
In accordance with the advisory agreement, the Funds reimbursed Van Eck
Associates Corporation for costs incurred in connection with certain
administrative and operating functions. The Funds reimbursed costs in the
following amounts: $15,222 for the Van Eck/Chubb Growth and Income Fund and
$7,095 for the Van Eck/Chubb Total Return Fund.
Pursuant to an expense limitation agreement for Class A shares the rate of
expenses borne by the Funds, based on average net assets, were as follows: For
the year ended December 31, 2001, Van Eck/Chubb Growth and Income Fund--1.35%
and Van Eck/Chubb Total Return Fund--1.35%. The fees waived and expenses assumed
are treated as a reduction of the Funds' administrative expense.
NOTE E--SHAREHOLDER TRANSACTIONS
Following is a summary of transactions with shareholders for each Fund.
VAN ECK/CHUBB GROWTH AND INCOME FUND
----------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
---------------------- ---------------------
CLASS A SHARES DOLLARS SHARES DOLLARS
--------- ----------- -------- -----------
Shares sold .................. 77,371 $ 1,440,092 149,267 $ 3,947,626
Shares issued as
reinvestment of dividends
and distributions .......... -- -- 62,109 1,314,844
Shares redeemed .............. (343,536) (6,542,711) (367,676) (9,652,109)
-------- ----------- -------- -----------
Net decrease ................. (266,165) $(5,102,619) (156,300) $(4,389,639)
======== =========== ======== ===========
VAN ECK/CHUBB TOTAL RETURN FUND
----------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2001 DECEMBER 31, 2000
---------------------- ---------------------
CLASS A SHARES DOLLARS SHARES DOLLARS
--------- ----------- --------- -----------
Shares sold .................. 86,788 $ 1,251,621 34,690 $ 662,737
Shares issued as
reinvestment of dividends
and distributions .......... 41,109 578,462 150,157 2,471,710
Shares redeemed (265,658) (3,893,636) (240,678) (4,578,312)
--------- ----------- -------- -----------
Net decrease (137,761) $(2,063,553) (55,831) $(1,443,865)
======== =========== ======== ===========
21
VAN ECK/CHUBB FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 (CONTINUED)
- --------------------------------------------------------------------------------
NOTE F--DIRECTOR DEFERRED COMPENSATION PLAN
The Van Eck/Chubb Funds, Inc. established a Deferred Compensation Plan (the
"Plan") for Directors. The Directors can elect to defer receipt of their
director meeting fees and retainers until retirement, disability or termination
from the board. The Funds' contributions to the Plan are limited to the amount
of fees earned by the participating Directors. The fees otherwise payable to the
participating Directors are invested in shares of the Van Eck/Chubb Funds as
directed by the Directors. The Funds have elected to show this deferred
liability net of the corresponding asset for financial statement purposes.
As of December 31, 2001, the total liability portion of the Plan is as follows:
Van Eck/Chubb Growth and Income Fund--$5,851 and Van Eck/Chubb Total Return
Fund--$6,012.
NOTE G--BANK LINE OF CREDIT
The Van Eck/Chubb Funds, Inc. may participate with other funds managed by Van
Eck in a $15 million committed credit facility ("Facility") to be utilized for
temporary financing until the settlement of sales or purchases of portfolio
securities, the repurchase or redemption of shares of the Funds at the request
of the shareholders and other temporary or emergency purposes. In connection
therewith, the Funds have agreed to pay commitment fees, pro rata, based on
usage. Interest is charged to the Funds at rates based on prevailing market
rates in effect at the time of borrowings. For the year ended December 31, 2001,
the Funds did not borrow under the Facility.
NOTE H--SUBSEQUENT EVENTS
On January 2, 2002, The Chubb Corporation and its affiliates redeemed all shares
owned.
At a meeting of Directors held on January 31, 2002, the Board approved the name
change of Van Eck/Chubb Funds, Inc. to Van Eck Funds, Inc., effective February
1, 2002.
At a meeting of directors held on January 31, 2002, the Board approved the
change of the Van Eck/Chubb Growth and Income Fund's name to the Van Eck Mid Cap
Value Fund, effective February 1, 2002.
The Van Eck/Chubb Total Return Fund was closed to purchases and exchanges
effective February 8, 2002.
22
REPORT OF ERNST &YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
VAN ECK/CHUBB FUNDS, INC.
We have audited the accompanying statements of assets and liabilities, including
the schedules of portfolio investments, of the Van Eck/Chubb Funds, Inc.
(comprising Growth and Income Fund and Total Return Fund) (the "Funds") as of
December 31, 2001, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the years indicated
therein. These financial statements and the financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and the financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 2001, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Funds constituting Van Eck/Chubb Funds, Inc. at December 31, 2001, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and the financial
highlights for each of the indicated years, in conformity with accounting
principles generally accepted in the United States.
/s/ERNST & YOUNG LLP
New York, New York
February 8, 2002
23
BOARD OF DIRECTORS/OFFICERS TABLE (UNAUDITED)
DIRECTOR'S/OFFICER'S
NAME, ADDRESS(1), AGE,
POSITION(S) HELD WITH PRINCIPAL
FUND AND LENGTH OF OCCUPATION(S)
SERVICE AS A VAN ECK DURING PAST OTHER DIRECTORSHIPS
TRUSTEE(2): FIVE YEARS: HELD:
- --------------------- -------------- -------------------
John C. van Eck, CFA Chairman, Van Eck Chairman of the Board
(86)+* Associates Corporation and and President of two other
Chairman and Director Van Eck Securities investment companies advised
since 1997 Corporation by the Administrator
Michael O'Reilly Executive Vice President and Director, President and Chief
(57)+* Chief Investment Officer of Operating Officer of the Adviser
President and Director The Chubb Corporation
since 1997
Jeremy H. Biggs Vice Chairman, Director Trustee/Director of two other
(65) +++ and Chief Investment Officer, investment companies advised
Director since 1997 Fiduciary Trust Company by the Administrator; Chairman, Davis
International Funds Group; Treasurer and Director,
Royal Oak Foundation; Director,
Union Settlement Association;
First Vice President, Trustee and
Chairman, Finance Committee,
St. James School
David J. Olderman Private investor Trustee/Director of two other
(65)++P investment companies advised
Director since 1997 by the Administrator
Richard D. Stamberger President, SmartBrief.com Trustee of two other investment
(42)++P companies advised by the
Director since 1997 Administrator; Partner and Co-founder,
Quest Partners, LLC; Executive
Vice President, Chief Operating
Officer and Director of NuCable
Resources Corporation
Bruce J. Smith Senior Vice President and Chief Officer of two other
(46) Financial Officer, Van Eck Associates investment companies
Vice President and Treasurer Corporation; Senior Managing advised by the Administrator
since 1997 Director, Van Eck Securities Corporation
Thomas H. Elwood Vice President, Secretary and General Officer of two other
(53) Counsel, Van Eck Associates Corporation, investment companies
Vice President and Secretary Van Eck Securities Corporation and advised by the Administrator
since 1998 other affiliated companies
24
BOARD OF DIRECTORS/OFFICERS TABLE (UNAUDITED) (CONTINUED)
DIRECTOR'S/OFFICER'S
NAME, ADDRESS(1), AGE,
POSITION(S) HELD WITH PRINCIPAL
FUND AND LENGTH OF OCCUPATION(S)
SERVICE AS A VAN ECK DURING PAST OTHER DIRECTORSHIPS
TRUSTEE(2): FIVE YEARS: HELD:
- --------------------- -------------- -------------------
Alex Bogaenko Director of Portfolio Administration, Controller of two
(38) Van Eck Associates Corporation and other investment companies
Officer since 1997 Van Eck Securities Corporation advised by the Administrator
Susan Lashley Managing Director, Mutual Fund Vice President of another
(46) Operations, Van Eck Securities investment company
Officer since 1997 Corporation advised by the Administrator
- ----------
(1) The address for each Director/Officer is 99 Park Avenue, 8th Floor, New
York, NY 10016.
(2) Each Director serves for an indefinite term, until his resignation, death
or removal. Officers are elected yearly by the Directors.
+ An "interested person" as defined in the 1940 Act.
* Member of Executive Committee-exercises general powers of Board of Trustees
between meetings of the Board.
++ Member of the Nominating Committee.
P Member of Audit Committee-reviews fees, services, procedures, conclusions
and recommendations of independent auditors.
25
This report must be accompanied or preceded by a Van Eck/Chubb Funds prospectus,
which includes more complete information such as charges and expenses and the
risks associated with international investing, including currency fluctuations
or controls, expropriation, nationalization and confiscatory taxation. Please
read the prospectus carefully before you invest. Additional information about
the Fund's Board of Directors/Officers is provided in the "Statement of
Additional Information" that is available by calling 1-800-826-2333 or by
visiting www.vaneck.com.
[LOGO]
Investment Adviser: Chubb Asset Managers, Inc.
Distributor: Van Eck Securities Corporation
99 Park Avenue, New York, NY 10016
www.vaneck.com
Account Assistance: (800) 544-4653
VAN ECK FUNDS, INC
PRO FORMA STATEMENT OF ASSETS AND LIABILITIES
JANUARY 18, 2002
PRO FORMA
VAN ECK VAN ECK FOR THE
MID CAP TOTAL COMBINED
VALUE FUND RETURN FUND
----------- ----------- -----------
ASSETS
Investments cost $16,588,361 $10,378,535 $26,966,896
=========== =========== ===========
Investments at market value
(Notes B & C) $15,797,902 $10,372,757 $26,170,659
Cash 5,021,923 1,481,984 6,503,907
Securities sold 10,255 12,517 22,772
Dividends and interest 6,633 74,643 81,276
Capital shares sold -- 188 188
----------- ----------- -----------
Total Assets 20,836,713 11,942,089 32,778,803
----------- ----------- -----------
LIABILITIES:
Securities purchased 522,028 94,591 616,619
Due to adviser 38,554 19,072 57,626
Accounts payable 40,014 26,640 66,654
----------- ----------- -----------
Total Liabilities 600,596 140,303 740,899
----------- ----------- -----------
NET ASSETS $20,236,117 $11,801,786 $32,037,903
=========== =========== ===========
NET ASSETS CONSIST OF:
Par value $ 11,575 $ 8,626 $ 18,326
Aggregate paid in capital 33,046,019 16,381,756 45,680,350
Undistibuted (overdistributed)
net investment income (5,395) (8,632) (14,027)
Accumulated net realized loss (10,224,623) (2,625,887) (12,850,510)
Net unrealized loss from
investments (Note C) (790,459) (5,777) (796,236)
----------- ----------- -----------
$22,037,117 $13,750,086 $32,037,903
=========== =========== ===========
CLASS A SHARES
Net Assets $22,037,117 $13,750,086 $32,037,903
=========== =========== ===========
Shares Outstanding Class A Shares
($0.01 par value, 100,000,000 shares
per Fund authorized) 1,157,482 862,577 1,832,641
=========== =========== ===========
Net Asset Value Per Share $ 19.04 $ 15.94 $ 17.48
=========== =========== ===========
Maximum Offering Price Per Share
(NAV/(1-maximum sales commission)) $ 18.55 $ 14.51 $ 18.55
=========== =========== ===========
VAN ECK FUNDS, INC
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
VAN ECK VAN ECK MID CAP
MID CAP TOTAL PRO FORMA VALUE FUND
VALUE FUND RETURN ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------
INVESTMENT INCOME:
Income:
Interest $ 4,687(a) $ 242,360(a) $ (240,017) (e) $ 7,030
Dividends 16,873(a) 38,119(a) -- 54,992
---------- ---------- ---------- ----------
21,560 280,479 (240,017) 62,022
---------- ---------- ---------- ----------
Expenses:
Management (Note D) 41,044(a) 24,017(a) 137,191 (b) 202,252
Administration (Note D) 92,717(a) 54,034(a) (106,301)(b) 40,450
Distribution Class A (Note D) 102,565(a) 60,225(a) -- 162,790
Transfer agency 81,619 52,747 (39,982)(c) 94,384
Professional 20,925 23,388 (19,000)(c) 25,313
Shareholder reports 20,811 12,407 (12,407)(c) 20,811
Registration fees 6,522 7,445 (5,767)(c) 8,200
Directors' fees and expenses 3,461 1,650 11,389 (d) 16,500
Custodian fees 3,479 3,147 (3,382)(c) 3,244
Miscellaneous 18,884 5,145 17,800 (d) 41,829
---------- ---------- ---------- -----------
Total Expenses 392,028 244,205 (20,459) 615,773
---------- ---------- ---------- -----------
Fees waived and expenses assumed by affiliates (Note D) (51,666) (56,572) -- (184,303)
---------- ---------- ---------- -----------
Net Expenses 340,362 187,633 (20,459) 431,470
---------- ---------- ---------- -----------
Net investment income (loss) (318,802) 92,846 (219,558) (359,448)
---------- ---------- ---------- -----------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (5,585,365) (1,693,460) -- (7,278,825)
Net change in unrealized loss on investments 4,922,865 1,340,650 -- 6,263,515
---------- ---------- ---------- -----------
Net realized and unrealized loss on investment (662,500) (352,810) -- (1,015,310)
---------- ---------- ---------- -----------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (981,302) $ (259,964) $(219,558) $(1,384,758)
========== ========== ========== ===========
- ----------
(a) Projected income and expense for the year ended 12/31/02.
(b) Reflects adjustments in expenses due to effects of proposed contract rate.
(c) Reflects adjustment in expenses due to elimination of duplicative
services.
(d) Reflects adjustment in expenses due to effects of cost allocations.
(e) Reflects adjustment in portfolio holdings.
VAN ECK FUNDS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
JANUARY 18, 2002 (UNAUDITED)
1. GENERAL
The accompanying pro forma financial statements are presented to show the effect
of the proposed reorganization of Mid-Cap I and Total Return into Mid-Cap II as
if such reorganization had taken place as of January 18, 2002.
Under the terms of the Plan, the reorganization of Mid-Cap I and Total Return
should be taxed as a tax-free business combination and accordingly will be
accounted for by a method of accounting for tax free combinations of investment
companies (sometimes referred to as the "Statutory Merger").
The reorganization would be accomplished by an acquisition of the net assets of
Mid-Cap I and Total Return in exchange for shares of Mid-Cap II at net asset
value. The statement of assets and liabilities and schedule of investments of
Mid-Cap I and Total Return have been combined as of January 18, 2002 and the
related statements of operations has been pro forma for the year ended December
31, 2002.
The accompanying pro forma financial statements should be read in conjunction
with the financial statements and schedule of investments of Mid-Cap I and Total
Return which are included in their respective annual reports dated December 31,
2001.
The following notes refer to the accompanying pro forma financial statements as
if the above mentioned reorganization of Mid-Cap I and Total Return had taken
place as of January 18, 2002.
2. SIGNIFICANT ACCOUNTING POLICIES
Van Eck Funds Inc., of which Mid-Cap I and Total Return are a series, is a
Maryland Corporation. Mid-Cap I and Total Return are registered under the
Investment Company Act of 1940, as amended, as diversified, open-end
management investment companies.
The significant accounting policies consistently followed by Mid-Cap II are as
follows: (a) securities transactions are accounted for on the trade date; (b)
debt instruments are valued on the basis of quotes provided by a pricing
service; short-term investments that have a maturity of more than 60 days are
valued at prices based on market quotations; short-term investments that have a
maturity of 60 days or less are valued at cost plus accreted discount, or minus
amortized premiums, as applicable; (c) interest income is recorded on the
accrual basis; (d) gains or losses on the sale of securities are calculated by
using the first-in, first-out method; (e) direct expenses are charged to the
Fund; (f) dividends and distributions to shareholders are recorded on the
ex-dividend date and; (g) Mid-Cap II intends to comply with the requirements of
the Internal Revenue Code pertaining to regulated investment companies and to
make the required distributions to shareholders; therefore, no provision for
Federal income taxes has been made.
3. PRO FORMA ADJUSTMENTS
The accompanying pro forma financial statements reflect changes in Fund shares
as if the reorganization had taken place on January 18, 2002. Adjustments have
been made to expenses for the combined Fund expense structure, changes in cost
allocations and elimination of duplicated services that would not have been
incurred if the reorganization had taken place on January 18, 2002.
VAN ECK FUNDS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS (Continued)
JANUARY 18, 2002 (UNAUDITED)
4. MANAGEMENT AGREEMENT AND TRANSACTIONS WITH AFFILIATED PERSONS
Van Eck Associates Corporation acts as investment adviser to both Mid-Cap I and
Total Return Fund. These Funds are expected to pay management and administration
fees calculated at the annual rate of .90% of the average daily net assets. Van
Eck Associates Corporation has engaged the services of John A. Levin & Co. Inc.,
("Levin") as the Funds Sub-Advisor at an annual rate of .375% of average daily
net asset. Levin has agreed to waive its fee until September 30, 2002. The 12b-1
fees are accrued daily at an annual rate of .50% of average daily net asset. All
fees are calculated daily and paid monthly.
EXHIBIT F
TOTAL Mid-Cap II Mid-Cap II
MID CAP RETURN Combined Combined
VALUE FUND MARKET FUND MARKET Fund Fund
SHARES VALUE SHARES VALUE SHARES MARKET VALUE
---------- --------- -------- ---------- ----------- ------------
Accenture Ltd. 19,000 $489,440 7,400 $190,624 26,400 $680,064
Adelphia Communications Corp. 4,600 $119,692 1,700 $44,234 6,300 $163,926
Advanced Energy Industries, Inc. 18,600 $464,442 7,000 $174,790 25,600 $639,232
Agere Systems Inc. Class A 48,000 $250,560 18,800 $98,136 66,800 $348,696
American Woodmark Corp. 900 $50,796 300 $16,932 1,200 $67,728
Annuity & Life Re Holdings, Ltd. 2,100 $39,081 800 $14,888 2,900 $53,969
Archer-Daniels Midland Co. 27,900 $376,092 10,900 $146,932 38,800 $523,024
Becton Dickinson Co. 11,200 $383,600 4,400 $150,700 15,600 $534,300
Black & Decker Corp. 7,200 $262,872 2,800 $102,228 10,000 $365,100
Constellation Energy Group, Inc. 36,100 $980,115 14,100 $382,815 50,200 $1,362,930
Crown Castle Int'l Corp. 21,500 $150,070 8,400 $58,632 29,900 $208,702
El Paso Corp. 4,200 $165,060 1,600 $62,880 5,800 $227,940
Equitable Resources, Inc. 9,400 $278,804 3,700 $109,742 13,100 $388,546
Genelabs Technologies Inc. 129,600 $276,048 50,700 $107,991 180,300 $384,039
Kmart Financing P 1,400 $13,832 700 $6,916 2,100 $20,748
KPMG Consulting Inc. 31,900 $534,644 12,400 $207,824 44,300 $742,468
F-1
TOTAL Mid-Cap II Mid-Cap II
MID CAP RETURN Combined Combined
VALUE FUND MARKET FUND MARKET Fund Fund
SHARES VALUE SHARES VALUE SHARES MARKET VALUE
---------- --------- -------- ---------- ----------- ------------
Max Re Capital Ltd. 20,400 $305,388 7,900 $118,263 28,300 $423,651
Maxtor Corp 27,200 $182,240 10,600 $71,020 37,800 $253,260
Meredith Corp 27,500 $968,000 10,700 $376,640 38,200 $1,344,640
Millenium Chemical, Inc. 23,900 $289,429 9,000 $108,990 32,900 $398,419
Pathmark Stores Inc. 22,300 $503,757 8,700 $196,533 31,000 $700,290
Paxson Communications Corp. 33,900 $344,085 13,300 $134,995 47,200 $479,080
Phoenix Companies, Inc. 49,300 $857,820 19,300 $335,820 68,600 $1,193,640
Photronics Inc. 24,000 $773,040 9,400 $302,774 33,400 $1,075,814
Rainbow Media Group 16,300 $448,250 6,100 $167,750 22,400 $616,000
Raytheon Co. 9,300 $534,843 3,600 $207,036 12,900 $741,879
Regeneron Pharmaceuticals Inc. 32,600 $894,218 12,700 $348,361 45,300 $1,242,579
Reliant Resources, Inc. 43,700 $623,162 17,100 $243,846 60,800 $867,008
Riggs National Corp 18,300 $259,860 7,100 $100,820 25,400 $360,680
Toys 'R' Us Inc. 10,100 $189,173 4,000 $74,920 14,100 $264,093
Tupperware Corp 66,200 $1,253,828 25,800 $488,652 92,000 $1,742,480
UICI 49,300 $653,225 19,300 $255,725 68,600 $908,950
United States Steel Corp. 35,600 $650,768 13,900 $254,092 49,500 $904,860
UnumProvident Corp 17,700 $490,644 6,900 $191,268 24,600 $681,912
Watson Pharmaceuticals Inc. 24,800 $741,024 9,700 $289,836 34,500 $1,030,860
Us Treas Note 6.50% 10/15/06 0 $0 92,000 $100,790 0
Us Treas Note 6.875% 5/15/06 0 $0 2,402,000 $2,661,529 0
Us Treas Note 7.25% 8/15/04 0 $0 1,339,000 $1,466,833 0
----------- ----------- -----------
Total Investments $15,797,902 $10,372,757 $21,941,507
----------- ----------- -----------
Other Assets Less Liabilities $4,438,215 $1,429,029 $10,096,396
----------- ----------- -----------
Net Assets 1-18-02 $20,236,117 $11,801,786 $32,037,803
=========== =========== ===========
F-2
PART C
Item 15. Indemnification
Reference is made to Article VIII of the Registrant's Articles of Incorporation
filed herein as Exhibit 1 to this Registration Statement and to Article XII of
the Registrant's By-Laws filed herein as Exhibit 2 to this Registration
Statement. The Articles of Incorporation provide that to the maximum extent
provided under Maryland law neither an officer nor director of the Registrant
will be liable to the Registrant or its shareholders for monetary damages. The
Articles of Incorporation provide that the Registrant will indemnify its
directors and officers to the maximum extent permitted by Maryland law.
Indemnification may not be made if the director or officer has incurred
liability by reason or willful misfeasance, bad faith, gross negligence or
reckless disregard of duties in the conduct of his/her office ("Disabling
Conduct"). The means of determining whether indemnification shall be made are
(1) a final decision by a court or other-body before whom the proceeding is
brought that the director or officer was not liable by reason of Disabling
Conduct, or (2) in the absence of such a decision, a reasonable determination,
based on a review of the facts, that the director or officer was not liable by
reason of Disabling Conduct. Such latter determination may be made either by (a)
vote of a majority of directors who are neither interested persons (as defined
in the Investment Company Act of 1940) nor parties to the proceeding or (b)
independent legal counsel in a written opinion. The advancement of legal
expenses may not occur unless the director of officer agrees to repay the
advance (if it is determined that he/she is not entitled to the indemnification)
and one of three other conditions is satisfied: (1) the director or officer
provides security for his/her agreement to repay, (2) the Registrant is insured
against loss by reason of lawful advances, or (3) the directors who are not
interested persons and are not parties to the proceedings, or independent
counsel in a written opinion, determine that there is reason to believe that the
director or officer will be found entitled to indemnification. The directors and
officers are currently covered for liabilities incurred in their capacities as
such directors and officers under the terms of a joint liability insurance
policy. This policy covers the registrant; Van Eck Associates and its
affiliates; and any sub-adviser to a Fund advised by Van Eck for errors and
omissions liability.
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of
C-1
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 16: Exhibits
1. Articles of Incorporation.*
2. By-Laws*
3. Not applicable.
4. a. Articles of Merger *
b. Agreement and Plan of Reorganization
5 N.A.
6. a. Form of Investment Management Agreement between Van Eck Associates
Corporation and Mid-Cap Value Fund II
b. Form of Investment Sub-Advisory Agreement between Van Eck Associates
Corporation and John A. Levin & Co., Inc., *
7. a. Form of Fund Distribution Agreement between Van Eck Funds II, Inc. and
Van Eck Securities Corporation.
8. Not applicable.
9. Custodial Services Agreement to be filed by amendment
10. Form of Rule 12b-1 Plan to be filed by amendment.
11 Opinion and Consent of Counsel as to legality of the securities being
registered to be filed by amendment
C-2
12 Opinion of counsel*
13 Not Applicable
14. Not Applicable
15. Not Applicable
16. Not Applicable
17. Consent of Ernst & Young LLP*
18. Proxy Solicitations*
(An * denotes inclusion in this filing)
ITEM 17. UNDERTAKINGS
------------
(1) The undersigned Registrant agrees that prior to any public
re-offering of the securities registered through the use of a prospectus
which is part of this registration statement by any person or party who
is deemed to be an underwriter within the meaning of Rule 145(c) of the
Securities Act of 1933, as amended, the reoffering prospectus will
contain the information called for by the applicable registration form
for reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining liability under the Securities Act of
1933, as amended, each post-effective amendment shall be deemed to be a
new registration statement for the securities offered herein, and the
offering of the securities at that time shall be deemed to be the initial
bona fide offering of them.
(3) The Registrant undertakes to file, by post-effective amendment, an
opinion of counsel supporting the tax consequences of the proposed
reorganization within a reasonable time after receipt of such opinion.
C-3
SIGNATURES
As required by the Securities Act of 1933 the registration statement on Form
N-14 has been signed on behalf of the registrant in the City of New York, State
of New York, on the 13 day of March 2002.
VAN ECK FUNDS II, INC
By: /s/ John C. van Eck
----------------------------------
John C. van Eck, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
hereby constitutes John C. Van Eck such person's true and lawful attorney, with
full power to him to sign for such person and in such person's name and capacity
indicated below, and any and all amendments to this registration statement
hereby ratifying and confirming such person's signature as it may be signed by
said attorney to any and all amendments.
Signature Title Date
- --------- ----- ----
/s/ John C. van Eck Chairman and President 3/13/02
- ------------------------
John C. van Eck
/s/ Bruce J. Smith Chief Financial Officer 3/13/02
- ------------------------
Bruce J. Smith
/s/ Jeremy H. Biggs* Director 3/13/02
- ------------------------
Jeremy H. Biggs
/s/ David J. Olderman* Director 3/13/02
- ------------------------
David J. Olderman
/s/ Richard Stamberger* Director 3/13/02
- -------------------------
Richard Stamberger
C-4
EXHIBIT 1
VAN ECK FUNDS II, INC.
ARTICLES OF INCORPORATION
THIS IS TO CERTIFY THAT:
INCORPORATOR
The undersigned, Thomas Elwood, whose address is 99 Park Avenue,
8th Floor, New York, New York 10016, being at least 18 years of age, does hereby
form a corporation under the general laws of the State of Maryland.
NAME
The name of the corporation (the "Corporation") is Van Eck Funds
II, Inc.
PURPOSE
The Corporation is formed for the purpose of carrying on any
lawful business, which may include acting as an open-end management investment
company registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"), and to engage in
any lawful act or activity for which corporations may be organized under the
general laws of the State of Maryland as now or hereafter in force.
1-1
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the
State of Maryland is c/o Corporation Trust Company, 32 South Street, Baltimore,
Maryland 21202. The name of the resident agent of the Corporation in the State
of Maryland is Corporation Trust Company, whose address is 32 South Street,
Baltimore, Maryland 21202. The resident agent is a citizen of and resides in the
State of Maryland.
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
NUMBER OF DIRECTORS. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors. The number of
directors of the Corporation shall be 4, which number may be increased or
decreased only by the Board of Directors pursuant to the Bylaws, but
shall never be less than the minimum number required by the Maryland
General Corporation Law. The names of the initial directors who shall
serve until the first annual meeting of stockholders and until their
successors are duly elected and qualified are:, and
John C. van Eck
Jeremy Biggs
Richard Stamberger
David Olderman
REMOVAL OF DIRECTORS. Any director, or the entire Board of Directors, may
be removed from office at any time, but, to the extent not otherwise
prohibited by the 1940 Act, with or without cause and then only by the
affirmative vote of the holders of at least a majority of the votes
entitled to be cast in the election of directors.
Section 5.3 EXTRAORDINARY ACTIONS. Notwithstanding any
provision of law permitting or requiring any action to be taken or approved by
the affirmative vote of the holders of shares entitled to cast a greater number
of votes, any such action shall be effective and valid if declared advisable by
the Board of Directors and taken or approved by the affirmative vote of holders
of shares entitled to cast a majority of all the votes entitled to be cast on
the matter.
Section 5.4 QUORUM. At any meeting of stockholders, holders of
one-third of all the votes entitled to be cast at such meeting, present in
person or represented by proxy, shall constitute a quorum. If any matter is to
be voted on by an individual class or series of stock, then holders of one-third
of all the votes entitled to be cast by such class or series at such meeting,
present in person or represented by proxy, shall constitute a quorum as to each
such class or series.
Section 5.5 AUTHORIZATION BY BOARD OF STOCK ISSUANCE. The Board
of Directors may authorize the issuance from time to time of shares of stock of
the Corporation of any class or series, whether now or hereafter authorized, or
securities or rights convertible into shares of its stock of any class
1-2
or series, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable (or without consideration in the case of a
stock split or stock dividend), subject to such restrictions or limitations, if
any, as may be set forth in the charter or the Bylaws.
Section 5.6 PREEMPTIVE RIGHTS. Except as may be provided by the
Board of Directors in setting the terms of classified or reclassified shares of
stock pursuant to Section 6.5 or as may otherwise be provided by contract, no
holder of shares of stock of the Corporation shall, as such holder, have any
preemptive right to purchase or subscribe for any additional shares of stock of
the Corporation or any other security of the Corporation which it may issue or
sell.
Section 5.7 DETERMINATIONS BY BOARD. The determination as to
any of the following matters, made in good faith by or pursuant to the direction
of the Board of Directors consistent with the charter and in the absence of
actual receipt of an improper benefit in money, property or services or active
and deliberate dishonesty established by a court, shall be final and conclusive
and shall be binding upon the Corporation and every holder of shares of its
stock: (a) the amount of the net income of the Corporation for any period and
the amount of assets at any time legally available for the payment of dividends,
the redemption of its stock or the payment of other distributions on its stock;
(b) the amount of paid-in surplus, net assets, other surplus, annual or other
net profit, net assets in excess of capital, undivided profits or excess of
profits over losses on sales of assets; (c) the amount, purpose, time of
creation, increase or decrease, alteration or cancellation of any reserves or
charges and the propriety thereof (whether or not any obligation or liability
for which such reserves or charges shall have been created shall have been paid
or discharged); (d) the value, or any sale, bid or asked price to be applied in
determining the value, of any security or other asset owned or held by the
Corporation; (e) any matter relating to the sale, purchase and/or other
acquisition or disposition of securities or other assets of the Corporation; and
(f) any other matter relating to the business and affairs of the Corporation.
Shares of stock of the Corporation are issued and sold on the condition and
understanding that any and all determinations shall be binding as aforesaid.
Section 5.9 ADVISER AGREEMENTS. Subject to such approval of
stockholders and other conditions, if any, as may be required by any applicable
statute, rule or regulation, the Board of Directors may authorize the execution
and performance by the Corporation of one or more agreements with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization whereby, subject to the supervision and control of the Board
of Directors, any such other person, corporation, association, company, trust,
partnership (limited or general) or other organization shall render or make
available to the Corporation managerial, investment, advisory and/or related
services, office space and other services and facilities (including, if deemed
advisable by the Board of Directors, the management or supervision of the
investments of the Corporation) upon such terms and conditions as may be
provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Directors, the compensation payable thereunder by the
Corporation).
STOCK
AUTHORIZED SHARES. The Corporation has authority to issue 800,000,000
shares of Common Stock, $.001 par value per share ("Common Stock"), which
shares shall be classified in the following series: Mid-Cap Value Fund,
which shall consist of one class of designated as Class A. The aggregate
par value of all authorized shares of stock having par value is
$800,000.00. The Board of Directors may classify any unissued shares of
Common Stock from time to time in one or more classes or series of stock.
The Board of Directors may reclassify any previously classified but
unissued shares of any class or series of stock from time to time in one
or more classes or series of stock. If shares of one class of stock are
classified or reclassified into shares of another class of stock pursuant
to this Article VI, the number of authorized shares of the former class
shall be automatically decreased and the number of shares of the latter
class shall be automatically increased, in each case by the number of
shares so classified or reclassified, so that the aggregate number of
shares of stock of all classes that the Corporation has authority to
1-3
issue shall not be more than the total number of shares of stock set
forth in the first sentence of this paragraph.
VOTING RIGHTS. Each holder of a whole share of stock of the Corporation
shall be entitled to one vote as to any matter on which such share of
stock is entitled to vote and each fractional share of stock of the
Corporation shall be entitled to a proportionate fractional vote. On any
matter submitted to a vote of stockholders, all stockholders of the
Corporation then entitled to vote shall, except as otherwise provided in
the Bylaws, vote together as a single class without regard to classes or
series of shares of stock, except (a) when required by the 1940 Act or
when the Board of Directors shall have determined that the matter affects
one or more classes or series of shares of stock materially differently,
such shares of stock shall be voted by individual class or series in
addition to any other vote that may be required by law; and (b) when the
Board of Directors has determined that the matter affects only the
interests of one or more classes or series of shares of stock, then only
holders of shares of stock of such classes or series shall be entitled to
vote thereon.
FRACTIONAL SHARES; ISSUANCE OF UNITS. The Board of Directors may, but is
not obligated to, issue fractional shares of stock of the Corporation,
whether now or hereafter authorized, and any fractional shares so issued
shall entitle the holder thereof to exercise voting rights, receive
dividends and participate in the distribution of assets of the
Corporation in the event of liquidation or dissolution to the extent of
the proportionate interest represented by such fractional shares. The
Corporation is not obligated to issue stock certificates representing
fractional shares.
ASSETS BELONGING TO EACH SERIES; ALLOCATIONS.
All consideration received by the Corporation for the issuance or sale of shares
of a particular series, together with all income, earnings, profits and
proceeds thereon, shall irrevocably belong to such series for all
purposes, subject only to the rights of creditors of such series, and are
herein referred to as "assets belonging to" such series.
The assets belonging to each series shall be charged with the liabilities
of the Corporation in respect of such series, and with such series'
respective share of the general liabilities of the Corporation, in the
latter case in the proportion that the net asset value of such series
bears to the net asset value of all series. The determination of the
Board of Directors shall be conclusive as to the allocation of
liabilities, including accrued expenses and reserves, to each series.
Dividends or distributions on shares of any series, whether payable in stock,
cash or other property, shall be paid only out of earnings, surplus or
other assets belonging to such series and may vary among the classes of a
series.
In the event of the liquidation or dissolution of any series of stock of the
Corporation, stockholders of such series shall be entitled to receive out
of the assets of such series available for distribution to stockholders
the assets belonging to such series; and the assets so distributable to
the stockholders of such series shall be distributed among such
stockholders based on relative net asset value or such other fair and
equitable method as the Board of Directors may determine.
The assets of a class or series of stock of the Corporation may be invested
together with the assets belonging to another currently existing or
hereafter created class or series of stock of the Corporation. The Board
of Directors shall have the authority to allocate, or cause to be
allocated, a series' assets, liabilities, income or expenses to one or
more classes of such series, in such amounts and at such times as the
Board of Directors (or their designees) shall determine. Any such
allocation shall be final and conclusive and shall be binding upon the
Corporation and every holder of shares of its stock.
CLASSIFIED OR RECLASSIFIED SHARES. Prior to issuance of classified or
reclassified shares of any class or series, the Board of Directors by
resolution shall: (a) designate that class or series to
1-4
distinguish it from all other series and classes of stock of the
Corporation; (b) specify the number of shares to be included in the class
or series; (c) set or change, subject to the express terms of any class
or series of stock of the Corporation outstanding at the time, the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and
terms and conditions of redemption for each class or series; and (d)
cause the Corporation to file articles supplementary with the State
Department of Assessments and Taxation of Maryland (the "SDAT"). Any of
the terms of any class or series of stock set or changed pursuant to
clause (c) of this Section 6.5 may be made dependent upon facts or events
ascertainable outside the charter (including determinations by the Board
of Directors or other facts or events within the control of the
Corporation) and may vary among holders thereof, provided that the manner
in which such facts, events or variations shall operate upon the terms of
such class or series of stock is clearly and expressly set forth in the
articles supplementary filed with the SDAT.
REDEMPTIONS.
The Board of Directors shall authorize the Corporation, to the extent it has
funds or other property legally available therefor and subject to such
reasonable conditions as the directors may determine, to permit each
holder of shares of stock of the Corporation to require the Corporation
to redeem all or any number of the shares of stock outstanding in the
name of such holder on the books of the Corporation, at the net asset
value of such shares, less any fees or charges as the Board of Directors
may establish from time to time. Notwithstanding the foregoing, the Board
of Directors may suspend the right of holders of shares of stock of the
Corporation to require the Corporation to redeem such shares or to
receive payment for redeemed shares for such periods and to the extent
permitted by, or in accordance with, the 1940 Act or any rule or
regulation of the Securities and Exchange Commission promulgated
thereunder. The Board of Directors may, in the absence of a ruling by a
responsible regulatory official, terminate such suspension at such time
as the Board of Directors, in its sole discretion, shall deem reasonable,
such determination to be conclusive.
Without limiting the generality of the foregoing, the Board of Directors may
authorize the Corporation, at its option, to redeem shares of stock of
the Corporation owned by any stockholder under circumstances deemed
appropriate by the Board of Directors in its sole discretion from time to
time, such circumstances including but not limited to (a) failure to
provide the Corporation with a tax identification number, (b) failure to
maintain ownership of a specified minimum number or value of shares of
any class or series of stock of the Corporation and (c) failure to
maintain the characteristics or qualifications established by the Board
of Directors for a particular class or series of stock of the
Corporation, such redemption to be effected at such price, at such time
and subject to such conditions as may be required or permitted by
applicable law.
Payment for redeemed shares of stock of the Corporation shall be made in cash
unless, in the opinion of the Board of Directors, which shall be
conclusive, conditions exist which make it necessary or desirable for the
Corporation to make payment wholly or partially in securities or other
property or assets of the Corporation. Payment made wholly or partially
in securities or other property or assets may be delayed to such
reasonable extent, not inconsistent with applicable law, as is reasonably
necessary under the circumstances. No stockholder shall have the right,
except as determined by the Board of Directors, to have his shares
redeemed in such securities, property or other assets.
All rights of a stockholder with respect to a share redeemed, including the
right to receive dividends and distributions with respect to such share,
shall cease as of the date on which the redemption price to be paid for
such shares is fixed in accordance with applicable law, except the right
of such stockholder to receive payment for such shares as provided
herein.
Shares of stock of the Corporation which have been redeemed shall constitute
authorized but unissued shares of stock of such class or series so
redeemed.
1-5
CHARTER AND BYLAWS. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions of the
charter and the Bylaws. Except as may be otherwise provided herein, all
provisions of the charter relating to shares of stock of the Corporation
shall apply to shares of and to the holders of shares of all classes or
series of stock of the Corporation, whether now or hereafter classified
or reclassified.
AMENDMENTS
The Corporation reserves the right from time to time to make any
amendment to its charter, now or hereafter authorized by law, including any
amendment altering the terms or contract rights, as expressly set forth in this
charter, of any shares of outstanding stock. All rights and powers conferred by
the charter on stockholders, directors and officers are granted subject to this
reservation.
LIMITATION OF LIABILITY; INDEMNIFICATION AND ADVANCE OF EXPENSES
LIMITATION OF LIABILITY. To the maximum extent that Maryland law in
effect from time to time permits limitation of the liability of directors
and officers of a corporation, no director or officer of the Corporation
shall be liable to the Corporation or its stockholders for money damages.
INDEMNIFICATION AND ADVANCE OF EXPENSES. The Corporation shall have the
power, to the maximum extent permitted by Maryland law in effect from
time to time, to obligate itself to indemnify, and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to,
(a) any individual who is a present or former director or officer of the
Corporation or (b) any individual who, while a director of the
Corporation and at the request of the Corporation, serves or has served
as a director, officer, partner or trustee of another corporation, real
estate investment trust, partnership, joint venture, trust, employee
benefit plan or any other enterprise from and against any claim or
liability to which such person may become subject or which such person
may incur by reason of his status as a present or former director or
officer of the Corporation. The Corporation shall have the power, with
the approval of the Board of Directors, to provide such indemnification
and advancement of expenses to a person who served a predecessor of the
Corporation in any of the capacities described in (a) or (b) above and to
any employee or agent of the Corporation or a predecessor of the
Corporation.
1940 ACT. No provision of this Article VIII shall be effective to protect
or purport to protect any director or officer of the Corporation against
liability to the Corporation or its stockholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his or her office.
AMENDMENT OR REPEAL. Neither the amendment nor repeal of this Article
VIII, nor the adoption or amendment of any other provision of the charter
or Bylaws inconsistent with this Article VIII, shall apply to or affect
in any respect the applicability of the preceding sections of this
Article VIII with respect to any act or failure to act which occurred
prior to such amendment, repeal or adoption.
[SIGNATURE PAGE FOLLOWS]
1-6
IN WITNESS WHEREOF, I have signed these Articles of Incorporation
and acknowledge the same to be my act on this _____ day of _____________, 2002.
By:________________________________
1-7
EXHIBIT 2
ITEM 16 EXHIBIT 2
VAN ECK FUNDS II, INC.
BYLAWS
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office of the Corporation
in the State of Maryland shall be located at such place as the Board of
Directors may designate.
Section 2. ADDITIONAL OFFICES. The Corporation may have additional
offices, including a principal executive office, at such places as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE. All meetings of stockholders shall be held at the
principal executive office of the Corporation or at such other place as shall be
set by the Board of Directors and stated in the notice of the meeting.
Section 2. ANNUAL MEETING. Subject to the following sentence, an
annual meeting of the stockholders for the election of directors and the
transaction of any business within the powers of the Corporation shall be held
on a date and at the time set by the Board of Directors during the month of
April in each year. The Corporation shall not be required to hold an annual
meeting of stockholders in any year in which the election of directors is not
required to be acted upon under the Investment Company Act of 1940, as amended
(the "1940 Act").
Section 3. SPECIAL MEETINGS. The chairman of the board, president,
chief executive officer or Board of Directors may call a special meeting of the
stockholders. A special meeting of stockholders shall also be called by the
secretary of the Corporation upon the written request of the stockholders
entitled to cast not less than a majority of all the votes entitled to be cast
at such meeting. The secretary shall inform the requesting stockholders of the
reasonably estimated cost of preparing and mailing the notice of meeting
(including the Corporation's proxy materials). The secretary shall not be
required to call a special meeting upon stockholder request and
2-1
such meeting shall not be held unless the secretary receives payment of such
reasonably estimated cost prior to the mailing of any notice of the meeting.
Section 4. NOTICE. Not less than ten nor more than 90 days before
each meeting of stockholders, the secretary shall give to each stockholder
entitled to vote at such meeting and to each stockholder not entitled to vote
who is entitled to notice of the meeting written or printed notice stating the
time and place of the meeting and, in the case of a special meeting or as
otherwise may be required by any statute, the purpose for which the meeting is
called, either by mail, by presenting it to such stockholder personally, by
leaving it at the stockholder's residence or usual place of business or by any
other means permitted by Maryland law. If mailed, such notice shall be deemed to
be given when deposited in the United States mail addressed to the stockholder
at the stockholder's address as it appears on the records of the Corporation,
with postage thereon prepaid.
Any business of the Corporation may be transacted at an annual meeting of
stockholders without being specifically designated in the notice, except such
business as is required by any statute to be stated in such notice. No business
shall be transacted at a special meeting of stockholders except as specifically
designated in the notice.
Section 5. ORGANIZATION AND CONDUCT. Every meeting of stockholders
shall be conducted by an individual appointed by the Board of Directors to be
chairman of the meeting or, in the absence of such appointment, by the chairman
of the board or, in the case of a vacancy in the office or absence of the
chairman of the board, by one of the following officers present at the meeting:
the vice chairman of the board, if there be one, the president, the vice
presidents in their order of rank and seniority, or, in the absence of such
officers, a chairman chosen by the stockholders by the vote of a majority of the
votes cast by stockholders present in person or by proxy. The secretary, or, in
the secretary's absence, an assistant secretary, or in the absence of both the
secretary and assistant secretaries, a person appointed by the Board of
Directors or, in the absence of such appointment, a person appointed by the
chairman of the meeting shall act as secretary. In the event that the secretary
presides at a meeting of the stockholders, an assistant secretary shall record
the minutes of the meeting. The order of business and all other matters of
procedure at any meeting of stockholders shall be determined by the chairman of
the meeting. The chairman of the meeting may prescribe such rules, regulations
and procedures and take such action as, in the discretion of such chairman, are
appropriate for the proper conduct of the meeting, including, without
limitation, (a) restricting admission to the time set for the commencement of
the meeting; (b) limiting attendance at the meeting to stockholders of record of
the Corporation, their duly authorized proxies or other such persons as the
chairman of the meeting may determine; (c) limiting participation at the meeting
on any matter to stockholders of record of the
2-2
Corporation entitled to vote on such matter, their duly authorized proxies or
other such persons as the chairman of the meeting may determine; (d) limiting
the time allotted to questions or comments by participants; (e) maintaining
order and security at the meeting; (f) removing any stockholder or any other
person who refuses to comply with meeting procedures, rules or guidelines as set
forth by the chairman of the meeting; and (g) recessing or adjourning the
meeting to a later date and time and place announced at the meeting. Unless
otherwise determined by the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of parliamentary
procedure.
Section 6. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of stockholders entitled to cast one-third of all the votes
entitled to be cast at such meeting shall constitute a quorum; but this section
shall not affect any requirement under any statute or the charter of the
Corporation for the vote necessary for the adoption of any measure. If, however,
such quorum shall not be present at any meeting of the stockholders, the
chairman of the meeting or the stockholders entitled to vote at such meeting,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time to a date not more than 120 days after the original record date
without notice other than announcement at the meeting. At such adjourned meeting
at which a quorum shall be present, any business may be transacted which might
have been transacted at the meeting as originally notified.
The stockholders present either in person or by proxy, at a meeting which
has been duly called and convened, may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 7. VOTING. A plurality of all the votes cast at a meeting of
stockholders duly called and at which a quorum is present shall be sufficient to
elect a director. Each share may be voted for as many individuals as there are
directors to be elected and for whose election the share is entitled to be
voted. A majority of the votes cast at a meeting of stockholders duly called and
at which a quorum is present shall be sufficient to approve any other matter
which may properly come before the meeting, unless more than a majority of the
votes cast is required by statute or by the charter of the Corporation. Unless
otherwise provided in the charter, each outstanding share, regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders.
Section 8. PROXIES. A stockholder may cast the votes entitled to be
cast by the shares of stock owned of record by the stockholder in person or by
proxy executed by the stockholder or by the stockholder's duly authorized agent
in any manner permitted by law. Such proxy or evidence of
2-3
authorization of such proxy shall be filed with the secretary of the Corporation
before or at the meeting. No proxy shall be valid more than eleven months after
its date unless otherwise provided in the proxy.
Section 9. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the
Corporation registered in the name of a corporation, partnership, trust or other
entity, if entitled to be voted, may be voted by the president or a vice
president, a general partner or trustee thereof, as the case may be, or a proxy
appointed by any of the foregoing individuals, unless some other person who has
been appointed to vote such stock pursuant to a bylaw or a resolution of the
governing body of such corporation or other entity or agreement of the partners
of a partnership presents a certified copy of such bylaw, resolution or
agreement, in which case such person may vote such stock. Any director or other
fiduciary may vote stock registered in his or her name as such fiduciary, either
in person or by proxy.
Shares of stock of the Corporation directly or indirectly owned by it
shall not be voted at any meeting and shall not be counted in determining the
total number of outstanding shares entitled to be voted at any given time,
unless they are held by it in a fiduciary capacity, in which case they may be
voted and shall be counted in determining the total number of outstanding shares
at any given time.
The Board of Directors may adopt by resolution a procedure by which a
stockholder may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may make the certification, the purpose for which the
certification may be made, the form of certification and the information to be
contained in it; if the certification is with respect to a record date or
closing of the stock transfer books, the time after the record date or closing
of the stock transfer books within which the certification must be received by
the Corporation; and any other provisions with respect to the procedure which
the Board of Directors considers necessary or desirable. On receipt of such
certification, the person specified in the certification shall be regarded as,
for the purposes set forth in the certification, the stockholder of record of
the specified stock in place of the stockholder who makes the certification.
Section 10. INSPECTORS. The Board of Directors, in advance of any
meeting, may, but need not, appoint one or more individual inspectors or one or
more entities that designate individuals as inspectors to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the chairman
2-4
of the meeting. The inspectors, if any, shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, and determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. Each such report
shall be in writing and signed by him or her or by a majority of them if there
is more than one inspector acting at such meeting. If there is more than one
inspector, the report of a majority shall be the report of the inspectors. The
report of the inspector or inspectors on the number of shares represented at the
meeting and the results of the voting shall be PRIMA FACIE evidence thereof.
Section 12. VOTING BY BALLOT. Voting on any question or in any
election may be VIVA VOCE unless the presiding officer shall order or any
stockholder shall demand that voting be by ballot.
Section 13. MEETING BY CONFERENCE TELEPHONE. To the extent permitted
by the Board of Directors or the chairman of the meeting, stockholders may
participate in a meeting by means of conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means
constitutes presence in person at the meeting.]
2-5
ARTICLE III
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. At any regular meeting
or at any special meeting called for that purpose, a majority of the entire
Board of Directors may establish, increase or decrease the number of directors,
provided that the number thereof shall never be less than the minimum number
required by the MGCL, nor more than 20, and further provided that the tenure of
office of a director shall not be affected by any decrease in the number of
directors. Directors shall be elected at the annual meeting of stockholders of
the Corporation or a special meeting held for that purpose; provided, however,
that if no annual meeting of the stockholders is required to be held pursuant to
Section 2 of Article II of these Bylaws, directors shall be elected at the next
annual meeting held.
Section 3. ANNUAL AND REGULAR MEETINGS. An annual meeting of the
Board of Directors shall be held immediately after and at the same place as the
annual meeting of stockholders, no notice other than this Bylaw being necessary.
In the event such meeting is not so held, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors. Regular meetings of the Board of
Directors shall be held from time to time at such places and times as provided
by the Board of Directors by resolution, without notice other than such
resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the chairman of the board, the
president or by a majority of the directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
any place as the place for holding any special meeting of the Board of Directors
called by them. The Board of Directors may provide, by resolution, the time and
place for the holding of special meetings of the Board of Directors without
notice other than such resolution.
Section 5. NOTICE. Notice of any special meeting of the Board of
Directors shall be delivered personally or by telephone, electronic mail,
facsimile transmission, United States mail or courier to each director at his or
her business or residence address. Notice by personal delivery, telephone,
electronic mail or facsimile transmission shall be given at least 24 hours prior
to the meeting. Notice by United States mail shall be given at least three days
prior to the meeting. Notice by courier shall be given at least two days prior
to
2-6
the meeting. Telephone notice shall be deemed to be given when the director or
his or her agent is personally given such notice in a telephone call to which
the director or his or her agent is a party. Electronic mail notice shall be
deemed to be given upon transmission of the message to the electronic mail
address given to the Corporation by the director. Facsimile transmission notice
shall be deemed to be given upon completion of the transmission of the message
to the number given to the Corporation by the director and receipt of a
completed answer-back indicating receipt. Notice by United States mail shall be
deemed to be given when deposited in the United States mail properly addressed,
with postage thereon prepaid. Notice by courier shall be deemed to be given when
deposited with or delivered to a courier properly addressed. Neither the
business to be transacted at, nor the purpose of, any annual, regular or special
meeting of the Board of Directors need be stated in the notice, unless
specifically required by statute or these Bylaws.
Section 6. QUORUM. A majority of the directors shall constitute a
quorum for transaction of business at any meeting of the Board of Directors,
provided that, if less than a majority of such directors are present at said
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice, and provided further that if, pursuant to the
charter of the Corporation or these Bylaws, the vote of a majority of a
particular group of directors is required for action, a quorum must also include
a majority of such group.
The directors present at a meeting which has been duly called and
convened may continue to transact business until adjournment, notwithstanding
the withdrawal of enough directors to leave less than a quorum.
Section 7. VOTING. The action of the majority of the directors
present at a meeting at which a quorum is present shall be the action of the
Board of Directors, unless the concurrence of a greater proportion is required
for such action by applicable statute or the charter. If enough directors have
withdrawn from a meeting to leave less than a quorum but the meeting is not
adjourned, the action of the majority of the directors still present at such
meeting shall be the action of the Board of Directors, unless the concurrence of
a greater proportion is required for such action by applicable statute or the
charter.
Section 8. ORGANIZATION. At each meeting of the Board of Directors,
the chairman of the board or, in the absence of the chairman, the vice chairman
of the board, if any, shall act as Chairman. In the absence of both the chairman
and vice chairman of the board, the chief executive officer or in the absence of
the chief executive officer, the president or in the absence of the president, a
director chosen by a majority of the directors present, shall act as Chairman.
The secretary or, in his or her absence, an assistant secretary of
2-7
the Corporation, or in the absence of the secretary and all assistant
secretaries, a person appointed by the Chairman, shall act as Secretary of the
meeting.
Section 9. TELEPHONE MEETINGS. Directors may participate in a meeting
by means of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in person at
the meeting.
Section 10. WRITTEN CONSENT BY DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
director and such written consent is filed with the minutes of proceedings of
the Board of Directors.
Section 11. VACANCIES. If for any reason any or all the directors
cease to be directors, such event shall not terminate the Corporation or affect
these Bylaws or the powers of the remaining directors hereunder. Any vacancy on
the Board of Directors for any cause other than an increase in the number of
directors shall be filled by a majority of the remaining directors, even if such
majority is less than a quorum. Any vacancy in the number of directors created
by an increase in the number of directors may be filled by a majority vote of
the entire Board of Directors. Any individual so elected as director shall serve
until the next annual meeting of stockholders and until his or her successor is
elected and qualifies.
Section 12. COMPENSATION. Directors shall not receive any stated
salary for their services as directors but, by resolution of the Board of
Directors, may receive compensation per year and/or per meeting and/or per visit
to real property or other facilities owned or leased by the Corporation and for
any service or activity they performed or engaged in as directors. Directors may
be reimbursed for expenses of attendance, if any, at each annual, regular or
special meeting of the Board of Directors or of any committee thereof and for
their expenses, if any, in connection with each property visit and any other
service or activity they performed or engaged in as directors; but nothing
herein contained shall be construed to preclude any directors from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 13. LOSS OF DEPOSITS. No director shall be liable for any loss
which may occur by reason of the failure of the bank, trust company, savings and
loan association, or other institution with whom moneys or stock have been
deposited.
Section 14. SURETY BONDS. Unless required by law, no director shall be
obligated to give any bond or surety or other security for the performance of
any of his or her duties.
2-8
Section 15. RELIANCE. Each director, officer, employee and agent of
the Corporation shall, in the performance of his or her duties with respect to
the Corporation, be fully justified and protected with regard to any act or
failure to act in reliance in good faith upon the books of account or other
records of the Corporation, upon an opinion of counsel or upon reports made to
the Corporation by any of its officers or employees or by the adviser,
accountants, appraisers or other experts or consultants selected by the Board of
Directors or officers of the Corporation, regardless of whether such counsel or
expert may also be a director.
Section 16. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND
AGENTS. The directors shall have no responsibility to devote their full time to
the affairs of the Corporation. Any director or officer, employee or agent of
the Corporation, in his or her personal capacity or in a capacity as an
affiliate, employee, or agent of any other person, or otherwise, may have
business interests and engage in business activities similar to or in addition
to or in competition with those of or relating to the Corporation.]
ARTICLE IV
COMMITTEES
Section 1. NUMBER, TENURE AND QUALIFICATIONS. The Board of
Directors may appoint from among its members an Executive Committee, an Audit
Committee [, A COMPENSATION COMMITTEE] and other committees, composed of one
[TWO] or more directors, to serve at the pleasure of the Board of Directors.
Section 2. POWERS. The Board of Directors may delegate to
committees appointed under Section 1 of this Article any of the powers of the
Board of Directors, except as prohibited by law.
Section 3. MEETINGS. Notice of committee meetings shall be given
in the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee, and
such chairman or, in the absence of a chairman, any two members of any committee
(if there are at least two members of the Committee) may fix the time and place
of its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
2-9
Section 4. TELEPHONE MEETINGS. Members of a committee of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating in
the meeting can hear each other at the same time. Participation in a meeting by
these means shall constitute presence in person at the meeting.
Section 5. WRITTEN CONSENT BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 6. VACANCIES. Subject to the provisions hereof, the Board
of Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee. Subject to the
power of the Board of Directors, the members of the committee shall have the
power to fill any vacancies on the committee.
2-10
ARTICLE V
OFFICERS
Section 1. GENERAL PROVISIONS. The officers of the Corporation
shall include a president, a secretary and a treasurer and may include a
chairman of the board, a vice chairman of the board, a chief executive officer,
one or more vice presidents, a chief operating officer, a chief financial
officer, one or more assistant secretaries and one or more assistant treasurers.
In addition, the Board of Directors may from time to time elect such other
officers with such powers and duties as they shall deem necessary or desirable.
The officers of the Corporation shall be elected annually by the Board of
Directors, except that the chief executive officer or president may from time to
time appoint one or more vice presidents, assistant secretaries, assistant
treasurers or other officers. Each officer shall hold office until his or her
successor is elected and qualifies or until death, resignation or removal in the
manner hereinafter provided. Any two or more offices except president and vice
president may be held by the same person. Election of an officer or agent shall
not of itself create contract rights between the Corporation and such officer or
agent.
Section 2. REMOVAL AND RESIGNATION. Any officer or agent of the
Corporation may be removed, with or without cause, by the Board of Directors if
in its judgment the best interests of the Corporation would be served thereby,
but such removal shall be without prejudice to the contract rights, if any, of
the person so removed. Any officer of the Corporation may resign at any time by
giving written notice of his or her resignation to the Board of Directors, the
chairman of the board, the president or the secretary. Any resignation shall
take effect immediately upon its receipt or at such later time specified in the
notice of resignation. The acceptance of a resignation shall not be necessary to
make it effective unless otherwise stated in the resignation. Such resignation
shall be without prejudice to the contract rights, if any, of the Corporation.
Section 3. VACANCIES. A vacancy in any office may be filled by
the Board of Directors for the balance of the term.
Section 4. CHIEF EXECUTIVE OFFICER. The Board of Directors may
designate a chief executive officer. In the absence of such designation, the
chairman of the board shall be the chief executive officer of the Corporation.
The chief executive officer shall have general responsibility for implementation
of the policies of the Corporation, as determined by the Board of Directors, and
for the management of the business and affairs of the Corporation.
2-11
Section 5. CHIEF OPERATING OFFICER. The Board of Directors may
designate a chief operating officer. The chief operating officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 6. CHIEF FINANCIAL OFFICER. The Board of Directors may
designate a chief financial officer. The chief financial officer shall have the
responsibilities and duties as set forth by the Board of Directors or the chief
executive officer.
Section 7. CHAIRMAN OF THE BOARD. The Board of Directors shall
designate a chairman of the board. The chairman of the board shall preside over
the meetings of the Board of Directors and of the stockholders at which he or
she shall be present. The chairman of the board shall perform such other duties
as may be assigned to him or her by the Board of Directors.
Section 8. PRESIDENT. In the absence of a designation of a chief
operating officer by the Board of Directors, the president shall be the chief
operating officer. He or she may execute any deed, mortgage, bond, contract or
other instrument, except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these Bylaws to some other officer or
agent of the Corporation or shall be required by law to be otherwise executed;
and in general shall perform all duties incident to the office of president and
such other duties as may be prescribed by the Board of Directors from time to
time.
Section 9. VICE PRESIDENTS. In the absence of the president or in
the event of a vacancy in such office, the vice president (or in the event there
be more than one vice president, the vice presidents in the order designated at
the time of their election or, in the absence of any designation, then in the
order of their election) shall perform the duties of the president and when so
acting shall have all the powers of and be subject to all the restrictions upon
the president; and shall perform such other duties as from time to time may be
assigned to such vice president by the president or by the Board of Directors.
The Board of Directors may designate one or more vice presidents as executive
vice president or as vice president for particular areas of responsibility.
Section 10. SECRETARY. The secretary shall (a) keep the minutes of
the proceedings of the stockholders, the Board of Directors and committees of
the Board of Directors in one or more books provided for that purpose; (b) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records and of
the seal of the Corporation; (d) keep a register of the post office address of
each stockholder which shall be furnished to the secretary by such stockholder;
(e) have general charge of the stock transfer books of the Corporation; and (f)
in
2-12
general perform such other duties as from time to time may be assigned to him by
the chief executive officer, the president or by the Board of Directors.
Section 11. TREASURER. The treasurer shall have the custody of the
funds and securities of the Corporation and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. In the absence of a designation of a chief financial officer by
the Board of Directors, the treasurer shall be the chief financial officer of
the Corporation.
The treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and Board of Directors, at the
regular meetings of the Board of Directors or whenever it may so require, an
account of all his or her transactions as treasurer and of the financial
condition of the Corporation.
If required by the Board of Directors, the treasurer shall give
the Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his or her office and for the restoration to the Corporation, in case
of his or her death, resignation, retirement or removal from office, of all
books, papers, vouchers, moneys and other property of whatever kind in his or
her possession or under his or her control belonging to the Corporation.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
assistant secretaries and assistant treasurers, in general, shall perform such
duties as shall be assigned to them by the secretary or treasurer, respectively,
or by the president or the Board of Directors. The assistant treasurers shall,
if required by the Board of Directors, give bonds for the faithful performance
of their duties in such sums and with such surety or sureties as shall be
satisfactory to the Board of Directors.
Section 13. SALARIES. The salaries and other compensation of the
officers shall be fixed from time to time by the Board of Directors and no
officer shall be prevented from receiving such salary or other compensation by
reason of the fact that he or she is also a director.
2-13
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any
officer or agent to enter into any contract or to execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances. Any agreement, deed, mortgage,
lease or other document shall be valid and binding upon the Corporation when
authorized or ratified by action of the Board of Directors and executed by an
authorized person.
Section 2. CHECKS AND DRAFTS. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or agent of the
Corporation in such manner as shall from time to time be determined by the Board
of Directors.
Section 3. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may designate.
ARTICLE VII
STOCK
Section 1. CERTIFICATES; REQUIRED INFORMATION. In the event that
the Corporation issues shares of stock represented by certificates, such
certificates shall be signed by the officers of the Corporation in the manner
permitted by the MGCL and contain the statements and information required by the
MGCL. In the event that the Corporation issues shares of stock without
certificates, the Corporation shall provide to holders of such shares a written
statement of the information required by the MGCL to be included on stock
certificates.
Section 2. TRANSFERS WHEN CERTIFICATES ISSUED. Upon surrender to
the Corporation or the transfer agent of the Corporation of a stock certificate
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, the Corporation shall issue a new certificate to the
person entitled thereto, cancel the old certificate and record the transaction
upon its books.
The Corporation shall be entitled to treat the holder of record of
any share of stock as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
2-14
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Notwithstanding the foregoing, transfers of shares of any class of
stock will be subject in all respects to the charter of the Corporation and all
of the terms and conditions contained therein.
Section 3. REPLACEMENT CERTIFICATE. The president, the
secretary , the treasurer or any officer designated by the Board of Directors
may direct a new certificate to be issued in place of any certificate previously
issued by the Corporation alleged to have been lost, stolen or destroyed upon
the making of an affidavit of that fact by the person claiming the certificate
to be lost, stolen or destroyed. When authorizing the issuance of a new
certificate, an officer designated by the Board of Directors may, in his or her
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or the owner's legal
representative to advertise the same in such manner as he or she shall require
and/or to give bond, with sufficient surety, to the Corporation to indemnify it
against any loss or claim which may arise as a result of the issuance of a new
certificate.
Section 4. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
The Board of Directors may set, in advance, a record date for the purpose of
determining stockholders entitled to notice of or to vote at any meeting of
stockholders or determining stockholders entitled to receive payment of any
dividend or the allotment of any other rights, or in order to make a
determination of stockholders for any other proper purpose. Such date, in any
case, shall not be prior to the close of business on the day the record date is
fixed and shall be not more than 90 days and, in the case of a meeting of
stockholders, not less than ten days, before the date on which the meeting or
particular action requiring such determination of stockholders of record is to
be held or taken.
In lieu of fixing a record date, the Board of Directors may
provide that the stock transfer books shall be closed for a stated period but
not longer than 20 days. If the stock transfer books are closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days before the date
of such meeting.
If no record date is fixed and the stock transfer books are not
closed for the determination of stockholders, (a) the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day on which the notice of
meeting is mailed or the 30th day before the meeting, whichever is the closer
2-15
date to the meeting; and (b) the record date for the determination of
stockholders entitled to receive payment of a dividend or an allotment of any
other rights shall be the close of business on the day on which the resolution
of the directors, declaring the dividend or allotment of rights, is adopted.
When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, except when (i) the
determination has been made through the closing of the transfer books and the
stated period of closing has expired or (ii) the meeting is adjourned to a date
more than 120 days after the record date fixed for the original meeting, in
either of which case a new record date shall be determined as set forth herein.
Section 5. STOCK LEDGER. The Corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer agent,
an original or duplicate share ledger containing the name and address of each
stockholder and the number of shares of each class held by such stockholder.
Section 6. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of
Directors may issue fractional stock or provide for the issuance of scrip, all
on such terms and under such conditions as they may determine. Notwithstanding
any other provision of the charter or these Bylaws, the Board of Directors may
issue units consisting of different securities of the Corporation. Any security
issued in a unit shall have the same characteristics as any identical securities
issued by the Corporation, except that the Board of Directors may provide that
for a specified period securities of the Corporation issued in such unit may be
transferred on the books of the Corporation only in such unit.
ARTICLE VIII
ACCOUNTING YEAR
The Board of Directors shall have the power, from time to time, to
fix the fiscal year of the Corporation by a duly adopted resolution.
ARTICLE IX
DISTRIBUTIONS
Section 1. AUTHORIZATION. Dividends and other distributions upon
the stock of the Corporation may be authorized by the Board of Directors,
subject to the provisions of law and the charter of the Corporation. Dividends
and other distributions may be paid in cash, property or stock of the
Corporation, subject to the provisions of law and the charter.
2-16
Section 2. CONTINGENCIES. Before payment of any dividends or
other distributions, there may be set aside out of any assets of the Corporation
available for dividends or other distributions such sum or sums as the Board of
Directors may from time to time, in its absolute discretion, think proper as a
reserve fund for contingencies, for equalizing dividends or other distributions,
for repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best interest of
the Corporation, and the Board of Directors may modify or abolish any such
reserve.
ARTICLE X
INVESTMENT POLICY
Subject to the provisions of the charter of the Corporation, the
Board of Directors may from time to time adopt, amend, revise or terminate any
policy or policies with respect to investments by the Corporation as it shall
deem appropriate in its sole discretion.
ARTICLE XI
SEAL
Section 1. SEAL. The Board of Directors may authorize the
adoption of a seal by the Corporation. The seal shall contain the name of the
Corporation and the year of its incorporation and the words "Incorporated
Maryland." The Board of Directors may authorize one or more duplicate seals and
provide for the custody thereof.
Section 2. AFFIXING SEAL. Whenever the Corporation is
permitted or required to affix its seal to a document, it shall be sufficient to
meet the requirements of any law, rule or regulation relating to a seal to place
the word "(SEAL)" adjacent to the signature of the person authorized to execute
the document on behalf of the Corporation.
ARTICLE XII
INDEMNIFICATION AND ADVANCE OF EXPENSES
To the maximum extent permitted by Maryland law in effect from
time to time, the Corporation shall indemnify and, without requiring a
preliminary determination of the ultimate entitlement to indemnification, shall
pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to (a) any individual who is a present or former director or officer
of the Corporation and who is made a party to the proceeding by reason of his or
her service in that capacity or (b) any individual who, while a director of the
2-17
Corporation and at the request of the Corporation, serves or has served as a
director, officer, partner or trustee of another corporation, real estate
investment trust, partnership, joint venture, trust, employee benefit plan or
other enterprise and who is made a party to the proceeding by reason of his or
her service in that capacity. The Corporation may, with the approval of its
Board of Directors, provide such indemnification and advance for expenses to a
person who served a predecessor of the Corporation in any of the capacities
described in (a) or (b) above and to any employee or agent of the Corporation or
a predecessor of the Corporation. No provision of this Article XII shall be
effective to protect or purport to protect any director or officer of the
Corporation against liability to the Corporation or its stockholders to which he
or she would otherwise be subject by reason of willfulness misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office. Such conduct is described herein as "Disabling
Conduct". The means for determining whether indemnification shall be made shall
be (1) a final decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not liable by
reason of such Disabling conduct or (2) in the absence of such a decision, a
reasonable determination, based upon a review of the facts, that such person was
not liable by reason of such Disabling Conduct, made (a) by the vote of a
majority of a quorum of Directors who are neither "interested" persons of the
Corporation (as defined in the Investment Company Act of 1940, as amended) nor
parties to the proceeding or (b) by an independent legal counsel in a written
opinion.
Section 4. ADVANCEMENT OF LEGAL FEES. Nothing contained in this
Article shall be construed to permit the advancement of legal expenses for the
defense of a proceeding brought by the Corporation or its security holders
against a Director or officer of the Corporation unless an undertaking is
furnished by or on behalf of such person to repay the advance (unless it is
ultimately determined that he or she is entitled to indemnification) and such
person complies with at least one of the following conditions: (1) he or she
shall provide a security for his or her undertaking, (2) the Corporation shall
be insured against losses arising by reason of any lawful advances, or (3) a
majority of a quorum of the Directors who are neither interested persons (as
defined in the Investment Company Act of 1940, as amended) nor parties to the
proceeding, or an independent legal counsel in a written opinion, shall
determine, based on a review of readily available facts, as opposed to a full
trial-type inquiry, that there is reason to believe that such person ultimately
will be found entitled to indemnification.
Neither the amendment nor repeal of this Article, nor the adoption
or amendment of any other provision of the Bylaws or charter of the Corporation
inconsistent with this Article, shall apply to or affect in any respect the
applicability of the preceding paragraph with respect to any act or failure to
act which occurred prior to such amendment, repeal or adoption.
ARTICLE XIII
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to the
charter of the Corporation or these Bylaws or pursuant to applicable law, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be transacted
at nor the purpose of any meeting need be set forth in the waiver of notice,
unless specifically required by statute. The attendance of any person at any
meeting shall constitute a waiver of notice of such meeting, except where such
person attends a meeting for the express purpose of objecting to the transaction
of any business on the ground that the meeting is not lawfully called or
convened.
ARTICLE XIV
AMENDMENT OF BYLAWS
The Board of Directors shall have the exclusive power to adopt,
alter or repeal any provision of these Bylaws and to make new Bylaws.
2-18
EXHIBIT 4A
ARTICLES OF MERGER
BETWEEN
VAN ECK FUNDS, INC.
(a Maryland corporation)
AND
VAN ECK FUNDS II, INC.
(a Maryland corporation)
Van Eck Funds, Inc., a corporation duly organized and existing under the
laws of the State of Maryland ("Van Eck"), and Van Eck Funds II, Inc., a
corporation duly organized and existing under the laws of the State of Maryland
("Van Eck II"), do hereby certify that:
FIRST: Van Eck and Van Eck II agree to merge pursuant to the Agreement
and Plan of Reorganization attached hereto as Exhibit A (the "Reorganization"),
which Agreement and Plan of Merger has been approved by the respective Boards of
Directors of Van Eck and Van Eck II for the Merger of Van Eck with and into Van
Eck II.
SECOND: The name and place of incorporation of each party to these
Articles are Van Eck Funds, Inc., a Maryland corporation, and Van Eck Funds II,
Inc., a Maryland corporation. The date of incorporation of Van Eck in the State
of Maryland is ____________, 19__. Van Eck II shall survive the Merger and shall
continue under the name "Van Eck Funds, Inc.," as a corporation of the State of
Maryland.
THIRD: Van Eck and Van Eck II each have their principal office in the
State of New York in _______ County. Neither Van Eck nor Van Eck II owns an
interest in land in the State of Maryland.
FOURTH: The terms and conditions of the transaction set forth in these
Articles were advised, authorized, and approved by each party to the Articles in
the manner and by vote required by its charter and the laws of the State of
Maryland. The manner of approval was as follows:
(i) The Board of Directors of Van Eck at a meeting held on January ___, 2002,
adopted resolutions approving the Agreement and Plan of Reorganization, subject
to the approval of shareholders of the Mid-Cap II Fund ("Mid-Cap I") and Total
Return Fund ("Total Return Fund"), each a portfolio series of Van Eck, which
resolutions declared that the proposed Merger was advisable on substantially the
terms and conditions set forth or referred to in the resolutions and directed
that the proposed Merger be submitted for consideration at special meetings of
the shareholders of the Mid-Cap I Fund and Total Return Fund.
(ii) The Board of Directors of Van Eck II at a meeting held on
January ___, 2002, adopted resolutions approving the Agreement and Plan of
Reorganization, which
4a-1
resolutions declared that the proposed Merger was advisable on substantially the
terms and conditions set forth or referred to in the resolutions.
Notice which stated that a purpose of the meeting was to act on the proposed
Reorganization was given by Van Eck to the shareholders of Mid-Cap I Fund and
Total Return Fund as required by law.
The proposed Reorganization was approved by the shareholders of the Mid-Cap I
Fund and Total Return Fund at special meetings of the shareholders held on April
26, 2002, by the affirmative vote of at least a majority of the outstanding
shares of each portfolio series.
FIFTH: No amendment to the charter of Van Eck II is to be effected as
part of the Merger.
SIXTH: The total number of shares of stock of all classes which Van Eck
II has authority to issue is eight hundred million (800,000,000) shares of
common stock, par value of $.001 per share, of which 800,000,000 shares have
been designated Class A shares of Mid-Cap II Fund ("Mid-Cap II"). The aggregate
par value of all shares of all classes of Van Eck II is $800,000.00. The total
number of shares of all classes which Van Eck has authority to issue is one
billion (1,000,000,000) shares of common stock, par value of $.01 per share, of
which 100,000,000 shares have been designated as Class A shares of Mid-Cap I
Fund and 100,000,000 shares have been designated as Class A shares of Total
Return Fund. The aggregate par value of all classes of Van Eck is $1,000,000.
SEVENTH: The Merger does not increase the authorized stock of Van Eck II.
EIGHTH: The manner and basis of converting or exchanging issued stock of
the merging corporations into different stock of a corporation, or other
consideration, and the treatment of any issued stock of the merging corporations
not to be converted or exchanged are as follows:
(a) The whole and fractional shares of Mid-Cap I Fund issued and
outstanding immediately prior to the Valuation Time (as defined below) shall, as
of the Valuation Time and without further act, be converted into, and become a
number of whole and fractional shares of Mid-Cap II, equal to the value of the
net assets of Mid-Cap I Fund computed immediately after the close of business of
the New York Stock Exchange on ___________, 2002 (the "Valuation Time"), using
the valuation procedures set forth in Mid-Cap II's Articles of Incorporation and
then-current prospects and statement of additional information. Each shareholder
of record of Mid-Cap I Fund will be credited with a pro rata number of such
shares of Mid-Cap II Fund received in the Merger based on the number of Mid-Cap
I Fund shares held by such shareholder at the Valuation Time relative to the
total number of issued and outstanding Mid-Cap I Fund shares at the Valuation
Time. Each such share of Class A shares of Van Eck issued pursuant to this
paragraph shall be fully paid and non-assessable.
The whole and fractional shares of Total Return Fund issued and
outstanding immediately prior to the Valuation Time shall, as of the Valuation
Time and without further act, be converted into, and become a number of whole
and fractional shares of Mid-Cap II, equal to the value of the net assets of
Total Return Fund computed at the Valuation Time, using the
4a-2
valuation procedures set forth in Mid-Cap II's Articles of Incorporation and
then-current prospects and statement of additional information. Each shareholder
of record of Total Return Fund will be credited with a pro rata number of such
shares of Mid-Cap II Fund received in the Merger based on the number of Total
Return Fund shares held by such shareholder at the Valuation Time [relative] to
the total number of issued and outstanding Total Return Fund shares at the
Valuation Time. Each such share of Class A shares of Van Eck issued pursuant to
this paragraph shall be fully paid and non-assessable.
NINTH: The Merger shall become effective for both Van Eck and Van Eck II
at the Valuation Time.
4a-3
IN WITNESS WHEREOF, Van Eck Funds, Inc., a Maryland corporation, and Van
Eck Funds II, Inc., a Maryland corporation, have caused these presents to be
signed in the irrespective names and on their respective behalves by their
respective President or Vice President and witnessed by their respective
Secretary on _______________ ___, 2002.
VAN ECK FUNDS, INC.
Attest:
By: ________________________________ By: ________________________________
VAN ECK FUNDS II, INC.
Attest:
By: ________________________________ By: ________________________________
OFFICER'S CERTIFICATE
THE UNDERSIGNED, ____________________ of Van Eck Funds, Inc., a Maryland
corporation, who executed on behalf of the Corporation the foregoing Articles of
Merger of which this certificate is made a part, hereby acknowledges in the name
and on behalf of said Corporation the foregoing Articles of Merger to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
By: _____________________
Title:____________________
THE UNDERSIGNED, ____________________ of Van Eck Funds II, Inc., a
Maryland corporation, who executed on behalf of the Corporation the foregoing
Articles of Merger of which this certificate is made a part, hereby acknowledges
in the name and on behalf of said Corporation the foregoing Articles of Merger
to be the corporate act of said Corporation and hereby certifies that to the
best of his knowledge, information and belief the matters and facts set forth
therein with respect to the authorization and approval thereof are true in all
material respects under the penalties of perjury.
By: _____________________
Title:___________________
4a-4
EXHIBIT 4b
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of _____________, 2002
(the "Agreement") by and between Van Eck Funds, Inc., a Maryland corporation
("Van Eck" or the "Dissolving Corporation"), on behalf of Van Eck Mid-Cap II
Value Fund (formerly Van Eck Growth and Income Fund) ("Mid-Cap I Fund"), and Van
Eck Total Return Fund ("Total Return Fund"), each a portfolio series of Van Eck,
and Van Eck Funds II, Inc., a Maryland corporation ("Van Eck II" or the
"Surviving Corporation"), on behalf of Mid-Cap Value Fund, the sole portfolio
series of Van Eck II ("Mid-Cap II Fund"). Van Eck and Van Eck II are each
referred to herein as a "Company" and together the "Companies".
All references in this Agreement to action taken by Mid-Cap II Fund and,
each of Mid-Cap I Fund and Total Return Fund shall be deemed to refer to action
taken by the Surviving Corporation and the Dissolving Corporation, respectively,
on behalf of their respective portfolio series.
This Agreement is intended to be and is adopted as a plan of
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), the Companies and their respective Boards of Directors
deem it advisable and to the advantage of the Companies and their respective
stockholders that Van Eck be merged with and into Van Eck II, with Van Eck II
being the Surviving Corporation, under and pursuant to the laws of the State of
Maryland on the terms and conditions herein contained (the "Reorganization").
WHEREAS, Van Eck and Van Eck II are each open-end, registered investment
companies of the management type;
WHEREAS, the Board of Directors of Mid-Cap I Fund and Total Return Fund
have each determined that the Merger is advisable and in the best interests of
Mid-Cap I Fund and Total Return Fund and that the interests of the existing
shareholders of Mid-Cap I Fund and Total Return Fund would not be diluted as a
result of this transaction; and
WHEREAS, the Board of Directors of Mid-Cap II Fund has determined that
the Merger is advisable and in the best interests of Mid-Cap II Fund and that
the interests of the existing shareholders of Mid-Cap II Fund would not be
diluted as a result of the Reorganization.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. THE MERGER OF THE DISSOLVING FUND WITH AND INTO THE SURVIVING FUND.
Subject to the satisfaction of each of the conditions to the obligations of the
respective companies hereunder (or the waiver thereof by the party entitled to
the benefit thereof), Van Eck and Van Eck II agree that at the effective time,
as defined in Section 1.2 below, Van Eck shall
4b-1
be merged with and into Van Eck II, and Van Eck II shall be the surviving
corporation and shall be governed by the laws of the state of Maryland.
Subject to the satisfaction of each of the conditions to the obligations of the
respective companies hereunder (or the waiver thereof by the party entitled to
the benefit thereof), the companies shall execute, file and record as provided
under the laws of Maryland articles of merger substantially in the form set
forth as "exhibit a," with such changes thereto as shall be approved by the
respective companies in accordance with Maryland law. The merger shall become
effective on or after the filing of such articles of merger at the time and on
the date set forth herein. The date and time when the merger shall become
effective are referred to herein as the "effective time."
The articles of incorporation of Van Eck II in effect immediately prior to the
effective time shall be the articles of incorporation of the surviving
corporation, until amended in the manner provided in such articles of
incorporation or in the bylaws of the surviving corporation and in the Maryland
general corporation law.
The bylaws of Van Eck in effect immediately prior to the effective time shall be
the bylaws of the surviving corporation, until amended in the manner provided in
such bylaws and in the Maryland general corporation law.
The following persons shall constitute the board of directors of the surviving
corporation upon the effective time and shall hold office until their respective
successors are elected and qualified: John C. Van Eck, Jeremy Biggs, Richard
Stamberger, and David Olderman.
The persons who were elected as the officers of Van Eck II to serve as such as
of the effective time shall be the officers of the surviving corporation.
At the effective time, the separate existence of Van Eck shall cease, except to
the extent, if any, continued by statute, and all the assets, rights,
privileges, powers and franchises of Van Eck and all debts due on whatever
account to it, shall be taken and deemed to be transferred to and vested in van
Eck II without further act or deed, and all such assets, rights, privileges,
powers and franchises, and all and every other interest of Van Eck, shall be
thereafter effectively the property of Van Eck II as they were of Van Eck; and
the title to and interest in any real estate vested by deed, lease or otherwise,
unto either of companies, shall not revert or be in any way impaired. Except as
otherwise specifically set forth in this agreement, the identity, existence,
purposes, powers, franchises, rights, immunities and liabilities of Van Eck II
shall continue unaffected and unimpaired by the merger.
Immediately prior to the effective time, Van Eck Associates Corporation, as sole
shareholder of mid-cap ii fund, shall (i) elect as directors of Van Eck II the
persons who then serve as directors of Van Eck; (ii) approve an investment
management agreement between Van Eck II, on behalf of Mid-Cap II fund and van
eck Associates Corporation (the "investment manager"); (iii) approve an
investment sub-advisory agreement by and among Van Eck II, the investment
manager, on behalf of Mid-Cap II fund, and John A. Levin and Co., Inc.; (IV)
ratify the selection of Ernst & Young LLP as the independent auditors of
Mid-Cap II fund.
MANNER OF CONVERTING SHARES; VALUATION
4b-2
The manner and basis of converting the issued and outstanding Class A shares of
Mid-Cap I fund and total return fund into the Class A shares of Mid-Cap II fund
shall be as hereinafter set forth in this article II.
The whole and fractional Class A shares of Mid-Cap I fund issued and outstanding
immediately prior to the valuation time (as defined below) shall, as of the
valuation time and without further act, be converted into, and become a number
of whole and fractional Class A shares of Mid-Cap II fund, with a net asset
value equal to the value of the net assets of Mid-Cap I fund computed
immediately after the close of business of the New York stock exchange on the
closing date (the "valuation time"), using the valuation procedures set forth in
Van Eck II's articles of incorporation and then-current prospectus and statement
of additional information of mid Cap II fund. Each shareholder of record of
Mid-Cap I fund will be credited with a pro rata number of such shares of Mid-Cap
II fund received in the merger based on the number of Mid-Cap I fund shares held
by such shareholder at the valuation time relative to the total number of issued
and outstanding Mid-Cap I fund shares at the valuation time.
The whole and fractional Class A shares of total return fund issued and
outstanding immediately prior to the valuation time shall, as of the valuation
time and without further act, be converted into, and become a number of whole
and fractional Class A shares of Mid-Cap II fund, with a net asset value equal
to the value of the net assets of total return fund computed at the valuation
time, using the valuation procedures set forth in Van Eck II's articles of
incorporation and then-current prospectus and statement of additional
information of Mid-Cap II fund. Each shareholder of record of total return fund
will be credited with a pro rata number of such shares of Mid-Cap II fund
received in the merger based on the number of total return fund shares held by
such shareholder at the valuation time relative to the total number of issued
and outstanding total return fund shares at the valuation time.
All computations of net asset value shall be made in accordance with the
valuation procedures set forth in the Mid-Cap II fund prospectus and statement
of additional information.
Van Eck shall cause Citibank, N.A. ("Citibank"), as custodian for Mid-Cap I fund
and total return fund, to deliver to Van Eck II at the effective time a
certificate of an authorized officer of citibank stating that (1) Mid-Cap I fund
and total return fund's portfolio securities, cash and any other assets have
been transferred in proper form to Mid-Cap II fund as of the effective time and
(2) all necessary taxes, if any, have been paid, or provision for payment has
been made, in conjunction with the transfer of portfolio securities.
CLOSING AND CLOSING DATE
The closing date shall be the next friday that is a full business day following
satisfaction (or waiver as provided herein) of all of the conditions set forth
in articles 6, 7, and 8 of this agreement (other than those conditions which may
by their terms be satisfied only at the closing), or such later date as the
parties may agree to in writing. All acts taking place at the closing shall be
deemed to take place simultaneously as of immediately after the close of
business on the closing date unless otherwise agreed to by the parties. The
close of business on the closing date shall be as of 4:00 p.M. New York time.
The closing shall be held at
4b-3
the offices of Van Eck, 99 Park Avenue, 8th Floor, New York, New York 10016, or
at such other place as the parties many agree.
Van Eck shall cause DST Systems, Inc. (The "transfer agent"), transfer agent of
the dissolving company, to deliver at the closing a certificate of an authorized
officer stating that its records contain the names and addresses of the Mid-Cap
I fund and total return fund shareholders and the number and percentage
ownership of outstanding shares of each class owned by each such shareholder
immediately prior to the closing. Van Eck II shall issue and deliver a
confirmation evidencing the Mid-Cap II fund shares to be credited on the closing
date to the secretary of Van Eck or provide evidence satisfactory to Van Eck
that such Mid-Cap II fund shares have been credited to the Mid-Cap and total
return fund shareholders account on the books of the Mid-Cap II fund. At the
closing, each party shall deliver to the other such bills of sales, checks,
assignments, share certificates, if any, receipts or other documents as such
other party or its counsel may reasonably request.
REPRESENTATIONS AND WARRANTIES
VAN ECK, ON BEHALF OF MID-CAP I FUND AND TOTAL RETURN FUND REPRESENTS AND
WARRANTS TO VAN ECK II AS FOLLOWS:
Van Eck is a corporation duly organized and validly existing under the laws of
the State of Maryland.
Van Eck is a registered investment company classified as a management company of
the open-end type, and its registration with the Securities and Exchange
Commission (the "Commission"), as an investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the registration of its
shares under the Securities Act of 1933, as amended (the "1933 Act"), are in
full force and effect.
Van Eck is not, and the execution, delivery and performance of this Agreement
will not result, in violation of any provision of the Articles of Incorporation
or By-Laws of Van Eck or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which Van Eck is a party or by which Van
Eck is bound;
Mid-Cap I Fund and Total Return Fund have no material contracts or other
commitments (other than this Agreement) which will be terminated with liability
to Mid-Cap I Fund or Total Return Fund prior to the Closing Date.
No material litigation or administrative proceeding or investigation of or
before any court or governmental body is presently pending or to its knowledge
threatened against Mid-Cap I Fund or Total Return Fund or any of their
properties or assets. Van Eck knows of no facts which might form the basis for
the institution of such proceedings and is not a party to or subject to the
provisions of any order, decree or judgment of any court or governmental body
which materially and adversely affects its business or its ability to consummate
the transactions herein contemplated.
The Statement of Assets and Liabilities of Mid-Cap I Fund and Total Return Fund
at [December 31, 2001] has been audited by Ernst & Young LLP, independent
auditors, and is in
4b-4
accordance with accounting principles generally accepted in the United States
consistently applied and such statement (copies of which have been furnished to
Van Eck II,) fairly reflects the financial condition of Mid-Cap I Fund and Total
Return Fund as of such date, and there are no known contingent liabilities of
Mid-Cap I Fund and Total Return Fund Van Eck as of such date not disclosed
therein.
Since December 31, 2001, there has not been any material adverse change in the
financial condition, assets, liabilities or business of Mid-Cap I Fund or Total
Return Fund other than changes occurring in the ordinary course of business, or
any incurrence by Mid-Cap I Fund or Total Return Fund of indebtedness maturing
more than one year from the date such indebtedness was incurred. For the
purposes of this subparagraph (g), a decline in net asset value per share of
Mid-Cap I Fund or Total Return Fund, the discharge of Mid-Cap I Fund or Total
Return Fund liabilities, or the redemption of Mid-Cap I Fund or Total Return
Fund shares by Mid-Cap I Fund or Total Return Fund shareholders shall not
constitute a material adverse change.
All Federal and other tax returns and reports of Mid-Cap I Fund or Total Return
Fund required by law to have been filed have been filed and are correct, and all
Federal and other taxes shown as due or required to be shown as due on said
returns and reports have been paid or provision has been made for the payment
thereof, and to the best of the Van Eck's knowledge no such return is currently
under audit and no assessment has been asserted with respect to such returns.
For each taxable year of its operation, Mid-Cap I Fund or Total Return Fund have
met the requirements of Subchapter M of the Code for qualification as a
regulated investment company and have elected to be treated as such.
All issued and outstanding shares of Mid-Cap I Fund or Total Return Fund are
duly and validly issued and outstanding, fully paid and non-assessable by Van
Eck. Van Eck does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Mid-Cap I Fund or Total Return Fund shares,
nor is there outstanding any security convertible into any of the Mid-Cap I Fund
or Total Return Fund shares.
The execution, delivery and performance of this Agreement has been duly
authorized prior to the Closing Date by all necessary action on the part of the
Board of Directors of Van Eck, and, subject to the approval of the Mid-Cap I
Fund and Total Return Fund shareholders, this Agreement constitutes a valid and
binding obligation of Van Eck enforceable in accordance with its terms, subject
as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights, and to general equity
principles.
VAN ECK II, ON BEHALF OF MID-CAP II FUND REPRESENTS AND WARRANTS TO VAN ECK AS
FOLLOWS:
Van Eck II is a corporation duly organized and validly existing under the laws
of the State of Maryland.
Van Eck II is a registered investment company classified as a management company
of the open-end type, and its registration with the Commission, as an investment
company under the 1940 Act is in full force and effect, and the registration of
its shares under the 1933 Act will be, at or prior to the Closing Date, in full
force and effect.
4b-5
The prospectus and statement of additional information of Mid-Cap II Fund in
effect at the Closing Date will conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the Commission thereunder and will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading.
Van Eck II is not, and the execution, delivery and performance of this Agreement
will not result, in violation of any provision of the Articles of Incorporation
or By-Laws of Van Eck II or of any material agreement, indenture, instrument,
contract, lease or other undertaking to which Van Eck II is a party or by which
Van Eck II is bound;
The execution, delivery and performance of this Agreement has been fully
authorized prior to the Closing Date by all necessary action, if any, on the
part of the Board of Directors of Van Eck II and this Agreement constitutes a
valid and binding obligation of the Van Eck II enforceable in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors rights, and to
general equity principles.
The Mid-Cap II Fund Shares to be issued and delivered to the Mid Cap I and Total
Return Fund shareholders, pursuant to the terms of this Agreement at the Closing
Date have been duly authorized.
4b-6
COVENANTS OF VAN ECK, AND VAN ECK II
Van Eck and Van Eck II each will operate its business in the ordinary course
between the date hereof and the Closing Date, it being understood that such
ordinary course of business will include the declaration and payment of
customary dividends and distributions, the dividends contemplated by Section 8.6
hereof, and any other distribution that may be advisable.
Van Eck will assist Van Eck II in obtaining such information as Van Eck II
reasonably requests concerning the beneficial ownership of Mid-Cap I Fund or
Total Return Fund shares.
Subject to the provisions of this Agreement, Van Eck II and Van Eck will each
take, or cause to be taken, all action, and do or cause to be done, all things
reasonably necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement.
Van Eck will provide Van Eck II with information reasonably necessary for the
preparation of a registration statement on Form N-14 of Van Eck II (the
"Registration Statement"), such Registration Statement to consist of, without
limitation, a prospectus (the "Prospectus") that includes a proxy statement of
Van Eck (the "Proxy Statement").
Van Eck II agrees to use all reasonable efforts to obtain the approvals and
authorizations required by the 1933 Act, the 1940 Act, and such of the state
blue sky or securities laws as may be necessary in order to continue the
operations of Van Eck II after the Closing Date.
CONDITIONS PRECEDENT TO OBLIGATIONS OF VAN ECK
The obligations of Van Eck to consummate the transactions provided
for herein shall be subject, at its election, to the performance by Van
Eck II and Mid-Cap II Fund of all the obligations to be performed by them
hereunder on or before the Closing Date, and, in addition thereto, to the
following further conditions:
All representations and warranties of Van Eck II contained in this Agreement
shall be true and correct in all material respects as of the date hereof and,
except as they may be affected by the transactions contemplated by this
Agreement, as of the Closing Date with the same force and effect as if made on
and as of the Closing Date.
Van Eck II shall have delivered to Van Eck a certificate executed in its name by
its President or Vice President and its Treasurer or Assistant Treasurer, in a
form reasonably satisfactory to Van Eck, and dated as of the Closing Date, to
the effect that the representations and warranties of Van Eck II made in this
Agreement are true and correct in all material respects at and as of the Closing
Date, except as they may be affected by the transactions contemplated by this
Agreement and as to such other matters as Van Eck shall reasonably request.
The Mid-Cap II Fund Shares to be issued and delivered for the account of Mid-Cap
I Fund and Total Return Fund shareholders when so issued and delivered, shall be
duly and validly issued, and shall be fully paid and non-assessable by Van Eck
II;
The Proxy Statement and Prospectus (only insofar as they relate to Van Eck II),
on the effective date of the Registration Statement and on the Closing Date, (i)
shall comply in all material
4b-7
respects with the applicable provisions of the 1933 Act, the Securities Exchange
Act of 1934, as amended (the "1934 Act") and the 1940 Act and the regulations
thereunder and (ii) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statement herein in light of the circumstances under which such statements
were made, not materially misleading.
CONDITIONS PRECEDENT TO OBLIGATIONS OF VAN ECK II
The obligations of Van Eck II to complete the transactions provided for
herein shall be subject, at its election, to the performance by Van Eck and
Mid-Cap I Fund and Total Return Fund of all of the obligations to be performed
by them hereunder on or before the Closing Date and, in addition thereto, to the
following conditions:
All representations and warranties of Van Eck contained in this Agreement shall
be true and correct in all material respects as of the date hereof and, except
as they may be affected by the transactions contemplated by this Agreement, as
of the Closing Date with the same force and effect as if made on and as of the
Closing Date.
Van Eck shall have delivered to Van Eck II a statement of Mid-Cap I Fund and
Total Return Fund's assets and liabilities, as of the Closing Date, certified by
the Treasurer of Mid-Cap I Fund and Total Return Fund; and
Van Eck shall have delivered to Van Eck II on the Closing Date a certificate
executed in its name by its President or Vice President and its Treasurer or
Assistant Treasurer, in form and substance satisfactory to Van Eck II, and dated
as of the Closing Date, to the effect that the representations and warranties of
Van Eck made in this Agreement are true and correct in all material respects at
and as of the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as Van Eck II shall
reasonably request.
The Proxy Statement and Prospectus (other than information therein that relates
to Van Eck II or Mid-Cap II Fund), on the effective date of the Registration
Statement and on the Closing Date (i) shall comply in all material respects with
the applicable provisions of the 1933 Act, the 1934 Act, the 1940 Act and the
regulations thereunder and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which such statements were made, not materially misleading.
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF VAN ECK AND VAN ECK II
The obligations of Van Eck and Van Eck II to consummate the transactions
contemplated by this Agreement shall be subject, at their election (except as
provided in paragraphs 8.1 and 8.5 below) to the following conditions:
The Agreement and the transactions contemplated herein shall have been approved
by the affirmative vote if a majority of the outstanding shares of each of
Mid-Cap I Fund and Total Return Fund in accordance with the provisions of
Maryland law and the Articles of
4b-8
Incorporation and By-Laws of Van Eck and certified copies of the resolutions
evidencing such approval shall have been delivered to Van Eck II.
Notwithstanding anything herein to the contrary, neither Van Eck II nor Van Eck
may waive the conditions set forth in this paragraph 8.1;
On the Closing Date, no action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or to obtain damages or other relief in connection with
this Agreement or the transactions contemplated herein;
All consents of other parties and all other consents, orders and permits of
Federal, state and local regulatory authorities deemed necessary by Van Eck II
or Van Eck to permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to obtain any
such consent order or permit would not involve a risk of a material adverse
effect on the assets or properties of Van Eck II or Van Eck.
The Registration Statement shall have become effective under the 1933 Act and no
stop orders suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no investigation or proceeding for
that purpose shall have been instituted or be pending, threatened or
contemplated under the 1933 Act.
The parties shall have received an opinion from the law firm of Goodwin Procter
LLP addressed to Van Eck II and Van Eck substantially to the effect that the
transaction contemplated by this Agreement should constitute a tax-free
reorganization for Federal income tax purposes. The delivery of such opinion is
conditioned upon receipt by the law firm of Goodwin Procter LLP of
representations it shall request of Van Eck II and Van Eck. Notwithstanding
anything herein to the contrary, neither Van Eck II nor Van Eck may waive the
condition set forth in this paragraph 8.5.
At or immediately prior to the Closing, Mid-Cap I Fund and Total Return Fund
shall have declared and paid a dividend or dividends which, together with all
previous such dividends, shall have the effect of distributing to the Mid-Cap I
Fund and Total Return Fund shareholders all of such Mid-Cap I Fund and Total
Return Fund's investment company taxable income for taxable years ending at or
prior to the Closing and all of its net capital gain, if any, realized in
taxable years ending at or prior to the Closing (after reduction for any capital
loss carry-forward).
Shareholders of each of Mid-Cap I Fund and Total Return Fund shall have approved
new investment manager agreement into Van Eck Associates Corporation as
contemplated by the Proxy Statement and a new investment sub-advisory agreement
with Levin as contemplated by the Proxy Statement.
BROKERAGE FEES AND EXPENSES
Van Eck II and Van Eck each represents and warrants to the other that there are
no brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
All of the expenses of the Merger, including without limitation, legal and
printing expenses and expenses of holding the meeting of shareholders of Mid-Cap
I Fund and Total Return Fund (such
4b-9
as proxy tabulation and the expense of a solicitor, if any) will be borne by
Mid-Cap I Fund and Total Return Fund. [Expenses that are directly attributable
to either series shall be borne by such series. Expenses that are nor directly
attributable to a specific series shall be allocated pro rata based on the
respective net assets as Mid-Cap I Fund and Total Return Fund at the Valuation
Time.] All fees payable by any party as described herein shall be payable by
such party regardless of whether the transactions contemplated hereby are
consummated.
ENTIRE AGREEMENT
Van Eck II and Van Eck agree that neither party has made any representation,
warranty or covenant not set forth herein and that this Agreement constitutes
the entire agreement between the parties.
TERMINATION
This Agreement and the transactions contemplated hereby may be terminated
and abandoned by either party by resolution of the party's Board of Directors,
at any time prior to the Closing Date, if circumstances should develop that, in
the opinion of such Board, make proceeding with the Agreement inadvisable. In
the event of any such termination, there shall be no liability for damages on
the part of either Van Eck II or Van Eck, or their respective Directors or
officers, to the other party.
AMENDMENTS
This agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of Van Eck and
Van Eck II; provided, however, that following the meeting of Mid-Cap I Fund and
Total Return Fund Shareholders called by Van Eck pursuant to paragraph 8.1 of
this Agreement, no such amendment may have the effect of changing the provisions
for determining the number of the Mid-Cap II Fund shares to be issued to the
Mid-Cap I Fund and Total Return Fund shareholders under this Agreement to the
detriment of such shareholders without their further approval.
NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
telegraph, telecopy or certified mail addressed to the parties hereto at their
4b-10
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT; LIMITATION OF LIABILITY
The Article and paragraph headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
This Agreement may be executed in any number of counterparts each of which shall
be deemed an original.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Maryland.
This Agreement shall bind and inure to the benefit of the parties hereto and
their respective successors and assigns, but no assignment or transfer hereof or
of any rights or obligations hereunder shall be made by any party without the
written consent of the other party. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any person, firm or
corporation, other than the parties hereto and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
The sole remedy of a party hereto for a breach of any representation or warranty
made in this Agreement by the other party shall be an election by the
non-breaching party not to complete the transactions contemplated herein as set
forth in Paragraph [6.1] and [7.1].
4b-11
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on behalf of its constituent Fund as of the date first set forth
above by their duly authorized representatives.
VAN ECK FUNDS, INC., on behalf of Mid-Cap II Fund
By:_________________________________________________
Name: John C. van Eck
VAN ECK FUNDS, INC., on behalf of Total Return Fund
By:_________________________________________________
Name: John C. van Eck
VAN ECK FUNDS II, INC., on behalf of Mid-Cap II Fund
By:_________________________________________________
Name: John C. van Eck
4b-12
EXHIBIT 6A
FORM OF INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of this 1st day of MAY, 2002 between VAN ECK ASSOCIATES
CORPORATION, a corporation organized under the laws of the State of Delaware and
having its principal place of business in New York, New York (the "Investment
Manager"), and VAN ECK FUNDS II, INC., Mid-Cap Value Fund series a Maryland
Corporation (the "Fund") having its principal place of business in New York, New
York (the "Fund").
WHEREAS, the Fund is engaged in business as an open-end investment
company and is so registered under the Investment Company Act of 1940, as
amended (the "1940 Act"); and
WHEREAS, the Investment Manager is engaged principally in the business of
rendering investment management services and is registered under the Investment
Advisers Act of 1940, as amended; and
WHEREAS, the Fund is authorized to issue shares of capital stock in
separate series, each representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to offer shares ("Shares") in one of those
series, Mid-Cap Value Fund (the "Fund"), and invest the proceeds in securities,
the Fund desires to retain the Investment Manager to render investment
Management services hereunder and with respect to which the Investment Manager
is willing so to do;
NOW, THEREFORE, WITNESSETH: That it is hereby agreed between the parties
hereto as follows:
APPOINTMENT OF INVESTMENT MANAGER
The Fund hereby appoints the Investment Manager to act as Investment
Manager to the Fund for the period and on the terms herein set forth. The
Investment Manager accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided.
DUTIES OF INVESTMENT MANAGER
The Investment Manager, at its own expense, shall be responsible for
furnishing the following services and facilities to the Fund:
INVESTMENT PROGRAM
The Investment Manager will (i) furnish continuously an investment
program for the Fund (ii) determine (subject to the overall supervision and
review of the Board of Directors of the Fund) what investments shall be
purchased, held, sold or exchanged and what portion, if any,
6a-1
of the assets of the Fund shall be held uninvested, and (iii) make changes on
behalf of the Fund in the investments. The Investment Manager also will manage,
supervise and conduct such other affairs and business of the Fund and matters
incidental thereto, as the Investment Manager and the Fund agree, subject always
to the control of the Board of Directors of the Fund and to the provisions of
the Articles of Incorporation of the Fund, the Fund's By-Laws and the 1940 Act.
OFFICE SPACE AND FACILITIES
The Investment Manager will arrange to furnish the Fund office space in
the offices of the Investment Manager, or in such other place or places as may
be agreed upon from time to time, and all necessary office facilities, simple
business equipment, supplies, utilities and telephone service required for
managing the investments of the Fund.
PERSONNEL
The Investment Manager shall provide executive and clerical personnel for
managing the investments of the Fund, and shall compensate officers and
Directors of the Fund if such persons are also employees of the Investment
Manager or its affiliates, except as otherwise provided herein.
PORTFOLIO TRANSACTIONS
The Investment Manager shall place all orders for the purchase and sale
of portfolio securities for the account of the Fund with brokers or dealers
selected by the Investment Manager, although the Fund will pay the actual
brokerage commissions on portfolio transactions in accordance with Paragraph
3(d). In executing portfolio transactions and selecting brokers or dealers, the
Investment Manager will use its best efforts to seek on behalf of the Fund the
best overall terms available. In assessing the best overall terms available for
any transaction, the Investment Manager shall consider all factors it deems
relevant, including, without limitation, the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any (for the specific transaction and on a continuing basis). In evaluating the
best overall terms available, and in selecting the broker or dealer to execute a
particular transaction, the Investment Manager may also consider the brokerage
and research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) provided to the Fund and/or the other accounts
over which the Investment Manager or an affiliate of the Investment Manager
exercises investment discretion. The Investment Manager is authorized to pay to
a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction which is in excess of the
amount of commission another broker or dealer would have charged for effecting
that transaction if the Investment Manager determines in good faith that such
commission was reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer, viewed in terms of that particular
transaction or in terms of all of the accounts over which investment discretion
is so exercised by the Investment Manager or its affiliates. Nothing in this
Agreement shall preclude the combining of orders for the sale or purchase of
securities or other investments with other accounts managed by the Investment
Manager or its affiliates provided that the Investment Manager does not favor
any account over any other account and provided that any purchase or sale orders
executed contemporaneously
6a-2
shall be allocated in a manner the Investment Manager deems equitable among the
accounts involved.
RIGHT TO RECEIVE ADVICE
ADVICE OF FUND If the Investment Manager shall be in doubt as to any action to
be taken or omitted by it, it may request, and shall receive, from the Fund
directions or advice.
ADVICE OF COUNSEL If the Investment Manager or the Fund shall be in doubt as to
any question of law involved in any action to be taken or omitted by the
Investment Manager, it may request advice at the Fund's cost from counsel of its
own choosing (which may be counsel for the Investment Manager or the Fund, at
the option of the Investment Manager).
PROTECTION OF THE INVESTMENT MANAGER The Investment Manager shall be protected
in any action or inaction which it takes in reliance on any directions or advice
received pursuant to subsections (i) or (ii) of this paragraph which the
Investment Manager, after receipt of any such directions or advice in, good
faith believes to be consistent with such directions or advice as the case may
be. However, nothing in this paragraph shall be construed as imposing upon the
Investment Manager any obligation (i) to seek such directions or advice or (ii)
to act in accordance with such directions or advice when received. Nothing in
this subsection shall excuse the Investment Manager when an action or omission
on the part of the Investment Manager constitutes willful misfeasance, bad
faith, gross negligence or reckless disregard by the Investment Manager of its
duties under this Agreement.
EXPENSES OF FUND
The Investment Manager shall not bear the responsibility for or expenses
associated with operational, accounting or administrative services on behalf of
the Fund not expressly assumed by the Investment Manager hereunder. The expenses
to be borne by the Fund include, without limitation:
charges and expenses of any registrar, stock, transfer or dividend disbursing
agent, custodian, depository or other agent appointed by the Fund for the
safekeeping of the Fund's cash, portfolio securities and other property;
general operational, administrative and accounting costs, such as the costs of
calculating the Fund's net asset value, the preparation of the Fund's tax
filings with relevant authorities and of compliance with any and all regulatory
authorities;
charges and expenses of auditors and outside accountants;
brokerage commissions for transactions in the portfolio securities of the Fund;
all taxes, including issuance and transfer taxes, and corporate fees payable by
the Fund to Federal, state or other U.S. or foreign governmental agencies;
the cost of stock certificates representing shares of the Fund;
6a-3
expenses involved in registering and maintaining registrations of the Fund and
of its shares with the Securities and Exchange Commission and various states and
other jurisdictions, if applicable;
all expenses of shareholders' and Directors' meetings, including meetings of
committees, and of preparing, setting in type, printing and mailing proxy
statements, quarterly reports, semi-annual reports, annual reports and other
required communications to shareholders;
all expenses of preparing and setting in type offering documents, and expenses
of printing and mailing the same to shareholders (but not expenses of printing
and mailing offering documents and literature used for any promotional
purposes);
compensation and travel expenses of Directors who are not "interested persons"
of the Investment Manager within the meaning of the 1940 Act;
the expense of furnishing, or causing to be furnished, to each shareholder
statements of account;
charges and expenses of legal counsel in connection with matters relating to the
Fund, including, without limitation, legal services rendered in connection with
the Fund's corporate and financial structure, day to day legal affairs of the
Fund and relations with its shareholders, issuance of Fund shares, and
registration and qualification of securities under Federal, state and other
laws;
the expenses of attendance at professional and other meetings of organizations
such as the Investment Company Institute and other trade groups by officers and
Directors of the Fund, and the membership or association dues of such
organizations;
the cost and expense of maintaining the books and records of the Fund;
the expense of obtaining and maintaining a fidelity bond as required by Section
17(g) of the 1940 Act and the expense of obtaining and maintaining an errors and
omissions policy;
interest payable on Fund borrowing;
postage; and
any other costs and expenses incurred by the Investment Manager for Fund
operations and activities, including but not limited to the organizational costs
of the Fund if initially paid by the Investment Manager.
COMPENSATION
For the services and facilities to be provided to the Fund by the Investment
Manager as provided in Paragraph 2 hereof, the Fund shall pay the Investment
Manager a fee at the annual rate set forth in Exhibit A ("Annual Fee"). The Fund
shall pay such amounts monthly, based on the Fund's average daily net assets, as
reflected in the books and records of the Fund in accordance with procedures
established from time to time by or under the direction of the Board of
Directors of the Fund.
6a-4
SUB-INVESTMENT ADVISORS
APPOINTMENT OF SUB-INVESTMENT ADVISERS - Subject to the terms of the Agreement,
the Articles of Incorporation and the 1940 Act, the Investment Manager at its
expense, may select and contract with investment advisors ("Sub-Investment
Advisors") to provide all or a portion of the investment management services to
be furnished by the Investment Manager hereunder. Any contract with a
Sub-Advisor shall be subject to the written approval of the Fund.
RESPONSIBILITY OF THE ADVISOR - So long as the Sub-Investment Advisor serves as
Investment Advisor to all or a portion of the Fund's assets, the obligation of
the Investment Manager under this Agreement shall be, subject in any event to
the control of the Board of Directors of the Fund to determine and review with
the Sub-Investment Advisor investment policies of the Fund with respect to the
assets managed by the Sub-Investment Advisor and the Sub-Investment Advisor
shall have the obligation of furnishing continuously an investment program and
making investment decisions for the Fund, adhering to applicable policies and
restrictions and of placing all orders for the purchase and sale of portfolio
securities for the fund with respect to such assets. The Investment Manager
shall compensate any Sub-Investment Manager to the Fund for its services to the
Fund.
TERMINATION OF SUB-INVESTMENT ADVISORY AGREEMENT - The Fund or the Investment
Manager may terminate the services of the Sub-Investment Advisor at any time in
its sole discretion and at such time the Investment Manager shall assume the
responsibilities of the Sub-Investment Advisor unless or until a successor
Sub-Investment Advisor is selected.
FUND TRANSACTIONS
The Investment Manager agrees that neither it nor any of its officers,
directors, employees or agents will take any long- or short-term position in the
shares of the Fund; provided, however, that such prohibition shall not prevent
the purchase of shares of the Fund by any of the persons above described for
their account and for investment at the price (net asset value) at which such
shares are available to the public at the time of purchase or as part of the
initial capital of the Fund.
RELATIONS WITH FUND
Subject to and in accordance with the Articles of Incorporation and
By-Laws of the Fund and the Articles of Incorporation and By-Laws of the
Investment Manager, respectively, it is understood (i) that Directors, officers,
agents and shareholders of the Fund are or may be interested in the Investment
Manager (or any successor thereof) as directors, officers or otherwise; (ii)
that Directors, officers, agents and shareholders of the Investment Manager are
or may be interested in the Fund as Directors, officers, shareholders or
otherwise; and (iii) that the Investment Manager (or any such successor) is or
may be interested in the Fund as a shareholder or otherwise and that the effect
of any such adverse interests shall be governed by said Articles of
Incorporation and By-Laws.
6a-5
LIABILITY OF INVESTMENT MANAGER AND OFFICERS AND DIRECTORS OF FUND
Neither the Investment Manager nor its officers, directors, employees,
agents or controlling persons or assigns shall be liable for any error of
judgment or law, or for any loss suffered by the Fund or its shareholders in
connection with the matters to which this Agreement relates, except that no
provision of this Agreement shall be deemed to protect the Investment Manager or
such persons against any liability to the Fund or its shareholders to which the
Investment Manager might otherwise be subject by reason of any willful
misfeasance, bad faith or negligence in the performance of its duties or the
reckless disregard of its obligations and duties under this Agreement.
DURATION AND TERMINATION OF AGREEMENT
DURATION
This Agreement shall become effective on the date hereof for the Fund.
Unless terminated as herein provided, this Agreement shall remain in full force
and effect until April 30, 2004 and shall continue in full force and effect for
periods of one year thereafter so long as such continuance is approved at least
annually (i) by either the Directors of the Fund or by vote of a majority of the
outstanding voting shares (as defined in the 1940 Act) of the Fund, and (ii) in
either event by the vote of a majority of the Directors of the Fund who are not
parties to this Agreement or "interested persons" (as defined in the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of voting
on such approval.
TERMINATION
This Agreement may be terminated at any time, without payment of any
penalty, by vote of the Directors of the Fund or by vote of a majority of the
outstanding shares (as defined in the 1940 Act) of the Fund, or by the
Investment Manager, on sixty (60) days written notice to the other party.
AUTOMATIC TERMINATION
This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
NAME
It is understood that the name "Van Eck" or any derivative thereof or
logo associated with that name is the valuable property of the Investment
Manager and its affiliates, and that the Company and Sub-Adviser have the right
to use such name (or derivative or logo) only with the approval of the Adviser
and only so long as the Investment Manager is Adviser to the Fund. Upon
termination of the Investment Advisory and Management Agreement between the
Company and the Investment Manager, the Company and the Sub-Adviser shall
forthwith cease to use such name (or derivative or logo).
6a-6
PRIOR AGREEMENT SUPERSEDED
This Agreement supersedes any prior agreement relating to the subject
matter hereof between the parties.
SERVICES NOT EXCLUSIVE
The services of the Investment Manager to the Fund hereunder are not to
be deemed exclusive, and the Investment Manager shall be free to render similar
services to others and to engage in other activities.
MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
6a-7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first set forth above.
[SEAL] VAN ECK FUNDS II, INC.
Attest: By:
------------------------------- -------------------------------
Secretary Vice President
[SEAL] VAN ECK ASSOCIATES
CORPORATION
Attest: By:
------------------------------- -------------------------------
Secretary President
6a-8
EXHIBIT A
Annual Management Fee
Name of Fund (As a % of Average Daily Net Assets)
------------ ------------------------------------
Mid Cap Value 0.75% of average daily net assets
6a-9
EXHIBIT 6B
VAN ECK FUNDS II, INC.
FORM OF INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT made as of the day of , 2001 by and among JOHN A.
LEVIN and CO., Inc. a Corporation organized under the laws of the having
its principal place of business in New York, New York (the "Sub-Adviser") and
VAN ECK ASSOCIATES CORPORATION, a corporation organized under the laws of the
State of Delaware and having its principal place of business in New York, New
York (the "Investment Manager" or the "Adviser") and VAN ECK FUNDS II, INC.,
Mid-Cap Value Fund, a Maryland Corporation having its principal place of
business in New York, New York (the "Company").
WHEREAS, the Company is engaged in business as an open-end investment
company and is so registered under the Investment Company Act of 1940 ("1940
Act"); and
WHEREAS, the Sub-Adviser is engaged principally in the business of
rendering investment management services and is registered under the Investment
Advisers Act of 1940 ("Advisers Act"); and
WHEREAS, the Company is authorized to issue shares of common stock in
separate series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Company has retained the Investment Manager to render
management and advisory services to the series of the Company known as the Van
Eck Mid-Cap Value Fund (the "Fund"); and
WHEREAS, the Investment Manager has retained the Sub-Adviser to render
investment advisory and other services hereunder to the Fund; and
WHEREAS, the Sub-Adviser is willing to furnish services to the Fund under
this investment sub-advisory agreement; and
WHEREAS, the Investment Manager wishes to retain the Sub-Adviser to
furnish investment advisory services to the Fund and the Sub-Adviser is willing
to furnish such services.
NOW, THEREFORE, WITNESSETH:
That it is hereby agreed among the parties hereto as follows:
6b-1
APPOINTMENT OF SUB-ADVISER
The Investment Manager hereby appoints the Sub-Adviser to act as
investment advisor to the Fund for the period and on the terms set forth herein.
The Sub-Adviser accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided. So long as the
Sub-Adviser serves as investment advisor to the Fund pursuant to this Agreement
the obligation of the Investment Manager under this Agreement with respect to
the Fund shall be, subject in any event to the control of the Directors of the
Company, to determine and review with Sub-Adviser investment policies of the
Fund and the Sub-Adviser shall have the obligation of furnishing continuously an
investment program and making investment decisions for the Fund, adhering to
applicable investment objectives, policies and restrictions and placing all
orders for the purchase and sale of portfolio securities for the Fund and such
other services set forth in Section 2 hereof. The Investment Manager will
compensate the Sub-Adviser of the Fund for its services to the Fund. The
Investment Manager or the Fund, subject to the terms of this Agreement, may
terminate the services of the Sub-Adviser at any time in their sole discretion,
and the Investment Manager shall at such time assume the responsibilities of the
Sub-Adviser unless and until a successor investment advisor is selected.
DUTIES OF SUB-ADVISER
The Sub-Adviser, at its own expense, shall furnish the following services
and facilities to the Company:
INVESTMENT PROGRAM. The Sub-Adviser will (i) furnish continuously an
investment program for the Fund, (ii) determine (subject to the overall
supervision and review of the Board of Directors of the Company and the
Investment Manager) what investments shall be purchased, held, sold or exchanged
and what portion, if any, of the assets of the Fund shall be held un-invested,
and (iii) make changes on behalf of the Fund in the investments. The Sub-Adviser
will provide the services hereunder in accordance with the Fund's investment
objectives, policies and restrictions as stated in the then-current prospectus
and statement of additional information which is part of the Company's
Registration Statement filed with the Securities and Exchange Commission, as
amended from time to time, copies of which shall be sent to the Sub-Adviser by
the Investment Manager. The Sub-Adviser also will manage, supervise and conduct
such other affairs and business of the Company and matters incidental thereto as
the Sub-Adviser and the Company agree, subject always to the control of the
Board of Directors of the Company and to the provisions of the Articles of
Incorporation of the Company, and the Company's By-laws and the 1940 Act. The
Sub-Adviser will manage the Fund so that it will qualify as a regulated
investment company under sub-chapter M of the Internal Revenue Code of 1986, as
it may be amended from time to time; and, with respect to the services provided
by the Sub-Adviser under this Agreement, it shall be responsible for compliance
with all applicable laws, rules and regulations. Sub-Adviser will adopt
procedures reasonably designed to ensure compliance.
6b-2
OFFICE SPACE AND FACILITIES. The Sub-Adviser will arrange to furnish
office space, all necessary office facilities, simple business equipment,
supplies, utilities, and telephone services required for managing the
investments of the Fund.
PERSONNEL. The Sub-Adviser shall provide executive and clerical personnel
for managing the investments of the Fund, and shall compensate officers and
Directors of the Fund for services provided to the Fund (but not any other
series of the Company) if such persons are also employees of the Sub-Adviser or
its affiliates, except as otherwise provided herein.
PORTFOLIO TRANSACTIONS. The Sub-Adviser shall place all orders for the
purchase and sale of portfolio securities for the account of the Fund with
brokers or dealers selected by the Sub-Adviser, although the Fund will pay the
actual transaction costs, including without limitation brokerage commissions on
portfolio transactions in accordance with this Paragraph 3(d). In executing
portfolio transactions and selecting brokers or dealers, the Sub-Adviser will
use its best efforts to seek on behalf of the Fund the best overall terms
available. In assessing the best overall terms available for any transaction,
the Sub-Adviser shall consider all factors it deems relevant, including, without
limitation, the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker or
dealer, and the reasonableness of the commission, if any (for the specific
transaction and on a continuing basis). In evaluating the best overall terms
available, and in selecting the broker or dealer to execute a particular
transaction, the Sub-Adviser may also consider the brokerage and research
services (as those terms are defined in Section 28(e) of the Securities Exchange
Act of 1934) provided to Sub-Adviser or an affiliate of the Sub-Adviser in
respect of accounts over which it exercises investment discretion. The
Sub-Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the Sub-Adviser
determines in good faith that such commission was reasonable in relation to the
value of the brokerage and research services provided by such broker or dealer,
viewed in terms of that particular transaction or in terms of all of the
accounts over which investment discretion is so exercised by the Sub-Adviser or
its affiliates. Nothing in this agreement shall preclude the combining of orders
for the sale or purchase of securities or other investments with other accounts
managed by the Sub-Adviser or its affiliates provided that the Sub-Adviser does
not favor any account over any other account and provided that any purchase or
sale orders executed contemporaneously shall be allocated in an equitable manner
among the accounts involved in accordance with procedures adopted by the
Sub-Adviser.
In connection with the purchase and sale of securities for the Fund, the
Sub-Adviser will arrange for the transmission to the custodian and record
keeping agent for the Company on a daily basis, such confirmation, trade
tickets, and other documents and information, including, but not limited to,
Cusip, Sedol, or other numbers that identify securities to be purchased or sold
on behalf of the Fund, as may be reasonably necessary to enable the custodian
and record keeping agent to perform its administrative and record keeping
responsibilities with respect to the Fund. With respect to portfolio securities
to
6b-3
be purchased or sold through the Depository Trust Company, the Sub-Adviser will
arrange for the automatic transmission of the confirmation of such trades to the
Fund's custodian and record keeping agent.
The Sub-Adviser will monitor on a daily basis the determination by the
custodian and record-keeping agent for the Fund of the valuation of portfolio
securities and other investments of the Fund. The Sub-Adviser will assist the
custodian and record keeping agent for the Fund in determining or confirming,
consistent with the procedures and policies stated in the Registration Statement
for the Company, the value of any portfolio securities or other assets of the
Fund for which the custodian and record keeping agent seeks assistance from, or
identifies for review by, the Sub-Adviser. The Sub-Adviser shall assist the
Board in determining fair value of such securities or assets for which market
quotations are not readily available.
The Sub-Adviser will provide the Company or the Investment Manager with
copies of all of the Fund's investment records and ledgers maintained by the
Sub-Adviser (which shall not include the records and ledgers maintained by the
custodian and record keeping agent for the Company) as are necessary to assist
the Company and the Investment Manager to comply with requirements of the 1940
Act and the Advisers Act as well as other applicable laws. The Sub-Adviser will
furnish to regulatory authorities having the requisite authority any
information, reports or investment records and ledgers maintained by the
Sub-Adviser in connection with such services which may be requested in order to
ascertain whether the operations of the Company are being conducted in a manner
consistent with applicable laws and regulations.
The Sub-Adviser will provide reports to the Company's Board of Directors
for consideration at meetings of the Board on the investment program for the
Fund and the issues and securities represented in the Fund's portfolio, and will
furnish the Company's Board of Directors with respect to the Fund such periodic
and special reports as the Directors or the Investment Manager may reasonably
request.
EXPENSES OF THE COMPANY
Except as provided in Paragraph 2(d) above, the Sub-Adviser shall assume
and pay all of its own costs and expenses related to providing an investment
program for the Fund.
4. COMPENSATION
(a) As compensation for the services provided and expenses assumed by the
Sub-Adviser under this Agreement, the Investment Manager will pay to the
Sub-Adviser at the end of each calendar month an advisory fee as set forth in
Schedule A hereto.
5. REPRESENTATIONS AND COVENANTS
The Investment Manager hereby represents and warrants as follows:
6b-4
That it is registered in good standing with the Securities and Exchange
Commission as an investment adviser under the Advisers Act, and such
registration is current, complete and in full compliance with all applicable
provisions of the Advisers Act and the rules and regulations thereunder;
That it has all the requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement; and
Its performance of its obligations under this Agreement does not conflict
with any law, regulation or order to which it is subject.
The Investment Manager hereby covenants and agrees that, so long as this
Agreement shall remain in effect:
It shall maintain its registration in good standing as an investment
adviser under the Advisers Act, and such registration shall at all times remain
current, complete and in full compliance with all applicable provisions of the
Advisers Act and the rules and regulations thereunder;
Its performance of its obligations under this Agreement does not conflict
with any law, regulation or order to which it is subject; and
It shall at all times fully comply with the Advisers Act, the 1940 Act,
all applicable rules and regulations under such Acts and all other applicable
law; and
It shall promptly notify the Sub-Adviser upon occurrence of any event
that might disqualify or prevent it from performing its duties under this
Agreement.
The Sub-Adviser hereby represents and warrants as follows:
That it is registered in good standing with the Securities and Exchange
Commission as an investment adviser under the Advisers Act, and such
registration is current, complete and in full compliance with all applicable
provisions of the Advisers Act and the Rules and regulations thereunder;
That is has all the requisite authority to enter into, execute, deliver
and perform its obligations under this Agreement; and
Its performance of its obligations under this Agreement does not conflict
with any law, regulation or order to which it is subject.
The Sub-Adviser hereby covenants and agrees that, so long as this
Agreement shall remain in effect:
It shall maintain its registration in good standing as an investment
adviser under the Advisers Act, and such registration shall at all times remain
current, complete and in full compliance with all applicable provisions of the
Advisers Act and the rules and regulations thereunder;
6b-5
Its performance of its obligations under this Agreement does not conflict
with any law, regulation or order to which it is subject;
It shall at all times fully comply with the Advisers Act, the 1940 Act,
all applicable rules and regulations under such Acts and all other applicable
law; and
It shall promptly notify the Investment Manager upon occurrence of any
event that might disqualify or prevent it from performing its duties under this
Agreement.
6. COMPANY TRANSACTIONS
The Investment Manager and Sub-Adviser each agrees that neither it nor
any of its officers, directors, employees or agents will take any long or
short-term position in the shares of the Company; provided, however, that such
prohibition shall not prevent the purchase of shares of the Company by any of
the persons above described for their account and for investment at the price
(net asset value) at which such shares are available at the time of purchase or
as part of the initial capital of the Company.
7. RELATIONS WITH COMPANY
Subject to and in accordance with the Declaration of Company and By-Laws
of the Company and the Articles of Incorporation and By-Laws of the Investment
Manager and Sub-Adviser it is understood (i) that Directors, officers, agents
and shareholders of the Company are or may be interested in the Sub-Adviser (or
any successor thereof) as directors, officers, or otherwise; (ii) that
directors, officers, agents and shareholders of the Sub-Adviser are or may be
interested in the Company as Directors, officers, shareholders or otherwise; and
(iii) that the Sub-Adviser (or any such successor) is or may be interested in
the Company as a shareholder or otherwise and that the effect of any such
adverse interests shall be governed by said Declaration of Company and By-laws.
8. LIABILITY OF INVESTMENT MANAGER, SUB-ADVISER AND OFFICERS AND DIRECTORS
OF THE COMPANY
Neither the Investment Manager, Sub-Adviser nor any of their officers,
directors, employees, agents or controlling persons or assigns or Directors or
officers of the Company shall be liable for any error of judgment or law, or for
any loss suffered by the Company or its shareholders in connection with the
matters to which this Agreement relates, except that no provision of this
Agreement shall be deemed to protect the Investment Manager, Sub-Adviser or such
persons against any liability to the Company or its shareholders to which the
Investment Manager or Sub-Adviser might otherwise be subject by reason of any
willful misconduct, negligence or actions taken in bad faith in the discharge of
its respective obligations and performance of its respective duties under this
Agreement.
9. INDEMNIFICATION
Notwithstanding Section 8 of the Agreement, the Investment Manager agrees
to indemnify and hold harmless the Sub-Adviser, any affiliated person of the
Sub-Adviser
6b-6
(except the Company), and each person, if any, who, within the meaning of
Section 15 of the Securities Act of 1933 ("1933 Act") controls ("controlling
person") the Sub-Adviser (all of such persons being referred to as "Sub-Adviser
Indemnified Persons") against any and all losses, claims, damages, liabilities
(excluding salary charges of employees, officers or partners of the
Sub-Adviser), or litigation (including legal and other) expenses to which a
Sub-Adviser Indemnified Person may become subject under the 1933 Act, the 1940
Act, the Advisers Act, any other statute, common law or otherwise, arising out
of the Investment Manager's responsibilities to the Company which (1) may be
based upon any untrue statement or alleged untrue statement of a material fact
supplied by, or which is the responsibility of, the Investment Manager and
contained in the Registration Statement or prospectus or statement of additional
information covering the shares of the Fund or any other series, or any
amendment thereof or any supplement thereto, or the omission or alleged omission
or failure to state therein a material fact known or which should have been
known to the Investment Manager and was required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon information furnished to the Investment
Manager or the Company or to any affiliated person of the Investment Manager by
a Sub-Adviser Indemnified Person in writing for inclusion in the Registration
Statement or prospectus or statement of additional information; or (2) may be
based upon a failure by the Investment Manager to comply with, or a breach of,
any provision of this Agreement or any other agreement with the Fund; or (3) may
be based upon misfeasance or negligence by the Investment Manager in the
discharge of its duties and performance of its obligations under this Agreement
or any other agreement with the Fund, provided however, that in no case shall
the indemnity in favor of the Sub-Adviser Indemnified Person be deemed to
protect such person against any liability to which any such person would
otherwise be subject by reason of any misfeasance or negligence in the discharge
of its obligations and the performance of its duties under this Agreement.
Notwithstanding Section 8 of this Agreement, the Sub-Adviser agrees to
indemnify and hold harmless the Investment Manager, any affiliated person of the
Investment Manager (except the Company), and each person, if any, who, within
the meaning of Section 15 of the 1933 Act, controls ("controlling person") the
Investment Manager (all of such persons being referred to as "Investment Manager
Indemnified Persons") against any and all losses, claims, damages, liabilities
(excluding salary charges of employees, officers or partners of the Investment
Manager), or litigation (including legal and other) expenses to which an
Investment Manager Indemnified Person may become subject under the 1933 Act, the
1940 Act, the Advisers Act, any other statute, common law or otherwise, arising
out of the Sub-Adviser's responsibilities as investment sub-adviser to the Fund
which (1) may be based upon any untrue statement or alleged untrue statement of
a material fact supplied by the Sub-Adviser for inclusion in the Registration
Statement or prospectus or statement of additional information covering shares
of the Fund, or any amendment thereof, or any supplement thereto, or, with
respect to a material fact supplied by the Sub-Adviser for inclusion in the
Registration Statement or prospectus or statement of additional information, the
omission or alleged omission or failure to state therein a material fact known
or which should have been known to the Sub-Adviser and was required to be stated
therein or necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon
6b-7
information furnished to the Sub-Adviser, the Company, or any affiliated person
of the Sub-Adviser or Company by an Investment Manager Indemnified Person; or
(2) may be based upon a failure by the Sub-Adviser to comply with, or a breach
of, any provision of this Agreement or any other agreement with the Fund; or (3)
may be based upon misfeasance or negligence by the Sub-Adviser in the discharge
of its duties and performance of its obligations under this Agreement or any
other agreement with the Fund provided however, that in no case shall the
indemnity in favor of an Investment Manager Indemnified Person be deemed to
protect such person against any liability to which any such person would
otherwise be subject by reason of misfeasance or negligence in the discharge of
its obligations and the performance of its duties under this Agreement.
Neither the Investment Manager nor the Sub-Adviser shall be liable under
this Section with respect to any claim made against an Indemnified Person unless
such Indemnified Person shall have notified the indemnifying party in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Person (or such Indemnified Person shall have received notice of
such service on any designated agent), but failure to notify the indemnifying
party of any such claim shall not relieve the indemnifying party from any
liability which it may have to the Indemnified Person against whom such action
is brought otherwise than on account of this Section. In case any such action is
brought against the Indemnified Person, the indemnifying party will be entitled
to participate, at its own expense, in the defense thereof or, after notice to
the Indemnified Person, to assume the defense thereof, with counsel satisfactory
to the Indemnified Person. If the indemnifying party assumes the defense and the
selection of counsel by the indemnifying party to represent both the Indemnified
Person and the indemnifying party would result in a conflict of interests and
would not, in the reasonable judgment of the Indemnified Person, adequately
represent the interests of the Indemnified Person, the indemnifying party will
at its own expense, assume the defense with counsel to the indemnifying party
and, also at its own expense, with separate counsel to the Indemnified Person
which counsel shall be satisfactory to the indemnifying party and the
Indemnified Person. The Indemnified Person will bear the fees and expenses of
any additional counsel retained by it, and the indemnifying party shall not be
liable to the Indemnified Person under this Agreement for any legal or other
expenses subsequently incurred by the Indemnified Person independently in
connection with the defense thereof other than reasonable costs of
investigation. The indemnifying party shall not have the right to compromise or
settle the litigation without the prior written consent of the Indemnified
Person if the compromise or settlement results, or may result, in a finding of
wrongdoing on the part of the Indemnified Person.
10. DURATION AND TERMINATION OF THE AGREEMENT
This Agreement shall commence on the date hereof unless terminated as
herein provided, this agreement will remain in full force and effect until May
1, 2004 and shall continue in full force and effect for periods of one year
thereafter so long as such continuance is approved at least annually (i) by
either the Directors of the Company or by a vote of a majority of the
outstanding shares (as defined in the 1940 Act) of the
6b-8
Company, and (ii) in either event by the vote of a majority of the Directors of
the Company who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act); of any such party, cast in person at a meeting called
for the purpose of voting on such approval.
This Agreement may be terminated at any time without payment of any
penalty by the Company upon the vote of a majority of the Directors or by vote
of the majority of the Fund's outstanding voting securities, upon ten (10) days'
written notice to the Sub-Adviser or (b) by the Investment Manager or the
Sub-Adviser at any time upon sixty (60) days' written notice to the other
parties.
This Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act).
MISCELLANEOUS
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
USE OF NAME
It is understood that the name "Van Eck" or any derivative thereof or
logo associated with that name is the valuable property of the Investment
Manager and its affiliates, and that the Company and Sub-Adviser have the right
to use such name (or derivative or logo) only with the approval of the Adviser
and only so long as the Investment Manager is Adviser to the Fund. Upon
termination of the Investment Advisory and Management Agreement between the
Company and the Investment Manager, the Company and the Sub-Adviser shall
forthwith cease to use such name (or derivative or logo).
It is understood that the name John A. Levin and Co. any derivative
thereof or logo associated with that name is the valuable property of the
Sub-Adviser and its affiliates and that the Company and/or the Fund have the
right to use such name (or derivative or logo) in offering materials of the
Company only with the approval of the Sub-Adviser and only for so long as the
Sub-Adviser is investment sub-advisor to the Fund. Upon termination of this
Agreement, the Company and Investment Manager shall forthwith cease to use such
name (or derivative or logo).
15. BINDING AGREEMENT
This Agreement will become binding on the parties hereto upon their
execution of the attached Schedule to this Agreement.
6b-9
Witness the due execution hereof effective this ____th day of
______________ 2002.
Attest:
John A. Levin and Co., Inc.
______________________________________ By:___________________________________
Name:
Title:
Attest:
______________________________________ By:___________________________________
Name:
Title:
Attest: Van Eck Associates Corporation
______________________________________ By:___________________________________
Name:
Title:
6b-10
SCHEDULE A
VAN ECK FUNDS II, INC.,
For the services and facilities to be
provided to the Fund by the Sub-Adviser
as provided in Paragraph 2 hereof, the
Investment Manager shall pay the
Sub-Adviser a fee, payable monthly, at
the annual rate of .375 of 1% of the
Fund's average daily net assets from the
Advisory fee it receives from the Fund,
as determined by the Company or its
third party administrator in accordance
with procedures established, from time
to time, by or under the direction of
the Board of Directors of the Company.
The Company shall not be liable for the
obligation of the Investment Manager to
make payment to the Sub-Adviser.
6b-11
EXHIBIT 7
FORM OF DISTRIBUTION AGREEMENT
THIS AGREEMENT made as of the by and between VAN ECK FUNDS II, INC. (the
"Fund"), a business corporation established and existing under the laws of the
State of Maryland and engaged in the business of an open-end management
investment company and VAN ECK SECURITIES CORPORATION (the "Distributor"), a
corporation organized and existing under the laws of the State of Delaware.
WHEREAS, the Fund proposes to offer shares of beneficial interest in the
seven separate series representing interests in different portfolio of assets of
the Fund and such other series as may from time to time hereafter established
(each series being referred to herein as a "Series" or collectively as the
"Series").
NOW, THEREFORE, in consideration of the mutual convenants hereinafter
contained, the parties hereto agree as follows:
Section 1. APPOINTMENT OF THE DISTRIBUTOR. The Fund hereby appoints
the Distributor as its exclusive agent to sell and distribute shares of each
Series then in existence (the "Shares") for the account and risk of the Fund
during the continuous offering of such Shares, on the terms and for the period
set forth in this Agreement, and the Distributor hereby accepts such appointment
and agrees to act hereunder. It is understood that purchases of Shares of any
Series may be made through other broker-dealers who are members in good standing
of the National Association of Securities Dealers, Inc. ("NASD") in connection
with the offering and sale of the Shares, in which case the Distributor shall
enter into Dealer Agreements ("Dealer Agreements") or amend existing Dealer
Agreements with such broker-dealers, through persons who are not required or
permitted to become NASD members by entering into Selling Agency Agreements or
other agreements ("Agency Agreements") (collectively, "Agreements") and directly
through the Fund's Transfer Agent in the manner set forth in a Series'
Prospectus.
Section 2. SERVICES AND DUTIES OF THE DISTRIBUTOR.
(a) The Distributor agrees to arrange to sell, as exclusive
agent for the Fund, from time to time during the term of this Agreement, Shares
of any Series upon the terms described in such Series' Prospectus. As used in
this Agreement, the term "Prospectus" shall mean a prospectus and the term
"Statement of Additional Information" shall mean the statement of additional
information included in the Fund's Registration Statement and the term
"Registration Statement" shall mean the Registration Statement, including
exhibits and financial statements, most recently filed
7-1
by the Fund with the Securities and Exchange Commission and effective under the
Securities Act of 1933, as amended (the "1933 Act") and the Investment Company
Act of 1940, as amended (the "1940 Act"), as such Registration Statement is
amended by any amendments thereto at the time in effect.
(b) Upon commencement of the continuous public offering of
Shares of any Series, the Distributor will hold itself available to receive
orders, satisfactory to the Distributor, for the purchase of Shares of such
Series and will accept such orders on behalf of the Series as of the time of
receipt of such orders and will transmit such orders as are so accepted to the
Fund's Transfer Agent as promptly as practicable. Purchase orders shall be
deemed effective at the time and in the manner set forth in a Series'
Prospectus.
(c) The Distributor may enter into Dealer Agreements (or amend
existing Dealer Agreements to conform therewith) with such registered and
qualified retail broker-dealers as it may select pursuant to which such
broker-dealers may also arrange for the sale or sell Shares of any Series or
enter into Agency Agreements (or amend existing Agency Agreements to conform
therewith) pursuant to which such persons may also arrange for the sale or sell
shares of any Series.
(d) The offering price of the Shares of a Series shall be the
net asset value (as described in the Articles of Incorporation of the Fund, as
amended from time to time and determined as set forth in the Prospectus and the
Statement of Additional Information of such Series) per Share for the Series
next determined following receipt of an order plus the applicable sales charge,
if any, calculated in the manner set forth in the Series' Prospectus. The
Distributor shall receive the entire amount of the sales charge, if any, as
compensation for its services under this Agreement; however, the Distributor may
reallow all or any portion of such sales charge to persons entering into
Agreements (or amending existing Dealer Agreements) with the Distributor to sell
Shares of such Series. Shares of a Series may be sold at prices that reflect
scheduled variations in, or elimination of, the sales charge to particular
classes of investors or transactions in accordance with a Series' Prospectus and
Statement of Additional Information. The Fund shall furnish the Distributor,
with all possible promptness, advice of each computation of the net asset value
of a Series. The Distributor shall also be entitled, subject to the terms and
conditions of the Fund's Plan of Distribution pursuant to Rule 12b-1 under the
Investment Company Act of 1940, to amounts payable by a Fund thereunder.
(e) The Distributor shall use its best efforts to obtain from
investors unconditional orders for Shares and shall not be obligated to arrange
for sales of any certain number of Shares of a Series and the services of the
Distributor to the Fund hereunder shall not be deemed to be exclusive, and the
Distributor shall be free to (i) render similar services to, and act as
underwriter or distributor in connection with the distribution of shares of
other investment companies, and (ii) engage in any other businesses and
activities from time to time.
(f) The Distributor is authorized on behalf of the Fund to
repurchase Shares of the Series presented to it by dealers at the price
determined in accordance with, and in the manner set for in, the Prospectus of
such Series.
7-2
(g) Unless otherwise notified by the Fund, any right granted to
the Distributor to accept orders for Shares or to make sales on behalf of the
Fund or to purchase Shares for resale will not apply to (i) Shares issued in
connection with the merger or consolidation of any other investment company with
the Fund or its acquisition, by purchase or otherwise, of all or substantially
all of the assets of any investment company or substantially all the outstanding
Shares of any such company and (ii) Shares that may be offered by the Fund to
shareholders of the Fund by virtue of their being such shareholders.
(h) If and whenever the determination of net asset value is
suspended and until such suspension be terminated, no further order for Shares
shall be accepted by the Distributor after it has received advance written
notice of such suspension except unconditional orders placed with the
Distributor before its receipt of notice. In addition, the Fund reserves the
right to suspend sales and the Distributor's authority to accept orders for
Shares on behalf of the Fund if, in the judgment of a majority of the Board of
Directors or a majority of the Executive Committee of such Board, if such body
exists, it is in the best interests of the Fund to do so, such suspension to
continue for such period as may be determined by such majority; and in that
event, no Shares will be sold by the Distributor on behalf of the Fund after the
Distributor has received advance written notice while such suspension remains in
effect except for Shares necessary to cover unconditional orders accepted by the
Distributor before it had knowledge of the suspension.
Section 3. DUTIES OF THE FUND.
(a) The Fund agrees to sell Shares of its constituent Series so
long as it has Shares available for sale and to cause its Transfer Agent to
issue, if requested by the Purchaser, certificates for Shares of its Series,
registered in such names and amounts as promptly as practicable after receipt by
the Fund of the net asset value thereof.
(b) The Fund shall keep the Distributor fully informed with
regard to its affairs and shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Shares of the
Series. This shall include, without limitation, one certified copy of all
financial statements of each of the Series prepared by independent accountants
and such reasonable number of copies of a Series' most current Prospectus, the
Statement of Additional Information and annual and interim reports as the
Distributor may request. The Fund shall cooperate fully in the efforts of the
Distributor to arrange for the sale of Shares of the Series and in the
performance of the Distributor under this Agreement.
(c) The Fund shall take, from time to time, all necessary
action to register the Shares of the Series under the 1933 Act, including
payments of the related filing fees, so that there will be available for sale
such number of Shares of the Series as the Distributor may be expected to sell.
The Fund agrees to file from time to time such amendments, reports and other
documents as may be necessary in order that there may be no untrue statement of
a material fact in the Registration Statement or Prospectus of a Series, or
necessary in order that there may be no omission to state a material fact in the
Registration Statement or Prospectus of a Series, which omission would make the
7-3
statements therein, in light of the circumstances under which they were made,
misleading.
(d) The Fund shall use its best efforts to notify the
Distributor of the states and jurisdictions in which its shares are qualified
for sale and represents and warrants that it shall continue to qualify and
maintain the registration and qualification of an appropriate number of Shares
of the Series and the Fund for sale under the securities laws of such states as
the Distributor and the Fund shall mutually agree, and, if necessary or
appropriate in connection therewith, to qualify and maintain the qualification
of the Fund as a broker-dealer in such states. The Distributor shall furnish
such information and other material relating to its affairs and activities as
may be requested by the Fund in connection with such qualifications.
Section 4. EXPENSES
(a) The Fund shall bear all costs and expenses of the
continuous offering the Shares of the Fund in connection with: (i) fees and
disbursements of its counsel and auditors, (ii) the preparation, filing and
printing of any Registration Statements and/or Prospectuses and Statements of
Additional Information required by and under federal and state securities laws,
(iii) the preparation and mailing of annual and interim reports and proxy
materials, if any, to shareholders (iv) the qualification of the Shares of the
Series for sale and of the Fund as a broker-dealer under the securities laws of
such states or other jurisdictions as shall be selected by the Distributor
pursuant to Section 3(d) hereof and the cost and expenses payable to each such
state or jurisdiction for continuing qualification therein, and (v) the costs
associated in transmitting orders to, and processing by the Fund's transfer
agent, charges of clearing corporation and sender costs.
(b) The Distributor shall bear (i) the costs and expenses of
preparing, printing and distributing any materials not prepared by the Fund and
other materials used by the Distributor in connection with its offering of
Shares of the Series for sale to the public (including the additional costs of
printing copies of the Prospectus and of annual and interim reports) to
shareholders other than copies thereof required for distribution to existing
shareholders or for filing with any federal and state securities authorities,
(ii) any expenses of advertising incurred by the Distributor in connection with
such offering and (iii) the expenses of registration or qualification of the
Distributor as a broker-dealer under federal or state laws, if necessary, and
the expenses of continuing such registration or qualification. It is understood
and agreed that so long as any Plan of Distribution as to a Series of the Fund
pursuant to Rule 12b-1 under the 1940 Act continues in effect, any expenses
incurred by the Distributor hereunder may be paid from amounts received by it
from a Series under such Plan.
Section 5. INDEMNIFICATION.
(a) The Fund agrees to indemnify, defend and hold the
Distributor, its officers, directors, employees and agents and any person who
controls the Distributor within the meaning of Section 15 of the 1933 Act or
Section 20 of the Securities Exchange Act of 1934, as amended ( the "1934 Act"),
free and harmless from and against any and all losses, claims, damages,
liabilities and expenses (including the cost
7-4
of investigating or defending such claims, damages or liabilities and any
counsel fees incurred in connection therewith) which the Distributor, its
officers, directors, employees and agents or any such controlling person may
incur under the 1933 Act, the 1934 Act, or under common law or otherwise, which
(i) may be based upon any wrongful act by the Fund or any or its employees or
representatives, or (ii) which may arise out of or may be based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, Prospectus, or Statement of Additional Information of
the Fund or a Series or arising out of or based upon the omission or any alleged
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, except insofar as such claims,
damages, liabilities or expenses arise out of or are based upon any such untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with information furnished in writing by the Distributor
to the Fund for use in the Registration Statement, Prospectus or Statement of
Additional Information; PROVIDED, HOWEVER, that in no case is the Fund's
indemnity deemed to protect the Distributor, its officers, directors, employees,
agents or any person who controls the Distributor within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act against any liability to which
any such person would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement. The
Distributor agrees to promptly notify the Fund of any event giving rise to a
right of indemnification hereunder, including any action brought against the
Distributor, its officers, directors, employees and agents or any such
controlling person, such notification to be given by letter or telegram
addressed to the Fund at its principal business office, but the Distributor's
failure so to notify the Fund shall not relieve the Fund from any obligation it
may have to indemnify the Distributor hereunder or otherwise. The Fund will be
entitled to participate at its own expense in the defense, or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but if
the Fund elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor, its officers,
directors or controlling person or persons, defendant or defendants in the suit.
In the event that the Fund elects to assume the defense of any such suit and
retain such counsel, the Distributor, its officers, directors or controlling
person or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case the Fund does
not elect to assume the defense of any such suit, it will reimburse the
Distributor or such, officers, directors or controlling person or persons,
defendant or defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Fund agrees promptly to notify the Distributor of
the commencement of any litigation or proceedings against it or any of its
officers or Directors in connection with the issuance or sale of any Shares.
The Distributor agrees to indemnify, defend and hold the Fund, its
Directors and officers and any person who controls the Fund, if any, within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, free and
harmless from and against any and all losses, claims, damages, liabilities and
expenses (including the cost of investigating or defending such claims, damages
or liabilities and any counsel fees incurred in connection therewith) which the
Fund, its Directors or officers or any such controlling person may incur under
the 1933 Act, the 1934 Act, or under common law or otherwise, but only to the
extent that such liability or expense incurred by the Fund, its Directors or
officers or such controlling person arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact contained in
information furnished in writing by the Distributor to the Fund for use in the
Registration Statement,
7-5
Prospectus or Statement of Additional Information of the Fund or a Series;
PROVIDED, HOWEVER, that in no case is the Distributor's indemnity deemed to
protect a Director or officer or any person who controls the Fund within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement. The Fund agrees to promptly notify the Distributor of any event
giving rise to a right of indemnification hereunder, including any action
brought against the Fund, its Directors or officers or any such controlling
persons, such notification being given to the Distributor at its principal
business office, but the Fund's failure so to notify the Distributor shall not
relieve the Distributor from any obligation it may have to indemnify the Fund
hereunder or otherwise. The Distributor shall be entitled to participate, at its
own expense, in the defense, or if it so elects, to assume the defense of any
suit brought to enforce any such liability, but if the Distributor elects to
assume the defense, such defense shall be conducted by counsel chosen by the
Distributor and satisfactory to the Fund, to its officers and Directors, or to
any controlling person or persons, defendant or defendants in the suit. In the
event that the Distributor elects to assume the defense of any such suit and
retain such counsel, the Fund, such officers and Directors or controlling person
or persons, defendant or defendants in the suit shall bear the fees and expenses
of any additional counsel retained by them, but, in case the Distributor does
not elect to assume the defense of any such suit, the Distributor will reimburse
the Fund, such officers and Directors or controlling person or persons,
defendant or defendants in such suit for the reasonable fees and expenses of any
counsel retained by them. The Distributor agrees promptly to notify the Fund of
the commencement of any litigation or proceedings against it in connection with
the issue and sale of any of Shares.
Section 6. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in the
first paragraph of Section 5 is for any reason held to be unavailable from the
Fund, the Fund and the Distributor shall contribute to the aggregate losses,
claims, damages, liabilities or expenses (including the reasonable costs of
investigating or defending such claims, damages or liabilities but after
deducting any contribution received by the Fund from persons other than the
Distributor who may also be liable for contribution, such as persons who control
the Fund within the meaning of the 1933 Act, officers of the Fund who signed the
applicable Registration Statement and Directors) to which the Fund and the
Distributor may be subject in such proportion so that the Distributor is
responsible for that portion represented by the percentage the sales charge
appearing in the Prospectus of the Fund bears to the public offering price
appearing therein and the Fund is responsible for the balance; provided,
however, that (i) in no case shall the Distributor be responsible for any amount
in excess of the portion of the sales charge received and retained by it in
respect of the Shares of a Series purchased through it hereunder and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person, if any, who controls the Distributor within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Distributor. Each party who may seek contribution under this
Section 6 shall, promptly after receipt of notice of commencement of any action,
suit or proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under this Section 6,
give written notice of the commencement of such action, suit or proceeding to
the
7-6
party or parties from whom such contribution may be sought, but the omission so
to notify such contributing party or parties shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have otherwise than on account of this Section 6.
Section 7. COMPLIANCE WITH SECURITIES LAWS. The Fund represents that
it is registered as an open-end management investment company under the 1940
Act, and agrees that it will comply with all of the provisions of the 1940 Act
and of the rules and regulations thereunder. The Fund and the Distributor each
agree to comply with all of the applicable terms and provisions of the 1940 Act,
the 1933 Act and, subject to the provisions of Section 3(d), all applicable
state "Blue Sky" laws. The Distributor agrees to comply with all of the
applicable terms and provisions of the 1934 Act and to the rules and regulations
of the National Association of Securities Dealers, Inc., of which it is a
member.
Section 8. TERMS OF CONTRACT. This Agreement shall go into effect on
the date hereof and shall continue in effect until September 30, 1998 and
thereafter for successive periods of one year each if such continuance is
approved at least annually thereafter (i) either by an affirmative vote of a
majority of the outstanding shares of the Fund or by the Board of Directors of
the Fund, and (ii) in either case, by a majority of the Directors of the Fund
who are not interested persons of the Distributor or (otherwise than as
Directors) of the Fund (the "12b-1 Directors"), cast in person at a meeting
called for the purpose of voting on such approval. This Agreement may be
terminated at any time without the payment of a penalty, by a majority of the
12b-1 Directors, by the vote of a majority of the outstanding shares of the
Fund, or by the Distributor on sixty (60) days' written notice to the other
party.
Section 9. ASSIGNMENT. This Agreement may not be assigned by the
Distributor and shall automatically terminate in the event of an attempted
assignment by the Distributor; provided, however, that the Distributor may
employ or enter into agreements with such other person, persons, company, or
companies, as it shall determine in order to assist it in carrying out this
Agreement.
Section 10. AMENDMENT. This Agreement may be amended or modified at any
time by mutual agreement in writing of the parties hereto, provided that any
such amendment is approved by a majority of the Directors of the Fund who are
not interested persons of the Distributor or by the holders of a majority of the
outstanding Shares of the Fund. If the Fund should at any time deem it necessary
or advisable in the best interests of the Fund that any amendment of this
Agreement be made in order to comply with the recommendations or requirements of
the SEC or other governmental authority or to obtain any advantage under state
or federal tax laws and should notify the Distributor of the form of such
amendment, and the reasons therefor, and if the Distributor should decline to
assent forthwith. If the Distributor should at any time request that a change be
made in the Fund's Master Fund Agreement or By-Laws or in its methods of doing
business, in order to comply with any requirements of federal law or regulations
of the SEC or of a national securities association of which the Distributor is
or may be a member relating to the sale of Shares of the Funds, and the Fund
should not make such necessary change within a reasonable time, the Distributor
may terminate this Agreement forthwith.
7-7
Section 11. GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without regard
for choice of laws principles thereunder.
Section 12. AUTHORIZED REPRESENTATIONS.
(a) The Fund is not authorized to give any information or to
make any representations on behalf of the Distributor other than the information
and representations contained in a Registration statement (including a
Prospectus or Statement of Additional Information) covering Shares, as such
Registration Statement and Prospectus may be amended or supplemented from time
to time.
(b) The Distributor is not authorized to give any information
or to make any representations on behalf of the Fund or in connection with the
sale of Shares other than the information and representations contained in a
Registration statement (including a Prospectus or Statement of Additional
Information) covering Shares, as such Registration Statement may be amended or
supplemented from time to time. No person other than the Distributor is
authorized to act as principal underwriter (as such term is defined in the 1940
Act) for the Fund.
Section 13. PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes any
prior agreement relating to the subject matter hereof between the parties.
Section 14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 15. MISCELLANEOUS.
(a) The captions in this Agreement are included for ease of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(b) If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Agreement shall not be affected thereby.
(c) The provisions of Section 5 hereof shall survive the
termination of this Agreement.
Section 16. USE OF NAME. It is understood that the name "Van Eck" or
any derivative thereof or logo associated with that name is the valuable
property of the Distributor and its affiliates, and that the Fund and Series
have the right to use such name (or derivative or logo) only with the approval
of the Distributor only so long as the Distributor is Distributor of the Fund.
Upon termination of this Agreement, the Fund and Series shall forthwith cease to
use such name (or derivative or logo).
7-8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
VAN ECK FUNDS II, INC.
(SEAL)
Attest: ________________________ Name:____________________________
Title:___________________________
VAN ECK SECURITIES CORPORATION
(SEAL)
Attest: ________________________ Name:____________________________
Title:___________________________
7-9
GOODWIN | PROCTER Goodwin Procter LLP T: 617.570.1000
Counselors at Law F: 617.523.1231
Exchange Place Goodwinprocter.com
Boston, MA 02109
March 14, 2002
Van Eck Funds II, Inc.
99 Park Avenue
New York, New York 10016
Dear Ladies and Gentlemen:
Referenced is made to Pre-Effective Amendment No. 1 to the Registration
Statement on Form N-14 of Van Eck Funds II, Inc. to be filed with the Securities
and Exchange Commission with respect to Class A shares of stock (the "Shares")
of Van Eck Funds II, Inc., a Maryland corporation (the "Company"), representing
interests in the Mid-Cap Value Fund, a series of the Company, to be issued
pursuant to a certain Agreement and Plan of Reorganization (the "Reorganization
Agreement") between the Company and Van Eck Funds, Inc., described in the
Registration Statement.
We have examined such records, documents and other instruments and have made
such other examinations and inquiries as we have deemed necessary to enable us
to express the opinion set forth below.
Based upon and subject to the foregoing, we are of the opinion that the Shares,
when issued in accordance with the terms of the Reorganization Agreement, will
be validly issued, fully paid and non-assessable by the Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
GOODWIN PROCTER LLP
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the incorporation of our report
dated February 8, 2002 in this Registration Statement (Form N-14 No. 033-14737)
of Van Eck Funds, Inc.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
March 11, 2002
VAN ECK MID CAP VALUE FUND
The Van Eck Growth and Income Fund-A has changed its name to the Van Eck Mid Cap
Value Fund-A, as reflected on this statement. Other important proposed changes
to the Fund, explained in a proxy statement mailed to you in March, must be
voted on before the Special Meeting date of April 26, 2002. Your prompt vote is
appreciated and will help the Fund avoid the expense of additional proxy
mailings. If you have any questions or need proxy material please call
1-800-859-8508.
VAN ECK TOTAL RETURN FUND
The Van Eck/Chubb Total Return Fund-A has changed its name to the Van Eck Total
Return Fund-A, as reflected on this statement. Other important proposed changes
to the Fund, explained in a proxy statement mailed to you in March, must be
voted on before the Special Meeting date of April 26, 2002. Your prompt vote is
appreciated and will help the Fund avoid the expense of additional proxy
mailings. If you have any questions or need proxy material please call
1-800-859-8508.