UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number | 811-09815 | ||||||||
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THE ARBITRAGE FUNDS | |||||||||
(Exact name of registrant as specified in charter) | |||||||||
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41 Madison Avenue, 42nd Floor, New York, NY |
| 10010 | |||||||
(Address of principal executive offices) |
| (Zip code) | |||||||
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John S. Orrico Water Island Capital, LLC 41 Madison Avenue 42nd Floor New York, NY 10010 | |||||||||
(Name and address of agent for service) | |||||||||
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Registrant’s telephone number, including area code: | 800-295-4485 |
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Date of fiscal year end: | May 31 |
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Date of reporting period: | June 1, 2017 – November 30, 2017 |
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Item 1. Reports to Stockholders.
Semi-Annual Report
November 30, 2017
The Arbitrage Fund
The Arbitrage Event-Driven Fund
The Arbitrage Credit Opportunities Fund
The Arbitrage Tactical Equity Fund
TABLE OF CONTENTS
The Arbitrage Fund | |||||||
Portfolio Information | 1 | ||||||
Portfolio of Investments | 3 | ||||||
The Arbitrage Event-Driven Fund | |||||||
Portfolio Information | 16 | ||||||
Portfolio of Investments | 18 | ||||||
The Arbitrage Credit Opportunities Fund | |||||||
Portfolio Information | 32 | ||||||
Portfolio of Investments | 34 | ||||||
The Arbitrage Tactical Equity Fund | |||||||
Portfolio Information | 40 | ||||||
Portfolio of Investments | 42 | ||||||
Statement of Assets and Liabilities | 52 | ||||||
Statement of Operations | 56 | ||||||
Statements of Changes in Net Assets | 58 | ||||||
Financial Highlights | |||||||
The Arbitrage Fund - Class R | 62 | ||||||
The Arbitrage Fund - Class I | 64 | ||||||
The Arbitrage Fund - Class C | 66 | ||||||
The Arbitrage Fund - Class A | 68 | ||||||
The Arbitrage Event-Driven Fund - Class R | 70 | ||||||
The Arbitrage Event-Driven Fund - Class I | 72 | ||||||
The Arbitrage Event-Driven Fund - Class C | 74 | ||||||
The Arbitrage Event-Driven Fund - Class A | 76 | ||||||
The Arbitrage Credit Opportunities Fund - Class R | 78 | ||||||
The Arbitrage Credit Opportunities Fund - Class I | 80 | ||||||
The Arbitrage Credit Opportunities Fund - Class C | 82 | ||||||
The Arbitrage Credit Opportunities Fund - Class A | 84 | ||||||
The Arbitrage Tactical Equity Fund - Class R | 86 | ||||||
The Arbitrage Tactical Equity Fund - Class I | 88 | ||||||
The Arbitrage Tactical Equity Fund - Class C | 90 | ||||||
The Arbitrage Tactical Equity Fund - Class A | 92 | ||||||
Notes to Financial Statements | 94 | ||||||
Disclosure of Fund Expenses | 120 | ||||||
Additional Information | 123 |
The Arbitrage Fund Portfolio Information
November 30, 2017 (Unaudited)
Performance (annualized returns as of November 30, 2017)
One Year | Five Year | Ten Year | Since Inception* | ||||||||||||||||
Arbitrage Fund, Class R | 2.45 | % | 2.01 | % | 2.33 | % | 4.07 | % | |||||||||||
Arbitrage Fund, Class I | 2.68 | % | 2.27 | % | 2.56 | % | 3.01 | % | |||||||||||
Arbitrage Fund, Class C** | 1.65 | % | 1.25 | % | N/A | 0.88 | % | ||||||||||||
Arbitrage Fund, Class A*** | 2.45 | % | N/A | N/A | 1.90 | % | |||||||||||||
S&P 500® Index | 22.87 | % | 15.74 | % | 8.30 | % | 5.56 | % | |||||||||||
BofA Merrill Lynch U.S. 3-Month Treasury Bill Index | 0.79 | % | 0.25 | % | 0.41 | % | 1.57 | % |
Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com.
* Class R inception: 9/18/00; Class I inception: 10/17/03; Class C inception: 6/1/12; Class A inception: 6/1/13. Since Inception Returns for securities indices are for the inception date of Class R shares.
** Class C shares are subject to a 1.00% contingent deferred sales charge on all purchases redeemed in 12 months of purchase.
*** Class A shares are subject to a maximum front-end sales load of 2.50% on purchases up to $250,000. The shares are also subject to a deferred sales charge of up to 1.00% on purchases of $250,000 or more purchased without a front-end sales charge and redeemed within 18 months of purchase. Shares purchased without a front-end sales charge prior to April 3, 2017 (determined on a first-in, first-out basis) will be subject to a deferred sales charge of up to 0.50% if you redeem your shares within 12 months of purchase with respect to the shares purchased prior to April 3, 2017.
The Total Annual Fund Operating Expenses for Class R, Class I, Class C and Class A are 1.90%, 1.65%, 2.65% and 1.90%, respectively. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.
The S&P 500® Index is an unmanaged index consisting of 500 stocks.
The Bank of America (BofA) Merrill Lynch U.S. 3-Month Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.
An investor may not invest directly in an index.
Semi-Annual Report | November 30, 2017
1
The Arbitrage Fund Portfolio Information (continued)
November 30, 2017 (Unaudited)
Growth of $10,000 Investment
The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Sector Weighting
The following chart shows the sector weightings of The Arbitrage Fund's investments as of the report date.
www.arbitragefunds.com | 1-800-295-4485
2
The Arbitrage Fund Portfolio of Investments
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - 85.17% | |||||||||||
Aerospace & Defense - 7.57% | |||||||||||
Orbital ATK, Inc.(a)(b) | 351,812 | $ | 46,418,075 | ||||||||
Rockwell Collins, Inc.(b) | 564,882 | 74,739,538 | |||||||||
Zodiac Aerospace(b) | 685,676 | 20,158,300 | |||||||||
141,315,913 | |||||||||||
Banks - 1.99% | |||||||||||
MainSource Financial Group, Inc.(b) | 291,458 | 11,527,164 | |||||||||
Park Sterling Corp.(b) | 1,988,674 | 25,594,234 | |||||||||
37,121,398 | |||||||||||
Beverages - 0.33% | |||||||||||
Refresco Group N.V.(c) | 260,054 | 6,128,677 | |||||||||
Biotechnology - 0.25% | |||||||||||
Enzymotec Ltd.(b)(d) | 400,000 | 4,720,000 | |||||||||
Chemicals - 4.20% | |||||||||||
Calgon Carbon Corp.(b) | 1,590,415 | 34,352,964 | |||||||||
Monsanto Co.(a)(b) | 371,213 | 43,929,346 | |||||||||
78,282,310 | |||||||||||
Commercial Services - 2.54% | |||||||||||
Nets A/S(c)(d) | 1,355,981 | 35,498,247 | |||||||||
Nord Anglia Education, Inc.(d)(e)(f) | 200,078 | 6,502,535 | |||||||||
Zhaopin Ltd., Class A(d)(e)(f) | 600,000 | 5,460,000 | |||||||||
47,460,782 | |||||||||||
Computers & Computer Services - 1.14% | |||||||||||
Barracuda Networks, Inc.(d) | 82,599 | 2,283,862 | |||||||||
Silver Spring Networks, Inc.(d) | 1,178,000 | 18,930,460 | |||||||||
21,214,322 | |||||||||||
Diversified Financial Services - 6.04% | |||||||||||
Fortress Investment Group LLC, Class A MLP(b) | 8,023,291 | 63,063,067 | |||||||||
NewStar Financial, Inc.(b) | 1,164,945 | 13,746,351 | |||||||||
Worldpay Group Plc(c) | 6,300,059 | 35,955,253 | |||||||||
112,764,671 | |||||||||||
Electric - 3.58% | |||||||||||
Calpine Corp.(a)(b)(d) | 3,903,434 | 58,629,579 | |||||||||
Dynegy, Inc.(d) | 648,006 | 7,860,313 | |||||||||
Westar Energy, Inc. | 4,000 | 228,840 | |||||||||
66,718,732 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
3
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - 85.17% (Continued) | |||||||||||
Food - 1.69% | |||||||||||
Bob Evans Farms, Inc.(a)(b) | 392,697 | $ | 30,646,074 | ||||||||
Inventure Foods, Inc.(d) | 200,000 | 800,000 | |||||||||
31,446,074 | |||||||||||
Healthcare - Products - 9.86% | |||||||||||
Advanced Accelerator Applications SA, ADR(b)(d) | 233,551 | 18,999,374 | |||||||||
CR Bard, Inc.(b) | 370,600 | 124,499,364 | |||||||||
Exactech, Inc.(b)(d) | 457,795 | 19,204,500 | |||||||||
NxStage Medical, Inc.(b)(d) | 829,326 | 21,305,385 | |||||||||
184,008,623 | |||||||||||
Healthcare - Services - 1.16% | |||||||||||
Air Methods Corp.(d)(e)(f) | 2,014,027 | 21,650,790 | |||||||||
Home Builders - 1.07% | |||||||||||
CalAtlantic Group, Inc.(b) | 356,563 | 19,981,791 | |||||||||
Insurance - 1.46% | |||||||||||
Euler Hermes Group | 13,000 | 1,884,641 | |||||||||
Fidelity & Guaranty Life(e) | 742,300 | 23,085,530 | |||||||||
TOWER Ltd.(d) | 4,900,000 | 2,294,167 | |||||||||
27,264,338 | |||||||||||
Media - 14.30% | |||||||||||
Scripps Networks Interactive, Inc., Class A | 898,821 | 73,559,511 | |||||||||
Sky Plc(d) | 499,463 | 6,325,814 | |||||||||
Starz, Class A(d)(e)(f) | 521,436 | 20,366,005 | |||||||||
Time Warner, Inc.(a)(b) | 1,155,634 | 105,752,067 | |||||||||
Time, Inc. | 759,850 | 14,133,210 | |||||||||
Tribune Media Co., Class A(b) | 1,133,626 | 46,705,391 | |||||||||
266,841,998 | |||||||||||
Oil & Gas Services - 0.24% | |||||||||||
Tesco Corp.(d) | 1,119,076 | 4,532,258 | |||||||||
Pharmaceuticals - 3.90% | |||||||||||
Omega Protein Corp.(a)(b) | 1,000,340 | 21,957,463 | |||||||||
PharMerica Corp.(b)(d) | 1,739,163 | 50,870,518 | |||||||||
72,827,981 | |||||||||||
Real Estate - 0.27% | |||||||||||
Global Logistic Properties Ltd. | 1,988,000 | 4,938,306 | |||||||||
Real Estate Investment Trusts - 0.43% | |||||||||||
Axiare Patrimonio SOCIMI SA | 365,762 | 7,992,990 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
4
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - 85.17% (Continued) | |||||||||||
Retail - 5.62% | |||||||||||
Buffalo Wild Wings, Inc.(a)(d) | 86,220 | $ | 13,446,009 | ||||||||
HSN, Inc.(b) | 1,498,304 | 60,906,058 | |||||||||
Jean Coutu Group PJC, Inc. (The), Class A | 1,350,900 | 25,737,412 | |||||||||
Ruby Tuesday, Inc.(d) | 2,000,000 | 4,780,000 | |||||||||
104,869,479 | |||||||||||
Savings & Loans - 0.14% | |||||||||||
Bank Mutual Corp.(b) | 245,921 | 2,631,355 | |||||||||
Semiconductors - 11.09% | |||||||||||
IXYS Corp.(b)(d) | 1,821,218 | 44,255,598 | |||||||||
Marvell Technology Group Ltd. | 248,030 | 5,540,990 | |||||||||
NXP Semiconductors N.V.(a)(d) | 1,385,305 | 157,079,734 | |||||||||
206,876,322 | |||||||||||
Software - 2.39% | |||||||||||
Bazaarvoice, Inc.(d) | 857,924 | 4,675,686 | |||||||||
BroadSoft, Inc.(a)(b)(d) | 684,472 | 37,645,960 | |||||||||
Planet Payment, Inc.(b)(d) | 508,419 | 2,287,885 | |||||||||
44,609,531 | |||||||||||
Telecommunications - 3.91% | |||||||||||
General Communication, Inc., Class A(b)(d) | 371,718 | 14,835,265 | |||||||||
Gigamon, Inc.(b)(d) | 470,851 | 18,292,561 | |||||||||
Straight Path Communications, Inc., Class B(b)(d) | 219,385 | 39,892,969 | |||||||||
73,020,795 | |||||||||||
TOTAL COMMON STOCKS (Cost $1,555,247,054) | 1,589,219,436 | ||||||||||
RIGHTS - 0.20% | |||||||||||
Casa Ley CVR, Expires 01/30/2018(d)(e)(f) | 6,223,326 | 2,855,884 | |||||||||
Chelsea Therapeutics CVR, Expires 03/31/2018(d)(e)(f) | 2,389,273 | — | |||||||||
Cubist Pharmaceuticals, Inc. CPR, Expires 07/01/2019(d)(e)(f) | 119,343 | — | |||||||||
Media General, Inc. CVR(d)(e)(f) | 613,589 | 14,634 | |||||||||
PDC CVR(d)(e)(f) | 6,223,326 | — | |||||||||
TOWER Ltd., Expires 12/13/2017(d) | 4,900,000 | 847,335 | |||||||||
TOTAL RIGHTS (Cost $6,513,955) | 3,717,853 | ||||||||||
MUTUAL FUNDS - 0.64% | |||||||||||
Arbitrage Event Driven Fund (The)(g) | 1,260,029 | 11,907,273 | |||||||||
TOTAL MUTUAL FUNDS (Cost $12,000,000) | 11,907,273 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
5
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Expiration Date | Exercise Price | Notional Amount | Contracts | Value | |||||||||||||||||||
PURCHASED OPTIONS(d) - 0.20% | |||||||||||||||||||||||
Call Options Purchased - 0.06% | |||||||||||||||||||||||
AT&T, Inc., Class A | 01/2018 | $ | 38.00 | $ | 23,723,398 | 6,521 | $ | 257,580 | |||||||||||||||
Buffalo Wild Wings, Inc. | 01/2018 | 160.00 | 9,357,000 | 600 | 15,000 | ||||||||||||||||||
Discovery Communications, Inc., Class A: | |||||||||||||||||||||||
12/2017 | 22.50 | 2,800,592 | 1,549 | 7,745 | |||||||||||||||||||
12/2017 | 25.00 | 1,066,720 | 590 | 2,950 | |||||||||||||||||||
03/2018 | 17.50 | 6,752,880 | 3,735 | 793,687 | |||||||||||||||||||
NXP Semiconductors N.V. | 12/2017 | 110.00 | 612,306 | 54 | 21,060 | ||||||||||||||||||
TOTAL CALL OPTIONS PURCHASED (Cost $997,570) | 1,098,022 | ||||||||||||||||||||||
Put Options Purchased - 0.14% | |||||||||||||||||||||||
Monsanto Co. | 01/2018 | 105.00 | 9,396,196 | 794 | 33,745 | ||||||||||||||||||
NXP Semiconductors N.V. | 01/2018 | 115.00 | 17,768,213 | 1,567 | 673,810 | ||||||||||||||||||
Orbital ATK, Inc. | 05/2018 | 110.00 | 2,467,278 | 187 | 1,870 | ||||||||||||||||||
Time Warner, Inc.: | |||||||||||||||||||||||
12/2017 | 85.00 | 73,208 | 8 | 104 | |||||||||||||||||||
02/2018 | 85.00 | 29,832,260 | 3,260 | 353,710 | |||||||||||||||||||
03/2018 | 85.00 | 73,391,020 | 8,020 | 1,571,920 | |||||||||||||||||||
United Technologies Corp.: | |||||||||||||||||||||||
06/2018 | 105.00 | 2,040,360 | 168 | 26,628 | |||||||||||||||||||
06/2018 | 110.00 | 2,040,360 | 168 | 39,228 | |||||||||||||||||||
TOTAL PUT OPTIONS PURCHASED (Cost $5,563,232) | 2,701,015 | ||||||||||||||||||||||
TOTAL PURCHASED OPTIONS (Cost $6,560,802) | 3,799,037 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
6
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Yield | Shares | Value | |||||||||||||
SHORT-TERM INVESTMENTS - 8.97% | |||||||||||||||
Money Market Fund | |||||||||||||||
Morgan Stanley Institutional Liquidity Fund - Government Portfolio | 0.979 | %(h) | 167,335,863 | $ | 167,335,863 | ||||||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $167,335,863) | 167,335,863 | ||||||||||||||
Total Investments - 95.18% (Cost $1,747,657,674) | 1,775,979,462 | ||||||||||||||
Other Assets in Excess of Liabilities - 4.82%(i) | 90,025,353 | ||||||||||||||
NET ASSETS - 100.00% | $ | 1,866,004,815 |
Portfolio Footnotes
(a) Underlying security for a written/purchased call/put option.
(b) Security, or a portion of security, is being held as collateral for short sales, swap contracts, written option contracts or forward foreign currency exchange contracts. At November 30, 2017, the aggregate market value of those securities was $688,811,686, representing 36.91% of net assets.
(c) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of November 30, 2017, these securities had a total value of $77,582,177 or 4.16% of net assets.
(d) Non-income-producing security.
(e) Security fair valued using methods determined in good faith by the Pricing Committee. As of November 30, 2017, the total market value of these securities was $79,935,378, representing 4.28% of net assets.
(f) Security considered illiquid. On November 30, 2017, the total market value of these securities was $56,849,848, representing 3.05% of net assets.
(g) Affiliated investment. (See Note 6 of the Notes to Financial Statements for a summary of transactions in securities of affiliated issuers.)
(h) Rate shown is the 7-day effective yield as of November 30, 2017.
(i) Includes cash which is being held as collateral for short sales and written option contracts.
Securities are determined to be illiquid under the procedures approved by the Funds' Board of Trustees. Information related to the Fund's illiquid securities as of November 30, 2017 is as follows:
Date of Purchase | Security | Cost | Value | % of Net Assets | |||||||||||||||
03/14/2017 | Air Methods Corp. | $ | 21,665,336 | $ | 21,650,790 | 1.16 | % | ||||||||||||
01/30/2015 | Casa Ley CVR | 6,316,053 | 2,855,884 | 0.15 | |||||||||||||||
06/24/2014 | Chelsea Therapeutics CVR | — | — | 0.00 | |||||||||||||||
12/12/2011 | Cubist Pharmaceuticals, Inc. CPR | — | — | 0.00 | |||||||||||||||
01/18/2017 | Media General, Inc. CVR | — | 14,634 | 0.00 | |||||||||||||||
08/10/2017 | Nord Anglia Education, Inc. | 6,566,585 | 6,502,535 | 0.35 | |||||||||||||||
01/30/2015 | PDC CVR | 197,902 | — | 0.00 | |||||||||||||||
11/29/2016 | Starz, Class A | 17,703,490 | 20,366,005 | 1.09 | |||||||||||||||
09/15/2017 | Zhaopin Ltd. | 5,552,894 | 5,460,000 | 0.30 | |||||||||||||||
$ | 56,849,848 | 3.05 | % |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
7
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
SCHEDULE OF SECURITIES SOLD SHORT | Shares | Value | |||||||||
COMMON STOCKS - (20.85%) | |||||||||||
Aerospace & Defense - (1.38%) | |||||||||||
United Technologies Corp. | (211,814 | ) | $ | (25,724,810 | ) | ||||||
Banks - (2.13%) | |||||||||||
Associated Banc-Corp | (103,779 | ) | (2,646,364 | ) | |||||||
First Financial Bancorp | (404,903 | ) | (11,479,000 | ) | |||||||
South State Corp. | (278,537 | ) | (25,639,331 | ) | |||||||
(39,764,695 | ) | ||||||||||
Commercial Services - (1.99%) | |||||||||||
MoneyGram International, Inc. | (376,514 | ) | (5,361,559 | ) | |||||||
Vantiv, Inc., Class A | (423,364 | ) | (31,752,300 | ) | |||||||
(37,113,859 | ) | ||||||||||
Electric - (0.86%) | |||||||||||
Avista Corp. | (150,045 | ) | (7,793,337 | ) | |||||||
Great Plains Energy, Inc. | (6,660 | ) | (228,505 | ) | |||||||
Vistra Energy Corp. | (422,470 | ) | (7,984,683 | ) | |||||||
(16,006,525 | ) | ||||||||||
Electrical Components & Equipment - (1.25%) | |||||||||||
Littelfuse, Inc. | (114,857 | ) | (23,304,485 | ) | |||||||
Food - (0.34%) | |||||||||||
Metro, Inc. | (206,059 | ) | (6,454,168 | ) | |||||||
Gas - (1.50%) | |||||||||||
WGL Holdings, Inc. | (331,405 | ) | (28,016,979 | ) | |||||||
Healthcare - Products - (2.30%) | |||||||||||
Becton Dickinson and Co. | (187,867 | ) | (42,873,128 | ) | |||||||
Home Builders - (1.08%) | |||||||||||
Lennar Corp., Class A | (315,535 | ) | (19,809,288 | ) | |||||||
Lennar Corp., Class B | (6,310 | ) | (323,829 | ) | |||||||
(20,133,117 | ) | ||||||||||
Internet - (0.70%) | |||||||||||
Liberty Ventures, Series A | (234,005 | ) | (13,059,819 | ) | |||||||
Media - (1.37%) | |||||||||||
Discovery Communications, Inc., Class C | (922,515 | ) | (16,679,071 | ) | |||||||
Sinclair Broadcast Group, Inc., Class A | (260,750 | ) | (8,878,538 | ) | |||||||
(25,557,609 | ) | ||||||||||
Oil & Gas - (0.25%) | |||||||||||
Nabors Industries Ltd. | (760,630 | ) | (4,594,205 | ) |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
8
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - (20.85%) (Continued) | |||||||||||
Pharmaceuticals - (0.51%) | |||||||||||
Akorn, Inc. | (291,277 | ) | $ | (9,481,066 | ) | ||||||
Retail - (3.23%) | |||||||||||
Liberty Interactive Corp. QVC Group, Class A | (2,471,284 | ) | (60,299,330 | ) | |||||||
Semiconductors - (0.73%) | |||||||||||
Cavium, Inc. | (114,000 | ) | (9,744,720 | ) | |||||||
Xcerra Corp. | (393,821 | ) | (3,902,766 | ) | |||||||
(13,647,486 | ) | ||||||||||
Telecommunications - (1.23%) | |||||||||||
AT&T, Inc. | (633,182 | ) | (23,035,161 | ) | |||||||
TOTAL COMMON STOCKS (Proceeds $369,975,188) | (389,066,442 | ) | |||||||||
EXCHANGE-TRADED FUNDS - (1.04%) | |||||||||||
Equity Fund - (1.04%) | |||||||||||
VanEck Vectors Semiconductor ETF | (192,702 | ) | (19,318,376 | ) | |||||||
TOTAL EXCHANGE-TRADED FUNDS (Proceeds $16,481,767) | (19,318,376 | ) | |||||||||
RIGHTS - 0.00% | |||||||||||
Chelsea Therapeutics CVR, Expires 03/31/2018(a) | (1,100 | ) | — | ||||||||
TOTAL RIGHTS (Proceeds $0) | — | ||||||||||
TOTAL SECURITIES SOLD SHORT (Proceeds $386,456,955) | $ | (408,384,818 | ) |
Portfolio Footnotes
(a) Security fair valued using methods determined in good faith by the Pricing Committee. As of November 30, 2017, the total market value of these securities was $0, representing 0.00% of net assets.
WRITTEN OPTIONS | Expiration Date | Exercise Price | Notional Amount | Contracts | Value | ||||||||||||||||||
Written Call Options | |||||||||||||||||||||||
Bob Evans Farms, Inc. | 12/2017 | $ | 77.50 | $ | (975,500 | ) | (125 | ) | $ | (5,938 | ) | ||||||||||||
BroadSoft, Inc. | 02/2018 | 55.00 | (6,237,000 | ) | (1,134 | ) | (22,680 | ) | |||||||||||||||
Calpine Corp. | 12/2017 | 15.00 | (4,731,300 | ) | (3,150 | ) | (23,625 | ) | |||||||||||||||
Monsanto Co. | 01/2018 | 115.00 | (2,260,294 | ) | (191 | ) | (78,310 | ) |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
9
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
WRITTEN OPTIONS | Expiration Date | Exercise Price | Notional Amount | Contracts | Value | ||||||||||||||||||
NXP Semiconductors N.V.: | |||||||||||||||||||||||
12/2017 | $ | 110.00 | $ | (8,436,216 | ) | (744 | ) | $ | (290,160 | ) | |||||||||||||
01/2018 | 120.00 | (15,284,972 | ) | (1,348 | ) | (121,320 | ) | ||||||||||||||||
Omega Protein Corp. | 02/2018 | 22.50 | (10,979,390 | ) | (5,002 | ) | (12,505 | ) | |||||||||||||||
Orbital ATK, Inc. | 05/2018 | 135.00 | (2,467,278 | ) | (187 | ) | (2,337 | ) | |||||||||||||||
Time Warner, Inc.: | |||||||||||||||||||||||
12/2017 | 90.00 | (2,324,354 | ) | (254 | ) | (52,324 | ) | ||||||||||||||||
12/2017 | 90.50 | (5,206,919 | ) | (569 | ) | (114,654 | ) | ||||||||||||||||
TOTAL WRITTEN CALL OPTIONS (Premiums received $1,132,980) | (723,853 | ) | |||||||||||||||||||||
Written Put Options | |||||||||||||||||||||||
AT&T, Inc.: | |||||||||||||||||||||||
12/2017 | 34.50 | (7,257,810 | ) | (1,995 | ) | (19,950 | ) | ||||||||||||||||
12/2017 | 35.00 | (5,729,850 | ) | (1,575 | ) | (25,987 | ) | ||||||||||||||||
Time Warner, Inc.: | |||||||||||||||||||||||
12/2017 | 85.00 | (73,208 | ) | (8 | ) | (104 | ) | ||||||||||||||||
01/2018 | 75.00 | (8,180,994 | ) | (894 | ) | (13,410 | ) | ||||||||||||||||
01/2018 | 80.00 | (24,927,324 | ) | (2,724 | ) | (39,498 | ) | ||||||||||||||||
01/2018 | 82.50 | (8,739,205 | ) | (955 | ) | (15,757 | ) | ||||||||||||||||
01/2018 | 85.00 | (16,261,327 | ) | (1,777 | ) | (59,530 | ) | ||||||||||||||||
02/2018 | 80.00 | (2,983,226 | ) | (326 | ) | (13,366 | ) | ||||||||||||||||
02/2018 | 82.50 | (7,668,538 | ) | (838 | ) | (43,995 | ) | ||||||||||||||||
TOTAL WRITTEN PUT OPTIONS (Premiums received $965,594) | (231,597 | ) | |||||||||||||||||||||
TOTAL WRITTEN OPTIONS (Premiums received $2,098,574) | $ | (955,450 | ) |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
10
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
EQUITY SWAP CONTRACTS
Swap Counterparty | Reference Obligation | Rate Paid/ Received by the Fund | Termination Date | Upfront Payments Paid | Upfront Payments Received | Market Value | Notional Amount | Unrealized Depreciation | |||||||||||||||||||||||||||
Morgan Stanley & Co. | Sky Plc | Paid 1 Month- LIBOR plus 50 bps | 11/01/2018 | $ | — | $ | — | $ | (53,914 | ) | $ | (5,783,598 | ) | $ | (53,914 | ) | |||||||||||||||||||
Goldman Sachs & Co. | Sky Plc | Paid 1 Month- LIBOR plus 45 bps | 11/14/2018 | — | — | (65,928 | ) | (7,805,759 | ) | (65,928 | ) | ||||||||||||||||||||||||
| $ | (119,842 | ) | $ | (13,589,357 | ) | $ | (119,842 | ) |
OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation | |||||||||||||||
USD | 4,544,120 | AUD | 6,008,000 | Goldman Sachs | 12/15/2017 | $ | 275,329 | ||||||||||||
USD | 41,949,204 | CAD | 54,109,107 | Goldman Sachs | 12/15/2017 | 1,811,298 | |||||||||||||
EUR | 30,992,900 | USD | 36,914,058 | Goldman Sachs | 12/15/2017 | 206,707 | |||||||||||||
USD | 1,494,751 | EUR | 1,247,800 | Goldman Sachs | 03/15/2018 | 60 | |||||||||||||
USD | 54,191,414 | EUR | 45,498,900 | Goldman Sachs | 12/15/2017 | 482,189 | |||||||||||||
GBP | 15,208,600 | USD | 20,575,692 | Goldman Sachs | 12/15/2017 | 469,092 | |||||||||||||
USD | 429,098 | GBP | 317,169 | Goldman Sachs | 12/15/2017 | 1,586 | |||||||||||||
NZD | 245,000 | USD | 167,429 | Goldman Sachs | 12/15/2017 | 198 | |||||||||||||
USD | 4,145,530 | NZD | 6,066,200 | Goldman Sachs | 12/15/2017 | 214,139 | |||||||||||||
USD | 4,923,800 | SGD | 6,639,900 | Goldman Sachs | 12/15/2017 | 8,761 | |||||||||||||
$ | 3,469,359 | ||||||||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Depreciation | |||||||||||||||
AUD | 6,008,000 | USD | 4,544,120 | Goldman Sachs | 12/15/2017 | $ | (70,852 | ) | |||||||||||
CAD | 28,558,000 | USD | 22,140,181 | Goldman Sachs | 12/15/2017 | (541,967 | ) | ||||||||||||
USD | 29,191,272 | DKK | 182,407,500 | Goldman Sachs | 12/15/2017 | (258,798 | ) | ||||||||||||
EUR | 29,037,200 | USD | 34,584,724 | Goldman Sachs | 12/15/2017 | (263,571 | ) | ||||||||||||
USD | 35,132,403 | EUR | 29,328,100 | Goldman Sachs | 03/15/2018 | (132,823 | ) | ||||||||||||
USD | 17,307,369 | EUR | 14,531,200 | Goldman Sachs | 12/15/2017 | (158,577 | ) | ||||||||||||
GBP | 1,530,600 | USD | 2,070,746 | Goldman Sachs | 12/15/2017 | (7,916 | ) | ||||||||||||
USD | 34,594,785 | GBP | 25,570,866 | Goldman Sachs | 12/15/2017 | (571,953 | ) | ||||||||||||
NZD | 1,298,500 | USD | 887,372 | Goldman Sachs | 12/15/2017 | (31,566 | ) | ||||||||||||
USD | 33,486 | NZD | 49,000 | Goldman Sachs | 12/15/2017 | (118 | ) | ||||||||||||
$ | (2,038,141 | ) |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
11
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
The following is a summary of investments classified by country exposure:
Country | % of Net Assets(a) | ||||||
Netherlands | 8.75 | % | |||||
United Kingdom | 2.27 | % | |||||
France | 2.20 | % | |||||
Denmark | 1.90 | % | |||||
Canada | 1.38 | % | |||||
Spain | 0.43 | % | |||||
Hong Kong | 0.35 | % | |||||
Bermuda | 0.30 | % | |||||
China | 0.29 | % | |||||
Singapore | 0.27 | % | |||||
Israel | 0.25 | % | |||||
New Zealand | 0.17 | % | |||||
United States | 76.62 | % | |||||
Other Assets in Excess of Liabilities | 4.82 | % | |||||
100.00 | % |
(a) These percentages represent long positions only and are not net of short positions.
Abbreviations:
ADR - American Depositary Receipt
AUD - Australian dollar
bps - Basis Points. 100 Basis Points is equal to 1 percentage point.
CAD - Canadian dollar
CPR - Conditional Prepayment Rate
CVR - Contingent Value Rights
DKK - Danish krone
ETF - Exchange-Traded Fund
EUR - Euro
GBP - British pound
LIBOR - London Interbank Offered Rate
LLC - Limited Liability Company
Ltd. - Limited
MLP - Master Limited Partnership
N.V. - Naamloze Vennootschap is the Dutch term for a public limited liability corporation.
NZD - New Zealand dollar
Plc - Public Limited Company
SA - Generally designates corporations in various countries, mostly those employing civil law. This translates literally in all languages mentioned as anonymous company.
SGD - Singapore dollar
USD - United States Dollar
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
12
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
The following table summarizes The Arbitrage Fund's investments and derivative financial instruments categorized in the fair value disclosure hierarchy as of November 30, 2017:
Investments in Securities at Value* | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Assets | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Aerospace & Defense | $ | 141,315,913 | $ | — | $ | — | $ | 141,315,913 | |||||||||||
Banks | 37,121,398 | — | — | 37,121,398 | |||||||||||||||
Beverages | 6,128,677 | — | — | 6,128,677 | |||||||||||||||
Biotechnology | 4,720,000 | — | — | 4,720,000 | |||||||||||||||
Chemicals | 78,282,310 | — | — | 78,282,310 | |||||||||||||||
Commercial Services | 35,498,247 | — | 11,962,535 | 47,460,782 | |||||||||||||||
Computers & Computer Services | 21,214,322 | — | — | 21,214,322 | |||||||||||||||
Diversified Financial Services | 112,764,671 | — | — | 112,764,671 | |||||||||||||||
Electric | 66,718,732 | — | — | 66,718,732 | |||||||||||||||
Food | 31,446,074 | — | — | 31,446,074 | |||||||||||||||
Healthcare - Products | 184,008,623 | — | — | 184,008,623 | |||||||||||||||
Healthcare - Services | — | — | 21,650,790 | 21,650,790 | |||||||||||||||
Home Builders | 19,981,791 | — | — | 19,981,791 | |||||||||||||||
Insurance | 4,178,808 | 23,085,530 | — | 27,264,338 | |||||||||||||||
Media | 246,475,993 | — | 20,366,005 | 266,841,998 | |||||||||||||||
Oil & Gas Services | 4,532,258 | — | — | 4,532,258 | |||||||||||||||
Pharmaceuticals | 72,827,981 | — | — | 72,827,981 | |||||||||||||||
Real Estate | 4,938,306 | — | — | 4,938,306 | |||||||||||||||
Real Estate Investment Trusts | 7,992,990 | — | — | 7,992,990 | |||||||||||||||
Retail | 104,869,479 | — | — | 104,869,479 | |||||||||||||||
Savings & Loans | 2,631,355 | — | — | 2,631,355 | |||||||||||||||
Semiconductors | 206,876,322 | — | — | 206,876,322 | |||||||||||||||
Software | 44,609,531 | — | — | 44,609,531 | |||||||||||||||
Telecommunications | 73,020,795 | — | — | 73,020,795 | |||||||||||||||
Rights | 847,335 | 14,634 | 2,855,884 | 3,717,853 | |||||||||||||||
Mutual Funds | 11,907,273 | — | — | 11,907,273 | |||||||||||||||
Purchased Options | 3,799,037 | — | — | 3,799,037 | |||||||||||||||
Short-Term Investments | 167,335,863 | — | — | 167,335,863 | |||||||||||||||
TOTAL | $ | 1,696,044,084 | $ | 23,100,164 | $ | 56,835,214 | $ | 1,775,979,462 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
13
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Other Financial Instruments** | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Assets | |||||||||||||||||||
Forward Foreign Currency Exchange Contracts | $ | — | $ | 3,469,359 | $ | — | $ | 3,469,359 | |||||||||||
Liabilities | |||||||||||||||||||
Common Stocks*** | (389,066,442 | ) | — | — | (389,066,442 | ) | |||||||||||||
Exchange-Traded Funds | (19,318,376 | ) | — | — | (19,318,376 | ) | |||||||||||||
Rights | — | — | 0 | 0 | |||||||||||||||
Written Options | (955,450 | ) | — | — | (955,450 | ) | |||||||||||||
Forward Foreign Currency Exchange Contracts | — | (2,038,141 | ) | — | (2,038,141 | ) | |||||||||||||
Equity Swaps | (119,842 | ) | — | — | (119,842 | ) | |||||||||||||
TOTAL | $ | (409,460,110 | ) | $ | 1,431,218 | $ | — | $ | (408,028,892 | ) |
* Refer to footnote 2 where leveling hierarchy is defined.
** Other financial instruments are instruments such as written options, securities sold short, equity swaps and forward foreign currency exchange contracts.
*** Refer to Portfolio of Investments for sector information.
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended November 30, 2017:
Investments in Securities | Balance as of May 31, 2017 | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales Proceeds | Transfers into Level 3 | Transfers out of Level 3 | Balance as of November 30, 2017 | Net change in Unrealized Appreciation (Depreciation) included in the Statement of Operations attributable to Level 3 investments held at November 30, 2017 | ||||||||||||||||||||||||||||||
Common Stocks | $ | 39,982,759 | $ | — | $ | 1,877,092 | $ | 12,119,479 | $ | — | $ | — | $ | — | $ | 53,979,330 | $ | 1,877,092 | |||||||||||||||||||||
Rights | 2,722,705 | — | 133,179 | — | — | — | — | 2,855,884 | 133,179 | ||||||||||||||||||||||||||||||
Total | $ | 42,705,464 | $ | — | $ | 2,010,271 | $ | 12,119,479 | $ | — | $ | — | $ | — | $ | 56,835,214 | $ | 2,010,271 | |||||||||||||||||||||
Other Financial Instruments | Balance as of May 31, 2017 | Realized Gain/(Loss) | Change in Unrealized Appreciation | Purchases | Sales Proceeds | Transfers into Level 3 | Transfers out of Level 3 | Balance as of November 30, 2017 | Net change in Unrealized Appreciation (Depreciation) included in the Statement of Operations attributable to Level 3 investments held at November 30, 2017 | ||||||||||||||||||||||||||||||
Rights | $ | 0 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0 | $ | — | |||||||||||||||||||||
Total | $ | 0 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0 | $ | — |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
14
The Arbitrage Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of November 30, 2017:
Investments in Securities | Fair Value at November 30, 2017 | Valuation Technique | Unobservable Input | Range of Values | Weighted Average | ||||||||||||||||||
Common Stocks | $ | 53,979,330 | Deal Value | Final determination on Dissent | $9.10-$39.0575 | $23.88 | |||||||||||||||||
Rights | $ | 2,855,884 | Discounted, probability adjusted value | Discount Rate, Probability | 10%, 0-100% | 83% | |||||||||||||||||
Rights (Short) | $ | — | Discounted, probability adjusted value | Discount Rate, Probability | 0 | 0% |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
15
The Arbitrage Event-Driven Fund Portfolio Information
November 30, 2017 (Unaudited)
Performance (annualized returns as of November 30, 2017)
One Year | Five Year | Since Inception* | |||||||||||||
Arbitrage Event-Driven Fund, Class R | 2.86 | % | 0.81 | % | 1.22 | % | |||||||||
Arbitrage Event-Driven Fund, Class I | 3.17 | % | 1.06 | % | 1.47 | % | |||||||||
Arbitrage Event-Driven Fund, Class C** | 2.12 | % | 0.07 | % | -0.05 | % | |||||||||
Arbitrage Event-Driven Fund, Class A*** | 2.97 | % | N/A | 0.19 | % | ||||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 3.21 | % | 1.98 | % | 2.87 | % | |||||||||
BofA Merrill Lynch U.S. 3-Month Treasury Bill Index | 0.79 | % | 0.25 | % | 0.21 | % |
Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance, and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Contractual fee waivers are currently in effect. Without such fee waivers, performance numbers would be reduced. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com.
* Class R and Class I inception: 10/1/10; Class C inception: 6/1/12; Class A inception: 6/1/13. Since Inception Returns for securities indices are for the inception date of Class R and Class I shares.
** Class C shares are subject to a 1.00% contingent deferred sales charge on all purchases redeemed in 12 months of purchase.
*** Class A shares are subject to a maximum front-end sales load of 3.25% on purchases up to $500,000. The shares are also subject to a deferred sales charge of up to 1.00% on purchases of $500,000 or more purchased without a front-end sales load and redeemed within 18 months of purchase.
The Total Annual Fund Operating Expenses for Class R, Class I, Class C and Class A are 2.60%, 2.35%, 3.35% and 2.60%, respectively. The Adviser has agreed to waive fees (not including the effects of interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, taxes, or other extraordinary expenses) in excess of 1.69%, 1.44%, 2.44% and 1.69% for Class R, Class I, Class C and Class A, respectively, until at least September 30, 2018. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.
The Bloomberg Barclays U.S. Aggregate Bond Index is a market value-weighted index of investment-grade fixed-rated debt issues, including government, corporate, asset-backed and mortgage-backed securities with a maturity of one year or more.
The Bank of America (BofA) Merrill Lynch U.S. 3-Month Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.
An investor may not invest directly in an index.
www.arbitragefunds.com | 1-800-295-4485
16
The Arbitrage Event-Driven Fund Portfolio Information (continued)
November 30, 2017 (Unaudited)
Growth of $10,000 Investment
The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Sector Weighting
The following chart shows the sector weightings of The Arbitrage Event-Driven Fund's investments as of the report date.
* Concentration Risk: The Fund may invest a large proportion of the Fund's assets in securities of issuers in a single sector over a given period of time. During such a period of concentration, the Fund may be subject to greater volatility with respect to its portfolio securities than a fund that is more broadly diversified.
Semi-Annual Report | November 30, 2017
17
The Arbitrage Event-Driven Fund Portfolio of Investments
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - 61.91% | |||||||||||
Agriculture - 0.66% | |||||||||||
Bunge Ltd.(a) | 14,215 | $ | 951,126 | ||||||||
Auto Parts & Equipment - 2.53% | |||||||||||
Delphi Automotive Plc(a) | 27,906 | 2,920,921 | |||||||||
Federal-Mogul Holdings LLC(b)(c)(d) | 73,488 | 734,880 | |||||||||
3,655,801 | |||||||||||
Beverages - 0.31% | |||||||||||
Refresco Group N.V.(e) | 19,222 | 453,004 | |||||||||
Biotechnology - 0.48% | |||||||||||
Paratek Pharmaceuticals, Inc.(a)(b) | 36,625 | 690,381 | |||||||||
Chemicals - 4.03% | |||||||||||
Akzo Nobel N.V. | 15,565 | 1,402,436 | |||||||||
Huntsman Corp.(a) | 38,444 | 1,228,670 | |||||||||
Monsanto Co.(a)(f) | 27,025 | 3,198,139 | |||||||||
5,829,245 | |||||||||||
Commercial Services - 0.48% | |||||||||||
Rent-A-Center, Inc.(a)(f) | 61,047 | 686,168 | |||||||||
Computers & Computer Services - 0.56% | |||||||||||
Conduent, Inc.(a)(b) | 52,895 | 807,178 | |||||||||
Diversified Financial Services - 5.59% | |||||||||||
CME Group, Inc.(a) | 2,334 | 349,027 | |||||||||
Fortress Investment Group LLC, Class A MLP(a) | 606,705 | 4,768,701 | |||||||||
Intercontinental Exchange, Inc. | 4,500 | 321,525 | |||||||||
Worldpay Group Plc(e) | 462,583 | 2,640,021 | |||||||||
8,079,274 | |||||||||||
Electric - 0.99% | |||||||||||
Calpine Corp.(a)(b) | 95,541 | 1,435,026 | |||||||||
Electrical Components & Equipment - 1.08% | |||||||||||
General Cable Corp.(a) | 72,265 | 1,553,697 | |||||||||
Food - 0.17% | |||||||||||
Loblaw Cos. Ltd. | 2,188 | 115,204 | |||||||||
North West Co., Inc. (The) | 5,106 | 129,535 | |||||||||
244,739 | |||||||||||
Healthcare - Products - 8.24% | |||||||||||
Advanced Accelerator Applications SA, ADR(a)(b) | 17,615 | 1,432,980 | |||||||||
CR Bard, Inc.(a) | 26,553 | 8,920,215 | |||||||||
NxStage Medical, Inc.(b) | 60,557 | 1,555,709 | |||||||||
11,908,904 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
18
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - 61.91% (Continued) | |||||||||||
Healthcare - Services - 3.47% | |||||||||||
Aetna, Inc.(a) | 12,466 | $ | 2,246,124 | ||||||||
Air Methods Corp.(b)(c)(d) | 158,779 | 1,706,874 | |||||||||
Envision Healthcare Corp.(b) | 33,302 | 1,063,333 | |||||||||
5,016,331 | |||||||||||
Home Builders - 1.06% | |||||||||||
CalAtlantic Group, Inc.(a) | 27,425 | 1,536,897 | |||||||||
Media - 15.50% | |||||||||||
Entercom Communications Corp., Class A | 75,684 | 877,934 | |||||||||
Scripps Networks Interactive, Inc., Class A | 69,146 | 5,658,909 | |||||||||
Sky Plc(b) | 42,333 | 536,157 | |||||||||
Starz, Class A(b)(c)(d) | 45,487 | 1,776,610 | |||||||||
Time Warner, Inc.(a)(f) | 89,134 | 8,156,652 | |||||||||
Tribune Media Co., Class A | 131,063 | 5,399,796 | |||||||||
22,406,058 | |||||||||||
Miscellaneous Manufacturing - 0.10% | |||||||||||
Donaldson Co., Inc. | 2,992 | 149,301 | |||||||||
Pharmaceuticals - 0.31% | |||||||||||
Bayer AG | 3,544 | 451,985 | |||||||||
Real Estate Investment Trusts - 1.70% | |||||||||||
JBG SMITH Properties(a) | 30,400 | 1,012,624 | |||||||||
Macerich Co. (The)(a) | 22,325 | 1,445,544 | |||||||||
2,458,168 | |||||||||||
Retail - 1.43% | |||||||||||
Dunkin' Brands Group, Inc.(a) | 1,521 | 90,804 | |||||||||
Jack in the Box, Inc.(f) | 16,110 | 1,667,546 | |||||||||
McDonald's Corp. | 524 | 90,112 | |||||||||
Papa John's International, Inc. | 1,049 | 61,324 | |||||||||
Restaurant Brands International, Inc. | 1,311 | 82,187 | |||||||||
Wendy's Co. (The) | 5,401 | 80,421 | |||||||||
2,072,394 | |||||||||||
Semiconductors - 9.12% | |||||||||||
NXP Semiconductors N.V.(a)(b)(f) | 108,990 | 12,358,376 | |||||||||
QUALCOMM, Inc. | 12,439 | 825,203 | |||||||||
13,183,579 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
19
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - 61.91% (Continued) | |||||||||||
Telecommunications - 4.10% | |||||||||||
Gigamon, Inc.(a)(b) | 34,717 | $ | 1,348,755 | ||||||||
Juniper Networks, Inc. | 26,665 | 740,220 | |||||||||
Straight Path Communications, Inc., Class B(a)(b) | 21,128 | 3,841,916 | |||||||||
5,930,891 | |||||||||||
TOTAL COMMON STOCKS (Cost $86,861,190) | 89,500,147 | ||||||||||
EXCHANGE-TRADED FUNDS - 1.07% | |||||||||||
Equity Funds - 1.07% | |||||||||||
Industrial Select Sector SPDR® Fund | 11,770 | 876,983 | |||||||||
Technology Select Sector SPDR® Fund | 10,419 | 665,149 | |||||||||
1,542,132 | |||||||||||
TOTAL EXCHANGE-TRADED FUNDS (Cost $1,435,068) | 1,542,132 | ||||||||||
RIGHTS - 0.28% | |||||||||||
Casa Ley CVR, Expires 01/30/2018(b)(c)(d) | 891,084 | 408,918 | |||||||||
Chelsea Therapeutics CVR, Expires 03/31/2018(b)(c)(d) | 434,520 | — | |||||||||
Cubist Pharmaceuticals, Inc. CPR, Expires 07/01/2019(b)(c)(d) | 34,500 | — | |||||||||
PDC CVR(b)(c)(d) | 891,084 | — | |||||||||
TOTAL RIGHTS (Cost $932,698) | 408,918 |
Maturity Date | Rate | Principal Amount | Value | ||||||||||||||||
CORPORATE BONDS - 12.48% | |||||||||||||||||||
Commercial Services - 0.94% | |||||||||||||||||||
Rent-A-Center, Inc. | 11/15/2020 | 6.625 | % | $ | 78,000 | $ | 73,710 | ||||||||||||
05/01/2021 | 4.750 | % | 1,373,000 | 1,283,755 | |||||||||||||||
1,357,465 | |||||||||||||||||||
Insurance - 0.56% | |||||||||||||||||||
Ambac Assurance Corp.(e) | 06/07/2020 | 5.100 | % | 627,260 | 807,597 | ||||||||||||||
Media - 1.08% | |||||||||||||||||||
Time, Inc.(e) | 04/15/2022 | 5.750 | % | 1,498,000 | 1,563,538 | ||||||||||||||
Pharmaceuticals - 0.49% | |||||||||||||||||||
Valeant Pharmaceuticals International, Inc.(e) | 10/15/2020 | 6.375 | % | 707,000 | 707,000 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
20
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Maturity Date | Rate | Principal Amount | Value | ||||||||||||||||
CORPORATE BONDS - 12.48% (Continued) | |||||||||||||||||||
Retail - 5.86% | |||||||||||||||||||
JC Penney Corp., Inc. | 06/01/2020 | 5.650 | % | $ | 2,253,000 | $ | 2,084,025 | ||||||||||||
Rite Aid Corp.(a) | 03/15/2020 | 9.250 | % | 3,892,000 | 3,960,110 | ||||||||||||||
Ruby Tuesday, Inc. | 05/15/2020 | 7.625 | % | 2,387,000 | 2,428,772 | ||||||||||||||
8,472,907 | |||||||||||||||||||
Telecommunications - 3.55% | |||||||||||||||||||
Avaya, Inc.(e)(g) | 04/01/2019 | 7.000 | % | 6,579,000 | 5,049,382 | ||||||||||||||
03/01/2021 | 10.500 | % | 1,583,000 | 91,023 | |||||||||||||||
5,140,405 | |||||||||||||||||||
TOTAL CORPORATE BONDS (Cost $18,477,804) | 18,048,912 |
Shares | Value | ||||||||||
MUTUAL FUNDS - 3.25% | |||||||||||
Altaba, Inc.(a)(b) | 67,138 | $ | 4,703,688 |
TOTAL MUTUAL FUNDS (Cost $3,510,633) | 4,703,688 |
Expiration Date | Exercise Price | Notional Amount | Contracts | Value | |||||||||||||||||||
PURCHASED OPTIONS(b) - 0.32% | |||||||||||||||||||||||
Call Options Purchased - 0.15% | |||||||||||||||||||||||
AT&T, Inc., Class A | 01/2018 | $ | 38.00 | $ | 1,800,810 | 495 | $ | 19,553 | |||||||||||||||
Discovery Communications, Inc., Class A: | |||||||||||||||||||||||
12/2017 | 22.50 | 195,264 | 108 | 540 | |||||||||||||||||||
12/2017 | 25.00 | 77,744 | 43 | 215 | |||||||||||||||||||
03/2018 | 17.50 | 522,512 | 289 | 61,412 | |||||||||||||||||||
NXP Semiconductors N.V. | 12/2017 | 110.00 | 22,678 | 2 | 780 | ||||||||||||||||||
Rent-A-Center, Inc.: | |||||||||||||||||||||||
12/2017 | 11.00 | 377,664 | 336 | 23,520 | |||||||||||||||||||
03/2018 | 12.50 | 1,141,984 | 1,016 | 109,220 | |||||||||||||||||||
TOTAL CALL OPTIONS PURCHASED (Cost $160,839) | 215,240 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
21
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Expiration Date | Exercise Price | Notional Amount | Contracts | Value | |||||||||||||||||||
PURCHASED OPTIONS(b) - 0.32% (Continued) | |||||||||||||||||||||||
Put Options Purchased - 0.17% | |||||||||||||||||||||||
Jack in the Box, Inc. | 01/2018 | $ | 95.00 | $ | 1,086,855 | 105 | $ | 13,913 | |||||||||||||||
Monsanto Co. | 01/2018 | 105.00 | 710,040 | 60 | 2,550 | ||||||||||||||||||
NXP Semiconductors N.V. | 01/2018 | 115.00 | 2,165,749 | 191 | 82,130 | ||||||||||||||||||
Orbital ATK, Inc. | 05/2018 | 110.00 | 158,328 | 12 | 120 | ||||||||||||||||||
Time Warner, Inc.: | |||||||||||||||||||||||
12/2017 | 85.00 | 9,151 | 1 | 13 | |||||||||||||||||||
02/2018 | 85.00 | 3,001,528 | 328 | 35,588 | |||||||||||||||||||
03/2018 | 85.00 | 5,252,674 | 574 | 112,504 | |||||||||||||||||||
United Technologies Corp. | 06/2018 | 110.00 | 72,870 | 6 | 1,401 | ||||||||||||||||||
TOTAL PUT OPTIONS PURCHASED (Cost $479,715) | 248,219 | ||||||||||||||||||||||
TOTAL PURCHASED OPTIONS (Cost $640,554) | 463,459 |
Yield | Shares | Value | |||||||||||||
SHORT-TERM INVESTMENTS - 13.60% | |||||||||||||||
Money Market Fund | |||||||||||||||
Morgan Stanley Institutional Liquidity Fund - Government Portfolio | 0.968 | %(h) | 19,653,897 | $ | 19,653,897 | ||||||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $19,653,897) | 19,653,897 | ||||||||||||||
Total Investments - 92.91% (Cost $131,511,844) | 134,321,153 | ||||||||||||||
Other Assets in Excess of Liabilities - 7.09%(i) | 10,245,342 | ||||||||||||||
NET ASSETS - 100.00% | $ | 144,566,495 |
Portfolio Footnotes
(a) Security, or a portion of security, is being held as collateral for short sales, swap contracts, written option contracts or forward foreign currency exchange contracts. At November 30, 2017, the aggregate market value of those securities was $53,554,574, representing 37.04% of net assets.
(b) Non-income-producing security.
(c) Security fair valued using methods determined in good faith by the Pricing Committee. As of November 30, 2017, the total market value of these securities was $4,627,282, representing 3.20% of net assets.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
22
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Portfolio Footnotes (continued)
(d) Security considered illiquid. On November 30, 2017, the total market value of these securities was $4,627,282, representing 3.20% of net assets.
(e) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of November 30, 2017, these securities had a total value of $11,311,565 or 7.82% of net assets.
(f) Underlying security for a written/purchased call/put option.
(g) Security in default on interest payments.
(h) Rate shown is the 7-day effective yield as of November 30, 2017.
(i) Includes cash which is being held as collateral for short sales and written option contracts.
Securities are determined to be illiquid under the procedures approved by the Funds' Board of Trustees. Information related to the Fund's illiquid securities as of November 30, 2017 is as follows:
Date of Purchase | Security | Cost | Value | % of Net Assets | |||||||||||||||
03/06/2017 | Air Methods Corp. | $ | 1,695,010 | $ | 1,706,874 | 1.18 | % | ||||||||||||
01/30/2015 | Casa Ley CVR | 904,361 | 408,918 | 0.28 | |||||||||||||||
06/24/2014 | Chelsea Therapeutics CVR | — | — | 0.00 | |||||||||||||||
12/12/2011 | Cubist Pharmaceuticals, Inc. CPR | — | — | 0.00 | |||||||||||||||
01/18/2017 | Federal-Mogul Holdings LLC | 736,294 | 734,880 | 0.51 | |||||||||||||||
01/30/2015 | PDC CVR | 28,337 | — | 0.00 | |||||||||||||||
11/29/2016 | Starz, Class A | 1,544,348 | 1,776,610 | 1.23 | |||||||||||||||
$ | 4,627,282 | 3.20 | % |
SCHEDULE OF SECURITIES SOLD SHORT | Shares | Value | |||||||||
COMMON STOCKS - (19.76%) | |||||||||||
Auto Parts & Equipment - (1.23%) | |||||||||||
American Axle & Manufacturing Holdings, Inc. | (16,520 | ) | $ | (296,534 | ) | ||||||
BorgWarner, Inc. | (6,697 | ) | (372,889 | ) | |||||||
Lear Corp. | (3,042 | ) | (550,267 | ) | |||||||
Magna International, Inc. | (9,879 | ) | (553,224 | ) | |||||||
(1,772,914 | ) | ||||||||||
Chemicals - (0.42%) | |||||||||||
Eastman Chemical Co. | (2,755 | ) | (254,479 | ) | |||||||
Olin Corp. | (7,020 | ) | (250,193 | ) | |||||||
Venator Materials Plc | (4,664 | ) | (102,608 | ) | |||||||
(607,280 | ) | ||||||||||
Commercial Services - (1.92%) | |||||||||||
Aaron's, Inc. | (1,020 | ) | (38,474 | ) | |||||||
MoneyGram International, Inc. | (28,840 | ) | (410,682 | ) | |||||||
Vantiv, Inc., Class A | (31,086 | ) | (2,331,450 | ) | |||||||
(2,780,606 | ) |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
23
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - (19.76%) (Continued) | |||||||||||
Computers & Computer Services - (0.82%) | |||||||||||
CGI Group, Inc., Class A | (4,771 | ) | $ | (251,861 | ) | ||||||
Convergys Corp. | (4,771 | ) | (117,748 | ) | |||||||
Genpact Ltd. | (8,481 | ) | (273,428 | ) | |||||||
Hewlett Packard Enterprise Co. | (13,573 | ) | (189,343 | ) | |||||||
Infosys Ltd., Sponsored ADR | (14,842 | ) | (230,942 | ) | |||||||
Sykes Enterprises, Inc. | (3,711 | ) | (118,084 | ) | |||||||
(1,181,406 | ) | ||||||||||
Diversified Financial Services - (0.62%) | |||||||||||
Cboe Global Markets, Inc. | (7,288 | ) | (899,558 | ) | |||||||
Electronics - (0.36%) | |||||||||||
TE Connectivity Ltd. | (5,442 | ) | (513,942 | ) | |||||||
Healthcare - Products - (2.12%) | |||||||||||
Becton Dickinson and Co. | (13,441 | ) | (3,067,371 | ) | |||||||
Home Builders - (1.07%) | |||||||||||
Lennar Corp., Class A | (24,250 | ) | (1,522,415 | ) | |||||||
Lennar Corp., Class B | (485 | ) | (24,890 | ) | |||||||
(1,547,305 | ) | ||||||||||
Internet - (2.39%) | |||||||||||
Alibaba Group Holding Ltd., Sponsored ADR | (19,470 | ) | (3,447,748 | ) | |||||||
Media - (1.74%) | |||||||||||
Discovery Communications, Inc., Class C | (70,969 | ) | (1,283,120 | ) | |||||||
Nexstar Media Group, Inc., Class A | (1,073 | ) | (72,857 | ) | |||||||
Sinclair Broadcast Group, Inc., Class A | (32,277 | ) | (1,099,032 | ) | |||||||
Sirius XM Holdings, Inc. | (11,225 | ) | (61,737 | ) | |||||||
(2,516,746 | ) | ||||||||||
Miscellaneous Manufacturing - (0.74%) | |||||||||||
Parker-Hannifin Corp. | (5,700 | ) | (1,068,693 | ) | |||||||
Pharmaceuticals - (0.70%) | |||||||||||
Akorn, Inc. | (22,387 | ) | (728,697 | ) | |||||||
Merck KGaA | (2,659 | ) | (283,034 | ) | |||||||
(1,011,731 | ) | ||||||||||
Real Estate Investment Trusts - (0.39%) | |||||||||||
Washington Real Estate Investment Trust | (17,571 | ) | (567,895 | ) | |||||||
Retail - (2.45%) | |||||||||||
CVS Health Corp. | (12,466 | ) | (954,896 | ) | |||||||
McDonald's Corp. | (2,787 | ) | (479,280 | ) | |||||||
Sonic Corp. | (14,499 | ) | (370,014 | ) | |||||||
Wendy's Co. (The) | (25,003 | ) | (372,295 | ) | |||||||
Yum! Brands, Inc. | (16,398 | ) | (1,368,741 | ) | |||||||
(3,545,226 | ) |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
24
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - (19.76%) (Continued) | |||||||||||
Semiconductors - (0.24%) | |||||||||||
Broadcom Ltd. | (239 | ) | $ | (66,428 | ) | ||||||
Xcerra Corp. | (28,719 | ) | (284,605 | ) | |||||||
(351,033 | ) | ||||||||||
Telecommunications - (2.55%) | |||||||||||
AT&T, Inc. | (49,202 | ) | (1,789,969 | ) | |||||||
Cisco Systems, Inc. | (5,679 | ) | (211,827 | ) | |||||||
IDT Corp., Class B | (26,622 | ) | (416,102 | ) | |||||||
LogMeIn, Inc. | (7,681 | ) | (914,039 | ) | |||||||
Nokia Oyj, ADR | (29,865 | ) | (149,623 | ) | |||||||
Telefonaktiebolaget LM Ericsson, Sponsored ADR | (31,865 | ) | (199,156 | ) | |||||||
(3,680,716 | ) | ||||||||||
TOTAL COMMON STOCKS (Proceeds $26,533,856) | (28,560,170 | ) | |||||||||
EXCHANGE-TRADED FUNDS - (3.11%) | |||||||||||
Equity Funds - (3.11%) | |||||||||||
iShares® Russell 2000 Value ETF | (2,308 | ) | (294,916 | ) | |||||||
Materials Select Sector SPDR® Fund | (4,227 | ) | (251,760 | ) | |||||||
VanEck Vectors Semiconductor ETF | (19,260 | ) | (1,930,815 | ) | |||||||
Vanguard REIT ETF | (23,881 | ) | (2,015,318 | ) | |||||||
(4,492,809 | ) | ||||||||||
TOTAL EXCHANGE-TRADED FUNDS (Proceeds $4,299,195) | (4,492,809 | ) | |||||||||
RIGHTS - 0.00% | |||||||||||
Chelsea Therapeutics CVR, Expires 03/31/2018(a) | (200 | ) | — | ||||||||
TOTAL RIGHTS (Proceeds $0) | — |
Maturity Date | Rate | Principal Amount | Value | ||||||||||||||||
CORPORATE BONDS - (0.64%) | |||||||||||||||||||
Retail - (0.64%) | |||||||||||||||||||
L Brands, Inc. | 02/15/2022 | 5.625 | % | $ | (840,000 | ) | $ | (904,428 | ) | ||||||||||
L Brands, Inc. | 10/15/2023 | 5.625 | % | (23,000 | ) | (24,754 | ) | ||||||||||||
(929,182 | ) | ||||||||||||||||||
TOTAL CORPORATE BONDS (Proceeds $923,634) | (929,182 | ) | |||||||||||||||||
TOTAL SECURITIES SOLD SHORT (Proceeds $31,756,685) | $ | (33,982,161 | ) |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
25
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Portfolio Footnotes
(a) Security fair valued using methods determined in good faith by the Pricing Committee. As of November 30, 2017, the total market value of these securities was $0, representing 0.00% of net assets.
WRITTEN OPTIONS | Expiration Date | Exercise Price | Notional Amount | Contracts | Value | ||||||||||||||||||
Written Call Options | |||||||||||||||||||||||
Jack in the Box, Inc. | 12/2017 | $ | 110.00 | $ | (1,076,504 | ) | (104 | ) | $ | (5,460 | ) | ||||||||||||
Monsanto Co. | 01/2018 | 115.00 | (165,676 | ) | (14 | ) | (5,740 | ) | |||||||||||||||
NXP Semiconductors N.V.: | |||||||||||||||||||||||
12/2017 | 110.00 | (578,289 | ) | (51 | ) | (19,890 | ) | ||||||||||||||||
01/2018 | 120.00 | (1,927,630 | ) | (170 | ) | (15,300 | ) | ||||||||||||||||
Rent-A-Center, Inc. | 03/2018 | 14.00 | (450,724 | ) | (401 | ) | (22,055 | ) | |||||||||||||||
Time Warner, Inc.: | |||||||||||||||||||||||
12/2017 | 90.00 | (155,567 | ) | (17 | ) | (3,502 | ) | ||||||||||||||||
12/2017 | 90.50 | (420,946 | ) | (46 | ) | (9,269 | ) | ||||||||||||||||
TOTAL WRITTEN CALL OPTIONS (Premiums received $113,457) | (81,216 | ) | |||||||||||||||||||||
Written Put Options | |||||||||||||||||||||||
AT&T, Inc.: | 12/2017 | 34.50 | (629,374 | ) | (173 | ) | (1,730 | ) | |||||||||||||||
12/2017 | 35.00 | (454,750 | ) | (125 | ) | (2,062 | ) | ||||||||||||||||
Jack in the Box, Inc. | 12/2017 | 95.00 | (2,163,359 | ) | (209 | ) | (9,405 | ) | |||||||||||||||
Time Warner, Inc.: | |||||||||||||||||||||||
12/2017 | 85.00 | (9,151 | ) | (1 | ) | (13 | ) | ||||||||||||||||
01/2018 | 75.00 | (1,519,066 | ) | (166 | ) | (2,490 | ) | ||||||||||||||||
01/2018 | 80.00 | (2,699,545 | ) | (295 | ) | (4,278 | ) | ||||||||||||||||
01/2018 | 82.50 | (631,419 | ) | (69 | ) | (1,138 | ) | ||||||||||||||||
01/2018 | 85.00 | (1,281,140 | ) | (140 | ) | (4,690 | ) | ||||||||||||||||
02/2018 | 80.00 | (237,926 | ) | (26 | ) | (1,066 | ) | ||||||||||||||||
02/2018 | 82.50 | (613,117 | ) | (67 | ) | (3,518 | ) | ||||||||||||||||
United Technologies Corp. | 06/2018 | 110.00 | (72,870 | ) | (6 | ) | (1,401 | ) | |||||||||||||||
TOTAL WRITTEN PUT OPTIONS (Premiums received $118,268) | (31,791 | ) | |||||||||||||||||||||
TOTAL WRITTEN OPTIONS (Premiums received $231,725) | $ | (113,007 | ) |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
26
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
EQUITY SWAP CONTRACTS | |||||||||||||||||||||||||||||||||||
Swap Counterparty | Reference Obligation | Rate Paid/ Received by the Fund | Termination Date | Upfront Payments Paid | Upfront Payments Received | Market Value | Notional Amount | Unrealized Appreciation | |||||||||||||||||||||||||||
Goldman Sachs & Co. | Sky Plc | Paid 1 Month- LIBOR plus 45 bps | 11/14/2018 | $ | — | $ | — | $ | 460 | $ | (625,579 | ) | $ | 460 | |||||||||||||||||||||
Swap Counterparty | Reference Obligation | Rate Paid/ Received by the Fund | Termination Date | Upfront Payments Paid | Upfront Payments Received | Market Value | Notional Amount | Unrealized Depreciation | |||||||||||||||||||||||||||
Morgan Stanley & Co. | Sky Plc | Paid 1 Month- LIBOR plus 50 bps | 11/20/2018 | $ | — | $ | — | $ | (6,836 | ) | $ | (733,305 | ) | $ | (6,836 | ) |
OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation | |||||||||||||||
USD | 514,003 | CAD | 663,000 | Goldman Sachs | 12/15/2017 | $ | 7,283 | ||||||||||||
CHF | 736,700 | USD | 749,501 | Goldman Sachs | 12/15/2017 | 9,397 | |||||||||||||
USD | 1,150,958 | CHF | 1,131,300 | Goldman Sachs | 12/15/2017 | 35,190 | |||||||||||||
EUR | 2,745,400 | USD | 3,269,906 | Goldman Sachs | 12/15/2017 | 28,058 | |||||||||||||
USD | 2,486,554 | EUR | 2,087,700 | Goldman Sachs | 12/15/2017 | 21,811 | |||||||||||||
USD | 3,746 | GBP | 2,769 | Goldman Sachs | 12/15/2017 | 3 | |||||||||||||
$ | 101,742 | ||||||||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Depreciation | |||||||||||||||
CAD | 347,400 | USD | 269,330 | Goldman Sachs | 12/15/2017 | $ | (8,669 | ) | |||||||||||
CHF | 438,400 | USD | 446,016 | Goldman Sachs | 12/15/2017 | (7,799 | ) | ||||||||||||
USD | 44,562 | CHF | 43,800 | Goldman Sachs | 12/15/2017 | (330 | ) | ||||||||||||
USD | 2,041,957 | EUR | 1,704,600 | Goldman Sachs | 03/15/2018 | (7,807 | ) | ||||||||||||
USD | 783,351 | EUR | 657,700 | Goldman Sachs | 12/15/2017 | (7,296 | ) | ||||||||||||
USD | 987,454 | GBP | 729,881 | Goldman Sachs | 12/15/2017 | (16,314 | ) | ||||||||||||
$ | (48,215 | ) |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
27
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
The following is a summary of investments classified by country exposure:
Country | % of Net Assets(a) | ||||||
Netherlands | 9.83 | % | |||||
United Kingdom | 4.22 | % | |||||
France | 0.99 | % | |||||
Germany | 0.31 | % | |||||
Canada | 0.23 | % | |||||
United States | 77.33 | % | |||||
Other Assets in Excess of Liabilities | 7.09 | % | |||||
100.00 | % |
(a) These percentages represent long positions only and are not net of short positions.
Abbreviations:
ADR - American Depositary Receipt
AG - Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders.
bps - Basis Points. 100 Basis Points is equal to 1 percentage point.
CAD - Canadian dollar
CHF - Swiss franc
CPR - Conditional Prepayment Rate
CVR - Contingent Value Rights
ETF - Exchange-Traded Fund
EUR - Euro
GBP - British pound
KGaA - Kommanditgesellschaft Auf Aktien is a German corporate designation that refers to a limited partnership.
LIBOR - London Interbank Offered Rate
LLC - Limited Liability Company
Ltd. - Limited
MLP - Master Limited Partnership
N.V. - Naamloze Vennootschap is the Dutch term for a public limited liability corporation.
Oyj - Osakeyhtio is the Finnish equivalent of a public limited company
Plc - Public Limited Company
REIT - Real Estate Investment Trust
SA - Generally designates corporations in various countries, mostly those employing civil law. This translates literally in all languages mentioned as anonymous company.
SPDR - Standard & Poor's Depositary Receipt
USD - United States Dollar
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
28
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
The following table summarizes The Arbitrage Event-Driven Fund's investments and derivative financial instruments categorized in the fair value disclosure hierarchy as of November 30, 2017:
Investments in Securities at Value* | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Assets | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Agriculture | $ | 951,126 | $ | — | $ | — | $ | 951,126 | |||||||||||
Auto Parts & Equipment | 2,920,921 | — | 734,880 | 3,655,801 | |||||||||||||||
Beverages | 453,004 | — | — | 453,004 | |||||||||||||||
Biotechnology | 690,381 | — | — | 690,381 | |||||||||||||||
Chemicals | 5,829,245 | — | — | 5,829,245 | |||||||||||||||
Commercial Services | 686,168 | — | — | 686,168 | |||||||||||||||
Computers & Computer Services | 807,178 | — | — | 807,178 | |||||||||||||||
Diversified Financial Services | 8,079,274 | — | — | 8,079,274 | |||||||||||||||
Electric | 1,435,026 | — | — | 1,435,026 | |||||||||||||||
Electrical Components & Equipment | 1,553,697 | — | — | 1,553,697 | |||||||||||||||
Food | 244,739 | — | — | 244,739 | |||||||||||||||
Healthcare - Products | 11,908,904 | — | — | 11,908,904 | |||||||||||||||
Healthcare - Services | 3,309,457 | — | 1,706,874 | 5,016,331 | |||||||||||||||
Home Builders | 1,536,897 | — | — | 1,536,897 | |||||||||||||||
Media | 20,629,448 | — | 1,776,610 | 22,406,058 | |||||||||||||||
Miscellaneous Manufacturing | 149,301 | — | — | 149,301 | |||||||||||||||
Pharmaceuticals | 451,985 | — | — | 451,985 | |||||||||||||||
Real Estate Investment Trusts | 2,458,168 | — | — | 2,458,168 | |||||||||||||||
Retail | 2,072,394 | — | — | 2,072,394 | |||||||||||||||
Semiconductors | 13,183,579 | — | — | 13,183,579 | |||||||||||||||
Telecommunications | 5,930,891 | — | — | 5,930,891 | |||||||||||||||
Exchange-Traded Funds | 1,542,132 | — | — | 1,542,132 | |||||||||||||||
Rights | — | — | 408,918 | 408,918 | |||||||||||||||
Corporate Bonds** | — | 18,048,912 | — | 18,048,912 | |||||||||||||||
Mutual Funds | 4,703,688 | — | — | 4,703,688 | |||||||||||||||
Purchased Options | 463,459 | — | — | 463,459 | |||||||||||||||
Short-Term Investments | 19,653,897 | — | — | 19,653,897 | |||||||||||||||
TOTAL | $ | 111,644,959 | $ | 18,048,912 | $ | 4,627,282 | $ | 134,321,153 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
29
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Other Financial Instruments*** | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Assets | |||||||||||||||||||
Forward Foreign Currency Exchange Contracts | $ | — | $ | 101,742 | $ | — | $ | 101,742 | |||||||||||
Equity Swaps | 460 | — | — | 460 | |||||||||||||||
Liabilities | |||||||||||||||||||
Common Stocks** | (28,560,170 | ) | — | — | (28,560,170 | ) | |||||||||||||
Exchange-Traded Funds | (4,492,809 | ) | — | — | (4,492,809 | ) | |||||||||||||
Corporate Bonds** | — | (929,182 | ) | — | (929,182 | ) | |||||||||||||
Rights | — | — | 0 | 0 | |||||||||||||||
Written Options | (113,007 | ) | — | — | (113,007 | ) | |||||||||||||
Forward Foreign Currency Exchange Contracts | — | (48,215 | ) | — | (48,215 | ) | |||||||||||||
Equity Swaps | (6,836 | ) | — | — | (6,836 | ) | |||||||||||||
TOTAL | $ | (33,172,362 | ) | $ | (875,655 | ) | $ | — | $ | (34,048,017 | ) |
* Refer to footnote 2 where leveling hierarchy is defined.
** Refer to Portfolio of Investments for sector information.
*** Other financial instruments are instruments such as written options, securities sold short, equity swaps and forward foreign currency exchange contracts.
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended November 30, 2017:
Investments in Securities | Balance as of May 31, 2017 | Change in Unrealized Appreciation (Depreciation) | Purchases | Sales Proceeds | Transfers into Level 3 | Transfers out of Level 3 | Balance as of November 30, 2017 | Net change in Unrealized Appreciation (Depreciation) included in the Statement of Operations attributable to Level 3 investments held at November 30, 2017 | |||||||||||||||||||||||||||
Common Stock | $ | 4,040,927 | $ | 177,437 | $ | — | $ | — | $ | — | $ | — | $ | 4,218,364 | $ | 177,437 | |||||||||||||||||||
Rights | 389,849 | 19,069 | $ | — | — | — | — | 408,918 | 19,069 | ||||||||||||||||||||||||||
Total | $ | 4,430,776 | $ | 196,506 | $ | — | $ | — | $ | — | $ | — | $ | 4,627,282 | $ | 196,506 | |||||||||||||||||||
Other Financial Instruments | Balance as of May 31, 2017 | Change in Unrealized Appreciation | Purchases | Sales Proceeds | Transfers into Level 3 | Transfers out of Level 3 | Balance as of November 30, 2017 | Net change in Unrealized Appreciation included in the Statement of Operations attributable to Level 3 investments held at November 30, 2017 | |||||||||||||||||||||||||||
Rights | $ | 0 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0 | $ | — | |||||||||||||||||||
Total | $ | 0 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0 | $ | — |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
30
The Arbitrage Event-Driven Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of November 30, 2017:
Investments in | Fair Value at | Valuation | Unobservable | Range of | Weighted | ||||||||||||||||||
Common Stocks | $ | 4,218,364 | Deal Value | Final | $10.00-$39.0575 | $22.54 | |||||||||||||||||
Rights | $ | 408,918 | Discounted, | Discount Rate, | 10%, 0-83% | 83% | |||||||||||||||||
Rights (Short) | $ | — | Discounted, | Discount Rate, | 0 | 0% |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
31
The Arbitrage Credit Opportunities Fund Portfolio Information
November 30, 2017 (Unaudited)
Performance (annualized returns as of November 30, 2017)
One Year | Five Year | Since Inception* | |||||||||||||
Arbitrage Credit Opportunities Fund, Class R | 0.96 | % | 2.05 | % | 2.00 | % | |||||||||
Arbitrage Credit Opportunities Fund, Class I | 1.27 | % | 2.28 | % | 2.23 | % | |||||||||
Arbitrage Credit Opportunities Fund, Class C** | 0.20 | % | 1.29 | % | 1.27 | % | |||||||||
Arbitrage Credit Opportunities Fund, Class A*** | 0.96 | % | — | % | 1.75 | % | |||||||||
Bloomberg Barclays U.S. Aggregate Bond Index | 3.21 | % | 1.98 | % | 1.98 | % | |||||||||
BofA Merrill Lynch U.S. 3-Month Treasury Bill Index | 0.79 | % | 0.25 | % | 0.25 | % |
Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Contractual fee waivers are currently in effect. Without such fee waivers, performance numbers would be reduced. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com.
* Class R, Class I and Class C inception: 10/1/12; Class A inception: 6/1/13. The Since Inception Returns for securities indices are for the inception date of Class R, Class I and Class C shares.
** Class C shares are subject to a 1.00% contingent deferred sales charge on all purchases redeemed in 12 months of purchase.
*** Class A shares are subject to a maximum front-end sales load of 3.25% on purchases up to $500,000. The shares are also subject to a deferred sales charge of up to 1.00% on purchases of $500,000 or more purchased without a front-end sales load and redeemed within 18 months of purchase.
The Total Annual Fund Operating Expenses for Class R, Class I, Class C and Class A are 1.99%, 1.74%, 2.74% and 1.99%, respectively. The Adviser has agreed to waive fees (not including the effects of interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, taxes, or other extraordinary expenses) in excess of 1.50%, 1.25%, 2.25% and 1.50% for Class R, Class I, Class C and Class A, respectively, until at least September 30, 2018. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.
The Bloomberg Barclays U.S. Aggregate Bond Index is a market value-weighted index of investment grade fixed-rated debt issues, including government, corporate, asset-backed and mortgage-backed securities with a maturity of one year or more.
The Bank of America (BofA) Merrill Lynch U.S. 3-Month Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.
An investor may not invest directly in an index.
www.arbitragefunds.com | 1-800-295-4485
32
The Arbitrage Credit Opportunities Fund Portfolio Information (continued)
November 30, 2017 (Unaudited)
Growth of $10,000 Investment
The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Sector Weighting
The following chart shows the sector weightings of The Arbitrage Credit Opportunities Fund's investments as of the report date.
* Concentration Risk: The Fund may invest a large proportion of the Fund's assets in securities of issuers in a single sector over a given period of time. During such a period of concentration, the Fund may be subject to greater volatility with respect to its portfolio securities than a fund that is more broadly diversified.
Semi-Annual Report | November 30, 2017
33
The Arbitrage Credit Opportunities Fund Portfolio of Investments
November 30, 2017 (Unaudited)
Maturity Date | Rate | Principal Amount | Value | ||||||||||||||||
CORPORATE BONDS - 60.01% | |||||||||||||||||||
Coal - 0.00% | |||||||||||||||||||
Peabody Energy Corp.(a)(b)(c) | 03/15/2022 | 10.000 | % | $ | 750,000 | $ | 0 | ||||||||||||
Commercial Services - 2.00% | |||||||||||||||||||
Rent-A-Center, Inc.(d) | 11/15/2020 | 6.625 | % | 350,000 | 330,750 | ||||||||||||||
Rent-A-Center, Inc. | 05/01/2021 | 4.750 | % | 785,000 | 733,975 | ||||||||||||||
1,064,725 | |||||||||||||||||||
Electric - 0.97% | |||||||||||||||||||
NRG Energy, Inc. | 03/15/2023 | 6.625 | % | 500,000 | 518,550 | ||||||||||||||
Energy - Alternate Sources - 5.93% | |||||||||||||||||||
TerraForm Power Operating LLC(e)(f) | 02/01/2023 | 6.375 | % | 3,000,000 | 3,162,000 | ||||||||||||||
Healthcare - Services - 1.93% | |||||||||||||||||||
Tenet Healthcare Corp.(d)(f) | 01/01/2022 | 7.500 | % | 977,000 | 1,030,735 | ||||||||||||||
Insurance - 0.87% | |||||||||||||||||||
Ambac Assurance Corp.(f) | 06/07/2020 | 5.100 | % | 362,004 | 466,081 | ||||||||||||||
Media - 10.63% | |||||||||||||||||||
Cablevision Systems Corp. | 04/15/2018 | 7.750 | % | 5,000,000 | 5,087,500 | ||||||||||||||
Time, Inc.(f) | 04/15/2022 | 5.750 | % | 558,000 | 582,412 | ||||||||||||||
5,669,912 | |||||||||||||||||||
Pharmaceuticals - 7.92% | |||||||||||||||||||
Valeant Pharmaceuticals International, Inc.(f) | 03/15/2020 | 5.375 | % | 3,000,000 | 2,970,000 | ||||||||||||||
Valeant Pharmaceuticals International, Inc.(d)(f) | |||||||||||||||||||
10/15/2020 | 6.375 | % | 623,000 | 623,000 | |||||||||||||||
07/15/2021 | 7.500 | % | 635,000 | 628,650 | |||||||||||||||
4,221,650 | |||||||||||||||||||
Retail - 19.66% | |||||||||||||||||||
JC Penney Corp., Inc.(d) | |||||||||||||||||||
10/01/2019 | 8.125 | % | 1,231,000 | 1,246,387 | |||||||||||||||
06/01/2020 | 5.650 | % | 1,149,000 | 1,062,825 | |||||||||||||||
Neiman Marcus Group Ltd. LLC(f) | 10/15/2021 | 8.000 | % | 1,674,000 | 954,180 | ||||||||||||||
Rite Aid Corp.(d) | 03/15/2020 | 9.250 | % | 4,449,000 | 4,526,857 | ||||||||||||||
Rite Aid Corp.(d)(f) | 04/01/2023 | 6.125 | % | 1,930,000 | 1,785,250 | ||||||||||||||
Ruby Tuesday, Inc.(d) | 05/15/2020 | 7.625 | % | 893,000 | 908,628 | ||||||||||||||
10,484,127 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
34
The Arbitrage Credit Opportunities Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Maturity Date | Rate | Principal Amount | Value | ||||||||||||||||
CORPORATE BONDS - 60.01% (Continued) | |||||||||||||||||||
Semiconductors - 4.51% | |||||||||||||||||||
QUALCOMM, Inc. | 05/20/2027 | 3.250 | % | $ | 2,500,000 | $ | 2,403,537 | ||||||||||||
Telecommunications - 5.59% | |||||||||||||||||||
Avaya, Inc.(a)(f) | |||||||||||||||||||
04/01/2019 | 7.000 | % | 3,809,000 | 2,923,408 | |||||||||||||||
03/01/2021 | 10.500 | % | 986,000 | 56,695 | |||||||||||||||
2,980,103 | |||||||||||||||||||
TOTAL CORPORATE BONDS (Cost $32,742,706) | 32,001,420 | ||||||||||||||||||
CONVERTIBLE CORPORATE BONDS - 16.76% | |||||||||||||||||||
Computers & Computer Services - 2.85% | |||||||||||||||||||
Brocade Communications Systems, Inc.(d) | 01/01/2020 | 1.375 | % | 1,500,000 | 1,522,500 | ||||||||||||||
Electrical Components & Equipment - 0.89% | |||||||||||||||||||
General Cable Corp.(e) | 11/15/2029 | 4.500 | % | 493,000 | 476,669 | ||||||||||||||
Pharmaceuticals - 7.34% | |||||||||||||||||||
Impax Laboratories, Inc. | 06/15/2022 | 2.000 | % | 4,000,000 | 3,912,500 | ||||||||||||||
Semiconductors - 5.68% | |||||||||||||||||||
NXP Semiconductors N.V.(d) | 12/01/2019 | 1.000 | % | 2,500,000 | 3,028,125 | ||||||||||||||
TOTAL CONVERTIBLE CORPORATE BONDS (Cost $8,663,756) | 8,939,794 |
Yield | Shares | Value | |||||||||||||
SHORT-TERM INVESTMENTS - 46.57% | |||||||||||||||
Money Market Fund | |||||||||||||||
Morgan Stanley Institutional Liquidity Fund - Government Portfolio | 0.979 | %(g) | 24,836,630 | $ | 24,836,630 | ||||||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $24,836,630) | 24,836,630 | ||||||||||||||
Total Investments - 123.34% (Cost $66,243,092) | 65,777,844 | ||||||||||||||
Liabilities in Excess of Other Assets - (23.34)%(h) | (12,447,119 | ) | |||||||||||||
NET ASSETS - 100.00% | $ | 53,330,725 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
35
The Arbitrage Credit Opportunities Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Portfolio Footnotes
(a) Security in default on interest payments.
(b) Security fair valued using methods determined in good faith by the Pricing Committee. As of November 30, 2017, the total market value of these securities was $0, representing 0.0% of net assets.
(c) Security considered illiquid. On November 30, 2017, the total market value of these securities was $0, representing 0.0% of net assets.
(d) Security, or a portion of security, is being held as collateral for short sales or forward foreign currency exchange contracts. At November 30, 2017, the aggregate market value of those securities was $11,522,910, representing 21.61% of net assets.
(e) Interest rate will change at a future date. Interest rate shown reflects the rate in effect at November 30, 2017.
(f) Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of November 30, 2017, these securities had a total value of $15,182,411 or 28.47% of net assets.
(g) Rate shown is the 7-day effective yield as of November 30, 2017.
(h) Includes cash which is being held as collateral for short sales and written option contracts.
Securities are determined to be illiquid under the procedures approved by the Funds' Board of Trustees. Information related to the Fund's illiquid securities as of November 30, 2017 is as follows:
Date of Purchase | Security | Cost | Value | % of Net Assets | |||||||||||||||
04/05/2017 | Peabody Energy Corp. | $ | — | $ | — | 0.00 | % |
SCHEDULE OF SECURITIES SOLD SHORT | Shares | Value | |||||||||
EXCHANGE-TRADED FUNDS - (3.46%) | |||||||||||
Debt Fund - (3.46%) | |||||||||||
SPDR Bloomberg Barclays High Yield Bond ETF | (50,000 | ) | $ | (1,847,000 | ) |
TOTAL EXCHANGE-TRADED FUNDS (Proceeds $1,858,259) | (1,847,000 | ) | |||||||||||||||||
Maturity Date | Rate | Principal Amount | Value | ||||||||||||||||
CORPORATE BONDS - (11.35%) | |||||||||||||||||||
Food - (1.79%) | |||||||||||||||||||
Albertsons Companies LLC/ Safeway, Inc./ New Albertson's, Inc./ Albertson's LLC | 06/15/2024 | 6.625 | % | $ | (1,000,000 | ) | $ | (955,000 | ) | ||||||||||
Healthcare Services - (3.46%) | |||||||||||||||||||
SP Finco LLC | 07/01/2025 | 6.750 | % | (1,000,000 | ) | (910,000 | ) | ||||||||||||
Tenet Healthcare Corp. | 06/15/2023 | 6.750 | % | (1,000,000 | ) | (935,000 | ) | ||||||||||||
(1,845,000 | ) |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
36
The Arbitrage Credit Opportunities Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Maturity Date | Rate | Principal Amount | Value | ||||||||||||||||
CORPORATE BONDS - (11.35%) (Continued) | |||||||||||||||||||
Retail - (6.10%) | |||||||||||||||||||
L Brands, Inc. | 10/15/2023 | 5.625 | % | $ | (1,000,000 | ) | $ | (1,076,250 | ) | ||||||||||
L Brands, Inc. | 02/15/2022 | 5.625 | % | (689,000 | ) | (741,846 | ) | ||||||||||||
Nordstrom, Inc. | 10/15/2021 | 4.000 | % | (1,082,000 | ) | (1,115,898 | ) | ||||||||||||
Tapestry, Inc. | 04/01/2025 | 4.250 | % | (309,000 | ) | (316,540 | ) | ||||||||||||
(3,250,534 | ) | ||||||||||||||||||
TOTAL CORPORATE BONDS (Proceeds $6,150,294) | (6,050,534 | ) | |||||||||||||||||
TOTAL SECURITIES SOLD SHORT (Proceeds $8,008,553) | $ | (7,897,534 | ) |
OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation | |||||||||||||||||||
USD | 1,524,260 | CAD | 1,966,100 | Goldman Sachs | 12/15/2017 | $ | 45,421 | ||||||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Depreciation | |||||||||||||||||||
CAD | 1,966,100 | USD | 1,524,260 | Goldman Sachs | 12/15/2017 | $ | (20,642 | ) |
The following is a summary of investments classified by country exposure:
Country | % of Net Assets(a) | ||||||
Netherlands | 5.68 | % | |||||
United States | 117.66 | % | |||||
Liabilities in Excess of Other Assets | (23.34 | )% | |||||
100.00 | % |
(a) These percentages represent long positions only and are not net of short positions.
Abbreviations:
CAD - Canadian dollar
ETF - Exchange-Traded Fund
LLC - Limited Liability Company
Ltd. - Limited
N.V. - Naamloze Vennootschap is the Dutch term for a public limited liability corporation.
SPDR - Standard & Poor's Depositary Receipt
USD - United States Dollar
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
37
The Arbitrage Credit Opportunities Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
The following table summarizes The Arbitrage Credit Opportunities Fund's investments and derivative financial instruments categorized in the fair value disclosure hierarchy as of November 30, 2017:
Investments in Securities at Value* | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Assets | |||||||||||||||||||
Corporate Bonds | |||||||||||||||||||
Coal | $ | — | $ | — | $ | 0 | $ | 0 | |||||||||||
Commercial Services | — | 1,064,725 | — | 1,064,725 | |||||||||||||||
Electric | — | 518,550 | — | 518,550 | |||||||||||||||
Energy - Alternate Sources | — | 3,162,000 | — | 3,162,000 | |||||||||||||||
Healthcare - Services | — | 1,030,735 | — | 1,030,735 | |||||||||||||||
Insurance | — | 466,081 | — | 466,081 | |||||||||||||||
Media | — | 5,669,912 | — | 5,669,912 | |||||||||||||||
Pharmaceuticals | — | 4,221,650 | — | 4,221,650 | |||||||||||||||
Retail | — | 10,484,127 | — | 10,484,127 | |||||||||||||||
Semiconductors | — | 2,403,537 | — | 2,403,537 | |||||||||||||||
Telecommunications | — | 2,980,103 | — | 2,980,103 | |||||||||||||||
Convertible Corporate Bonds** | — | 8,939,794 | — | 8,939,794 | |||||||||||||||
Short-Term Investments | 24,836,630 | — | — | 24,836,630 | |||||||||||||||
TOTAL | $ | 24,836,630 | $ | 40,941,214 | $ | — | $ | 65,777,844 | |||||||||||
Other Financial Instruments*** | |||||||||||||||||||
Assets | |||||||||||||||||||
Forward Foreign Currency Exchange Contracts | $ | — | $ | 45,421 | $ | — | $ | 45,421 | |||||||||||
Liabilities | |||||||||||||||||||
Exchange-Traded Funds** | (1,847,000 | ) | — | — | (1,847,000 | ) | |||||||||||||
Corporate Bonds** | — | (6,050,534 | ) | — | (6,050,534 | ) | |||||||||||||
Forward Foreign Currency Exchange Contracts | — | (20,642 | ) | — | (20,642 | ) | |||||||||||||
TOTAL | $ | (1,847,000 | ) | $ | (6,025,755 | ) | $ | — | $ | (7,872,755 | ) |
* Refer to footnote 2 where leveling hierarchy is defined.
** Refer to Portfolio of Investments for sector information.
*** Other financial instruments are instruments such as written options, securities sold short, equity swaps and forward foreign currency exchange contracts.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
38
The Arbitrage Credit Opportunities Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended November 30th, 2017:
Investments in Securities | Balance as of May 31, 2017 | Change in Unrealized Depreciation | Purchases | Sales Proceeds | Amortization Premium/ Discount | Transfers into Level 3 | Transfers out of Level 3 | Balance as of November 30, 2017 | Net change in Unrealized Depreciation included in the Statement of Operations attributable to Level 3 investments held at November 30, 2017 | ||||||||||||||||||||||||||||||
Corporate Bonds | $ | 0 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0 | $ | — | |||||||||||||||||||||
Total | $ | 0 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0 | $ | — |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
39
The Arbitrage Tactical Equity Fund Portfolio Information
November 30, 2017 (Unaudited)
Performance (annualized returns as of November 30, 2017)
One Year | Since Inception* | ||||||||||
Arbitrage Tactical Equity Fund, Class R | 6.93 | % | 0.43 | % | |||||||
Arbitrage Tactical Equity Fund, Class I | 6.93 | % | 0.43 | % | |||||||
Arbitrage Tactical Equity Fund, Class C** | 6.93 | % | 0.43 | % | |||||||
Arbitrage Tactical Equity Fund, Class A*** | 6.93 | % | 0.43 | % | |||||||
S&P 500® Index | 22.87 | % | 10.93 | % | |||||||
BofA Merrill Lynch U.S. 3-Month Treasury Bill Index | 0.79 | % | 0.38 | % |
Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Contractual fee waivers are currently in effect. Without such fee waivers, performance numbers would be reduced. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to mnv.arbitragefunds.com.
* Class R, Class I, Class C and Class A inception: 12/31/14.
** Class C shares are subject to a 1.00% contingent deferred sales charge on all purchases redeemed in 12 months of purchase.
*** Class A shares are subject to a maximum front-end sales load of 3.25% on purchases up to $500,000. The shares are also subject to a deferred sales charge of up to 1.00% on purchases of $500,000 or more purchased without a front-end sales load and redeemed within 18 months of purchase.
The Total Annual Fund Operating Expenses for Class R, Class I, Class C and Class A are 15.96%, 15.71%, 16.71% and 15.96%, respectively. The Adviser has agreed to waive fees (not including the effects of interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, taxes, or other extraordinary expenses) in excess of 1.69%, 1.44%, 2.44% and 1.69%, for Class R, Class I, Class C and Class A, respectively, until at least September 30, 2018. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.
The S&P 500® Index is an unmanaged index consisting of 500 stocks.
The Bank of America (BofA) Merrill Lynch U.S. 3-Month Treasury Bill Index tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.
An investor may not invest directly in an index.
www.arbitragefunds.com | 1-800-295-4485
40
The Arbitrage Tactical Equity Fund Portfolio Information (continued)
November 30, 2017 (Unaudited)
Growth of $10,000 Investment
The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Sector Weighting
The following chart shows the sector weightings of The Arbitrage Tactical Equity Fund's investments as of the report date.
Semi-Annual Report | November 30, 2017
41
The Arbitrage Tactical Equity Fund Portfolio of Investments
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - 75.59% | |||||||||||
Agriculture - 1.40% | |||||||||||
Bunge Ltd.(a) | 446 | $ | 29,842 | ||||||||
Auto Parts & Equipment - 5.34% | |||||||||||
Delphi Automotive Plc(a) | 822 | 86,039 | |||||||||
Federal-Mogul Holdings LLC(b)(c)(d) | 2,755 | 27,550 | |||||||||
113,589 | |||||||||||
Biotechnology - 0.96% | |||||||||||
Paratek Pharmaceuticals, Inc.(a)(b) | 1,081 | 20,377 | |||||||||
Chemicals - 8.60% | |||||||||||
Akzo Nobel N.V. | 458 | 41,267 | |||||||||
Huntsman Corp.(a) | 1,135 | 36,275 | |||||||||
Monsanto Co.(a)(e) | 892 | 105,559 | |||||||||
183,101 | |||||||||||
Commercial Services - 2.53% | |||||||||||
Herc Holdings, Inc.(a)(b) | 527 | 31,188 | |||||||||
Rent-A-Center, Inc.(a)(e) | 2,023 | 22,738 | |||||||||
53,926 | |||||||||||
Computers & Computer Services - 1.11% | |||||||||||
Conduent, Inc.(a)(b) | 1,549 | 23,638 | |||||||||
Construction Materials - 4.67% | |||||||||||
ASH Grove Cement Co.(a) | 194 | 99,328 | |||||||||
Diversified Financial Services - 3.01% | |||||||||||
CME Group, Inc.(a) | 71 | 10,618 | |||||||||
Fortress Investment Group LLC, Class A MLP(a) | 5,534 | 43,497 | |||||||||
Intercontinental Exchange, Inc.(a) | 138 | 9,860 | |||||||||
63,975 | |||||||||||
Electrical Components & Equipment - 2.15% | |||||||||||
General Cable Corp.(a) | 2,127 | 45,730 | |||||||||
Food - 0.36% | |||||||||||
Loblaw Cos. Ltd. | 69 | 3,633 | |||||||||
North West Co., Inc. (The) | 160 | 4,059 | |||||||||
7,692 | |||||||||||
Healthcare - Services - 5.86% | |||||||||||
Aetna, Inc. | 368 | 66,306 | |||||||||
Air Methods Corp.(b)(c)(d) | 2,513 | 27,015 | |||||||||
Envision Healthcare Corp.(b) | 984 | 31,419 | |||||||||
124,740 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
42
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - 75.59% (Continued) | |||||||||||
Internet - 1.11% | |||||||||||
8x8, Inc.(a)(b) | 1,673 | $ | 23,589 | ||||||||
Media - 9.32% | |||||||||||
Entercom Communications Corp., Class A | 2,232 | 25,891 | |||||||||
Kabel Deutschland Holding AG(a) | 46 | 6,045 | |||||||||
Scripps Networks Interactive, Inc., Class A | 851 | 69,646 | |||||||||
Starz, Class A(b)(c)(d) | 474 | 18,513 | |||||||||
Time Warner, Inc.(a)(e) | 856 | 78,332 | |||||||||
198,427 | |||||||||||
Miscellaneous Manufacturing - 0.21% | |||||||||||
Donaldson Co., Inc. | 88 | 4,391 | |||||||||
Pharmaceuticals - 2.88% | |||||||||||
Bayer AG(a) | 104 | 13,264 | |||||||||
McKesson Europe AG(a) | 1,527 | 47,982 | |||||||||
61,246 | |||||||||||
Real Estate Investment Trusts - 3.48% | |||||||||||
JBG SMITH Properties(a) | 950 | 31,644 | |||||||||
Macerich Co. (The)(a) | 657 | 42,541 | |||||||||
74,185 | |||||||||||
Retail - 2.88% | |||||||||||
Dunkin' Brands Group, Inc. | 45 | 2,687 | |||||||||
Jack in the Box, Inc.(a)(e) | 475 | 49,167 | |||||||||
McDonald's Corp. | 16 | 2,752 | |||||||||
Papa John's International, Inc.(a) | 31 | 1,812 | |||||||||
Restaurant Brands International, Inc.(a) | 39 | 2,445 | |||||||||
Wendy's Co. (The)(a) | 161 | 2,397 | |||||||||
61,260 | |||||||||||
Semiconductors - 10.85% | |||||||||||
NXP Semiconductors N.V.(a)(b)(e) | 1,602 | 181,651 | |||||||||
QUALCOMM, Inc. | 367 | 24,347 | |||||||||
Rambus, Inc.(a)(b) | 1,692 | 25,041 | |||||||||
231,039 | |||||||||||
Telecommunications - 8.87% | |||||||||||
Gigamon, Inc.(a)(b) | 1,055 | 40,987 | |||||||||
Juniper Networks, Inc. | 787 | 21,847 | |||||||||
Straight Path Communications, Inc., Class B(a)(b) | 693 | 126,015 | |||||||||
188,849 | |||||||||||
TOTAL COMMON STOCKS (Cost $1,554,290) | 1,608,924 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
43
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
EXCHANGE-TRADED FUNDS - 2.15% | |||||||||||
Equity Funds - 2.15% | |||||||||||
Industrial Select Sector SPDR® Fund(a) | 345 | $ | 25,706 | ||||||||
Technology Select Sector SPDR® Fund(a) | 314 | 20,046 | |||||||||
45,752 | |||||||||||
TOTAL EXCHANGE-TRADED FUNDS (Cost $42,547) | 45,752 |
Maturity Date | Rate | Principal Amount | Value | ||||||||||||||||
CORPORATE BONDS - 1.89% | |||||||||||||||||||
Commercial Services - 1.89% | |||||||||||||||||||
Rent-A-Center, Inc. | 11/15/2020 | 6.625 | % | $ | 2,000 | $ | 1,890 | ||||||||||||
05/01/2021 | 4.750 | % | 41,000 | 38,335 | |||||||||||||||
40,225 | |||||||||||||||||||
TOTAL CORPORATE BONDS (Cost $40,409) | 40,225 |
Shares | Value | ||||||||||
MUTUAL FUNDS - 6.52% | |||||||||||
Altaba, Inc.(a)(b) | 1,982 | $ | 138,859 | ||||||||
TOTAL MUTUAL FUNDS (Cost $103,638) | 138,859 |
Expiration Date | Exercise Price | Notional Amount | Contracts | Value | |||||||||||||||||||
PURCHASED OPTIONS(b) - 0.38% | |||||||||||||||||||||||
Call Options Purchased - 0.24% | |||||||||||||||||||||||
AT&T, Inc., Class A | 01/2018 | $ | 38.00 | $ | 21,828 | 6 | $ | 237 | |||||||||||||||
Discovery Communications, Inc., Class A: | |||||||||||||||||||||||
12/2017 | 25.00 | 1,808 | 1 | 5 | |||||||||||||||||||
03/2018 | 17.50 | 9,040 | 5 | 1,063 | |||||||||||||||||||
Rent-A-Center, Inc.: | |||||||||||||||||||||||
12/2017 | 11.00 | 8,992 | 8 | 560 | |||||||||||||||||||
03/2018 | 12.50 | 32,596 | 29 | 3,117 | |||||||||||||||||||
TOTAL CALL OPTIONS PURCHASED (Cost $3,299) | 4,982 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
44
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Expiration Date | Exercise Price | Notional Amount | Contracts | Value | |||||||||||||||||||
PURCHASED OPTIONS(b) - 0.38% (Continued) | |||||||||||||||||||||||
Put Options Purchased - 0.14% | |||||||||||||||||||||||
Jack in the Box, Inc. | 01/2018 | $ | 95.00 | $ | 31,053 | 3 | $ | 398 | |||||||||||||||
Monsanto Co. | 01/2018 | 105.00 | 23,668 | 2 | 85 | ||||||||||||||||||
NXP Semiconductors N.V. | 01/2018 | 115.00 | 22,678 | 2 | 860 | ||||||||||||||||||
Time Warner, Inc.: | |||||||||||||||||||||||
02/2018 | 85.00 | 45,755 | 5 | 542 | |||||||||||||||||||
03/2018 | 85.00 | 54,906 | 6 | 1,176 | |||||||||||||||||||
TOTAL PUT OPTIONS PURCHASED (Cost $6,100) | 3,061 | ||||||||||||||||||||||
TOTAL PURCHASED OPTIONS (Cost $9,399) | 8,043 |
Yield | Shares | Value | |||||||||||||
SHORT-TERM INVESTMENTS - 9.38% | |||||||||||||||
Money Market Fund | |||||||||||||||
Morgan Stanley Institutional Liquidity Fund - Government Portfolio | 0.979 | %(f) | 195,407 | $ | 195,407 | ||||||||||
Time Deposit | |||||||||||||||
State Street Bank Time Deposit | 4,190 | 4,190 | |||||||||||||
TOTAL SHORT-TERM INVESTMENTS (Cost $199,597) | 199,597 | ||||||||||||||
Total Investments - 95.91% (Cost $1,949,880) | 2,041,400 | ||||||||||||||
Other Assets in Excess of Liabilities - 4.09%(g) | 87,152 | ||||||||||||||
NET ASSETS - 100.00% | $ | 2,128,552 |
Portfolio Footnotes
(a) Security, or a portion of security, is being held as collateral for short sales, written option contracts or forward foreign currency exchange contracts. At November 30, 2017, the aggregate market value of those securities was $1,267,277, representing 59.54% of net assets.
(b) Non-income-producing security.
(c) Security considered illiquid. On November 30, 2017, the total market value of these securities was $73,078, representing 3.43% of net assets.
(d) Security fair valued using methods determined in good faith by the Pricing Committee. As of November 30, 2017, the total market value of these securities was $73,078, representing 3.43% of net assets.
(e) Underlying security for a written/purchased call/put option.
(f) Rate shown is the 7-day effective yield as of November 30, 2017.
(g) Includes cash which is being held as collateral for short sales and written option contracts.
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
45
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Securities are determined to be illiquid under the procedures approved by the Funds' Board of Trustees. Information related to the Fund's illiquid securities as of November 30, 2017 is as follows:
Date of Purchase | Security | Cost | Value | % of Net Assets | |||||||||||||||
03/06/2017 | Air Methods Corp. | $ | 26,653 | $ | 27,015 | 1.27 | % | ||||||||||||
11/17/2016 | Federal-Mogul Holdings LLC | 27,445 | 27,550 | 1.29 | |||||||||||||||
11/29/2016 | Starz, Class A | 16,093 | 18,513 | 0.87 | |||||||||||||||
$ | 73,078 | 3.43 | % |
SCHEDULE OF SECURITIES SOLD SHORT | Shares | Value | |||||||||
COMMON STOCKS - (25.83%) | |||||||||||
Auto Parts & Equipment - (2.46%) | |||||||||||
American Axle & Manufacturing Holdings, Inc. | (486 | ) | $ | (8,724 | ) | ||||||
BorgWarner, Inc. | (197 | ) | (10,969 | ) | |||||||
Lear Corp. | (90 | ) | (16,280 | ) | |||||||
Magna International, Inc. | (291 | ) | (16,296 | ) | |||||||
(52,269 | ) | ||||||||||
Chemicals - (0.84%) | |||||||||||
Eastman Chemical Co. | (81 | ) | (7,482 | ) | |||||||
Olin Corp. | (207 | ) | (7,377 | ) | |||||||
Venator Materials Plc | (138 | ) | (3,036 | ) | |||||||
(17,895 | ) | ||||||||||
Commercial Services - (1.37%) | |||||||||||
Aaron's, Inc. | (31 | ) | (1,169 | ) | |||||||
United Rentals, Inc. | (176 | ) | (28,069 | ) | |||||||
(29,238 | ) | ||||||||||
Computers & Computer Services - (1.63%) | |||||||||||
CGI Group, Inc., Class A | (140 | ) | (7,391 | ) | |||||||
Convergys Corp. | (140 | ) | (3,455 | ) | |||||||
Genpact Ltd. | (248 | ) | (7,995 | ) | |||||||
Hewlett Packard Enterprise Co. | (401 | ) | (5,594 | ) | |||||||
Infosys Ltd., Sponsored ADR | (435 | ) | (6,769 | ) | |||||||
Sykes Enterprises, Inc. | (109 | ) | (3,468 | ) | |||||||
(34,672 | ) | ||||||||||
Diversified Financial Services - (1.29%) | |||||||||||
Cboe Global Markets, Inc. | (223 | ) | (27,525 | ) | |||||||
Electronics - (0.71%) | |||||||||||
TE Connectivity Ltd. | (160 | ) | (15,110 | ) | |||||||
Internet - (4.78%) | |||||||||||
Alibaba Group Holding Ltd., Sponsored ADR | (575 | ) | (101,821 | ) |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
46
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
COMMON STOCKS - (25.83%) (Continued) | |||||||||||
Media - (1.05%) | |||||||||||
Discovery Communications, Inc., Class C | (898 | ) | $ | (16,236 | ) | ||||||
Nexstar Media Group, Inc., Class A | (32 | ) | (2,173 | ) | |||||||
Sinclair Broadcast Group, Inc., Class A | (63 | ) | (2,145 | ) | |||||||
Sirius XM Holdings, Inc. | (331 | ) | (1,820 | ) | |||||||
(22,374 | ) | ||||||||||
Miscellaneous Manufacturing - (1.47%) | |||||||||||
Parker-Hannifin Corp. | (167 | ) | (31,311 | ) | |||||||
Pharmaceuticals - (0.39%) | |||||||||||
Merck KGaA | (78 | ) | (8,303 | ) | |||||||
Real Estate Investment Trusts - (1.18%) | |||||||||||
Seritage Growth Properties, Class A | (180 | ) | (7,326 | ) | |||||||
Washington Real Estate Investment Trust | (549 | ) | (17,744 | ) | |||||||
(25,070 | ) | ||||||||||
Retail - (4.93%) | |||||||||||
CVS Health Corp. | (368 | ) | (28,189 | ) | |||||||
McDonald's Corp. | (82 | ) | (14,101 | ) | |||||||
Sonic Corp. | (428 | ) | (10,923 | ) | |||||||
Wendy's Co. (The) | (737 | ) | (10,974 | ) | |||||||
Yum! Brands, Inc. | (487 | ) | (40,650 | ) | |||||||
(104,837 | ) | ||||||||||
Semiconductors - (0.09%) | |||||||||||
Broadcom Ltd. | (7 | ) | (1,945 | ) | |||||||
Software - (0.15%) | |||||||||||
Five9, Inc. | (129 | ) | (3,162 | ) | |||||||
Telecommunications - (3.49%) | |||||||||||
AT&T, Inc. | (408 | ) | (14,843 | ) | |||||||
Cisco Systems, Inc. | (168 | ) | (6,266 | ) | |||||||
IDT Corp., Class B | (785 | ) | (12,270 | ) | |||||||
LogMeIn, Inc. | (226 | ) | (26,894 | ) | |||||||
Nokia Oyj, ADR | (881 | ) | (4,414 | ) | |||||||
Telefonaktiebolaget LM Ericsson, Sponsored ADR | (940 | ) | (5,875 | ) | |||||||
Vonage Holdings Corp. | (353 | ) | (3,593 | ) | |||||||
(74,155 | ) | ||||||||||
TOTAL COMMON STOCKS (Proceeds $512,434) | (549,687 | ) |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
47
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Shares | Value | ||||||||||
EXCHANGE-TRADED FUNDS - (6.76%) | |||||||||||
Equity Funds - (6.76%) | |||||||||||
First Trust Dow Jones Internet Index Fund | (84 | ) | $ | (9,148 | ) | ||||||
iShares® Russell 2000 Growth ETF | (50 | ) | (9,338 | ) | |||||||
iShares® Russell 2000 Value ETF | (69 | ) | (8,817 | ) | |||||||
Materials Select Sector SPDR® Fund | (125 | ) | (7,445 | ) | |||||||
VanEck Vectors Semiconductor ETF | (487 | ) | (48,822 | ) | |||||||
Vanguard REIT ETF | (715 | ) | (60,339 | ) | |||||||
(143,909 | ) | ||||||||||
TOTAL EXCHANGE-TRADED FUNDS (Proceeds $137,976) | (143,909 | ) | |||||||||
TOTAL SECURITIES SOLD SHORT (Proceeds $650,410) | $ | (693,596 | ) |
WRITTEN OPTIONS | Expiration Date | Exercise Price | Notional Amount | Contracts | Value | ||||||||||||||||||
Written Call Options | |||||||||||||||||||||||
Jack in the Box, Inc. | 12/2017 | $ | 110.00 | $ | (31,053 | ) | (3 | ) | $ | (158 | ) | ||||||||||||
NXP Semiconductors N.V.: | |||||||||||||||||||||||
12/2017 | 110.00 | (11,339 | ) | (1 | ) | (390 | ) | ||||||||||||||||
01/2018 | 120.00 | (11,339 | ) | (1 | ) | (90 | ) | ||||||||||||||||
Rent-A-Center, Inc. | 03/2018 | 14.00 | (14,612 | ) | (13 | ) | (715 | ) | |||||||||||||||
Time Warner, Inc.12/201790.00(9,151)(1) | (206 | ) | |||||||||||||||||||||
TOTAL WRITTEN CALL OPTIONS (Premiums received $1,855) | (1,559 | ) | |||||||||||||||||||||
Written Put Options | |||||||||||||||||||||||
AT&T, Inc. | 12/2017 | 35.00 | (10,914 | ) | (3 | ) | (50 | ) | |||||||||||||||
Jack in the Box, Inc. | 12/2017 | 95.00 | (62,106 | ) | (6 | ) | (270 | ) | |||||||||||||||
Time Warner, Inc.: | |||||||||||||||||||||||
01/2018 | 75.00 | (18,302 | ) | (2 | ) | (30 | ) | ||||||||||||||||
01/2018 | 80.00 | (36,604 | ) | (4 | ) | (58 | ) | ||||||||||||||||
01/2018 | 82.50 | (9,151 | ) | (1 | ) | (16 | ) | ||||||||||||||||
01/201885.00(9,151)(1) | (33 | ) | |||||||||||||||||||||
TOTAL WRITTEN PUT OPTIONS (Premiums received $1,719) | (457 | ) | |||||||||||||||||||||
TOTAL WRITTEN OPTIONS (Premiums received $3,574) | $ | (2,016 | ) |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
48
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Appreciation | |||||||||||||||
USD | 16,149 | CAD | 20,830 | Goldman Sachs | 12/15/2017 | $ | 229 | ||||||||||||
CHF | 23,100 | USD | 23,501 | Goldman Sachs | 12/15/2017 | 293 | |||||||||||||
USD | 36,625 | CHF | 36,000 | Goldman Sachs | 12/15/2017 | 1,102 | |||||||||||||
EUR | 51,320 | USD | 61,125 | Goldman Sachs | 12/15/2017 | 265 | |||||||||||||
USD | 57,027 | EUR | 47,880 | Goldman Sachs | 12/15/2017 | 517 | |||||||||||||
GBP | 4,887 | USD | 6,612 | Goldman Sachs | 12/15/2017 | 155 | |||||||||||||
USD | 84 | GBP | 62 | Goldman Sachs | 12/15/2017 | 0 | |||||||||||||
$ | 2,561 | ||||||||||||||||||
Currency Purchased | Currency Sold | Counterparty | Settlement Date | Unrealized Depreciation | |||||||||||||||
CAD | 10,910 | USD | 8,457 | Goldman Sachs | 12/15/2017 | $ | (273 | ) | |||||||||||
CHF | 13,800 | USD | 14,039 | Goldman Sachs | 12/15/2017 | (244 | ) | ||||||||||||
USD | 915 | CHF | 900 | Goldman Sachs | 12/15/2017 | (12 | ) | ||||||||||||
USD | 100,912 | EUR | 84,240 | Goldman Sachs | 03/15/2018 | (384 | ) | ||||||||||||
USD | 4,097 | EUR | 3,440 | Goldman Sachs | 12/15/2017 | (43 | ) | ||||||||||||
USD | 6,528 | GBP | 4,825 | Goldman Sachs | 12/15/2017 | (106 | ) | ||||||||||||
$ | (1,062 | ) |
The following is a summary of investments classified by country exposure:
Country | % of Net Assets(a) | ||||||
Netherlands | 10.47 | % | |||||
United Kingdom | 4.04 | % | |||||
Germany | 3.16 | % | |||||
Canada | 0.47 | % | |||||
United States | 77.77 | % | |||||
Other Assets in Excess of Liabilities | 4.09 | % | |||||
100.00 | % |
(a) These percentages represent long positions only and are not net of short positions.
Abbreviations:
ADR - American Depositary Receipt
AG - Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders.
CAD - Canadian dollar
CHF - Swiss franc
ETF - Exchange-Traded Fund
EUR - Euro
GBP - British pound
KGaA - Kommanditgesellschaft Auf Aktien is a German corporate designation that refers to a limited partnership.
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
49
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
LLC - Limited Liability Company
Ltd. - Limited
MLP - Master Limited Partnership
N.V. - Naamloze Vennootschap is the Dutch term for a public limited liability corporation.
Oyj - Osakeyhtio is the Finnish equivalent of a public limited company
Plc - Public Limited Company
REIT - Real Estate Investment Trust
SPDR - Standard & Poor's Depositary Receipt
USD - United States Dollar
The following table summarizes The Arbitrage Tactical Equity Fund's investments and derivative financial instruments categorized in the fair value disclosure hierarchy as of November 30, 2017:
Investments in Securities at Value* | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Assets | |||||||||||||||||||
Common Stocks | |||||||||||||||||||
Agriculture | $ | 29,842 | $ | — | $ | — | $ | 29,842 | |||||||||||
Auto Parts & Equipment | 86,039 | — | 27,550 | 113,589 | |||||||||||||||
Biotechnology | 20,377 | — | — | 20,377 | |||||||||||||||
Chemicals | 183,101 | — | — | 183,101 | |||||||||||||||
Commercial Services | 53,926 | — | — | 53,926 | |||||||||||||||
Computers & Computer Services | 23,638 | — | — | 23,638 | |||||||||||||||
Construction Materials | 99,328 | — | — | 99,328 | |||||||||||||||
Diversified Financial Services | 63,975 | — | — | 63,975 | |||||||||||||||
Electrical Components & Equipment | 45,730 | — | — | 45,730 | |||||||||||||||
Food | 7,692 | — | — | 7,692 | |||||||||||||||
Healthcare - Services | 97,725 | — | 27,015 | 124,740 | |||||||||||||||
Internet | 23,589 | — | — | 23,589 | |||||||||||||||
Media | 179,914 | — | 18,513 | 198,427 | |||||||||||||||
Miscellaneous Manufacturing | 4,391 | — | — | 4,391 | |||||||||||||||
Pharmaceuticals | 61,246 | — | — | 61,246 | |||||||||||||||
Real Estate Investment Trusts | 74,185 | — | — | 74,185 | |||||||||||||||
Retail | 61,260 | — | — | 61,260 | |||||||||||||||
Semiconductors | 231,039 | — | — | 231,039 | |||||||||||||||
Telecommunications | 188,849 | — | — | 188,849 | |||||||||||||||
Exchange-Traded Funds | 45,752 | — | — | 45,752 | |||||||||||||||
Corporate Bonds** | — | 40,225 | — | 40,225 | |||||||||||||||
Mutual Funds | 138,859 | — | — | 138,859 | |||||||||||||||
Purchased Options | 8,043 | — | — | 8,043 | |||||||||||||||
Short-Term Investments | 199,597 | — | — | 199,597 | |||||||||||||||
TOTAL | $ | 1,928,097 | $ | 40,225 | $ | 73,078 | $ | 2,041,400 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
50
The Arbitrage Tactical Equity Fund Portfolio of Investments (continued)
November 30, 2017 (Unaudited)
Other Financial Instruments*** | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||
Assets | |||||||||||||||||||
Forward Foreign Currency Exchange Contracts | $ | — | $ | 2,561 | $ | — | $ | 2,561 | |||||||||||
Liabilities | |||||||||||||||||||
Common Stocks** | (549,687 | ) | — | — | (549,687 | ) | |||||||||||||
Exchange-Traded Funds | (143,909 | ) | — | — | (143,909 | ) | |||||||||||||
Written Options | (2,016 | ) | — | — | (2,016 | ) | |||||||||||||
Forward Foreign Currency Exchange Contracts | — | (1,062 | ) | — | (1,062 | ) | |||||||||||||
TOTAL | $ | (695,612 | ) | $ | 1,499 | $ | — | $ | (694,113 | ) |
* Refer to footnote 2 where leveling hierarchy is defined.
** Refer to Portfolio of Investments for sector information.
*** Other financial instruments are instruments such as written options, securities sold short, equity swaps and forward foreign currency exchange contracts.
The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended November 30, 2017:
Investments in Securities | Balance as of May 31, 2017 | Realized Gain (Loss) | Change in Unrealized Appreciation | Purchases | Sales Proceeds | Transfers into Level 3 | Transfers out of Level 3 | Balance as of November 30, 2017 | Net change in Unrealized Appreciation included in the Statement of Operations attributable to Level 3 investments held at November 30, 2017 | ||||||||||||||||||||||||||||||
Common Stock | $ | 71,229 | $ | — | $ | 1,849 | $ | — | $ | — | $ | — | $ | — | $ | 73,078 | $ | 1,849 | |||||||||||||||||||||
Total | $ | 71,229 | $ | — | $ | 1,849 | $ | — | $ | — | $ | — | $ | — | $ | 73,078 | $ | 1,849 |
The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of November 30, 2017:
Investments in Securities | Fair Value at November 30, 2017 | Valuation Technique | Unobservable Input | Range of Values | Weighted Average | ||||||||||||||||||
Common Stocks | $ | 73,078 | Deal Value | Final determination on Dissent | $10.00-$39.0575 | $17.64 |
See Notes to Financial Statements.
Semi-Annual Report | November 30, 2017
51
The Arbitrage Funds
The Arbitrage Fund | The Arbitrage Event-Driven Fund | ||||||||||
ASSETS | |||||||||||
Investments: | |||||||||||
At cost of unaffiliated investments | $ | 1,735,657,674 | $ | 131,511,844 | |||||||
At cost of affiliated investments | $ | 12,000,000 | $ | – | |||||||
At fair value of unaffiliated investments (Note 2) | $ | 1,764,072,189 | $ | 134,321,153 | |||||||
At fair value of affiliated investments (Note 2) | $ | 11,907,273 | $ | – | |||||||
Cash | 11 | – | |||||||||
Deposits with brokers for securities sold short (Note 2) | 458,380,880 | 41,414,900 | |||||||||
Segregated cash for swaps (Note 2) | 21,095,000 | 730,000 | |||||||||
Receivable for investment securities sold | 91,202,231 | 10,249,459 | |||||||||
Receivable for capital shares sold | 3,903,502 | 643,342 | |||||||||
Unrealized appreciation on forward foreign currency exchange contracts (Note 8) | 3,469,359 | 101,742 | |||||||||
Unrealized appreciation on swap contracts | – | 460 | |||||||||
Dividends and interest receivable | 1,522,586 | 279,884 | |||||||||
Receivable due from Adviser (Note 5) | – | – | |||||||||
Prepaid expenses and other assets | 3,711,068 | 242,250 | |||||||||
Total Assets | 2,359,264,099 | 187,983,190 | |||||||||
LIABILITIES | |||||||||||
Securities sold short, at value (Note 2) (proceeds $386,456,955, $31,756,685, $8,008,553 and $650,410) | 408,384,818 | 33,982,161 | |||||||||
Written options, at value (Note 2) (premiums received $2,098,574, $231,725, $0 and $3,574) | 955,450 | 113,007 | |||||||||
Payable for investment securities purchased | 77,402,517 | 8,881,363 | |||||||||
Unrealized depreciation on forward foreign currency exchange contracts (Note 8) | 2,038,141 | 48,215 | |||||||||
Unrealized depreciation on swap contracts | 119,842 | 6,836 | |||||||||
Payable for capital shares redeemed | 1,731,928 | 131,322 | |||||||||
Payable to Adviser (Note 5) | 1,602,006 | 65,104 | |||||||||
Dividends payable on securities sold short (Note 2) | 374,550 | 34,859 | |||||||||
Payable to Distributor (Note 5) | 70,497 | 10,330 | |||||||||
Payable to Administrator (Note 5) | 64,301 | 9,617 | |||||||||
Payable to Transfer Agent (Note 5) | 210,525 | 35,744 | |||||||||
Payable to Custodian | 93,195 | 29,417 | |||||||||
Income distribution payable | – | – | |||||||||
Interest expense payable | 8,918 | 14,078 | |||||||||
Interest payable on swap contracts | 13,174 | 1,287 | |||||||||
Audit and legal fees payable | 111,776 | 19,638 | |||||||||
Payable to Trustees | 26,617 | 22,284 | |||||||||
Chief Compliance Officer Fees payable (Note 5) | 12,648 | 978 | |||||||||
Chief Financial Officer Fees payable (Note 5) | 5,533 | 1,029 | |||||||||
Other accrued expenses and liabilities | 32,848 | 9,426 | |||||||||
Total Liabilities | 493,259,284 | 43,416,695 | |||||||||
NET ASSETS | $ | 1,866,004,815 | $ | 144,566,495 | |||||||
NET ASSETS CONSIST OF: | |||||||||||
Paid-in capital | $ | 1,803,534,908 | $ | 204,748,611 | |||||||
Accumulated net investment income (loss) | 23,156,880 | 514,815 | |||||||||
Accumulated net realized gain (loss) on investments, swap contracts, securities sold short, written option contracts and foreign currencies | 30,454,193 | (61,446,841 | ) | ||||||||
Net unrealized appreciation (depreciation) on investments, swap contracts, securities sold short, written option contracts and translation of assets and liabilities denominated in foreign currencies | 8,858,834 | 749,910 | |||||||||
NET ASSETS | $ | 1,866,004,815 | $ | 144,566,495 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
52
Statement of Assets and Liabilities
November 30, 2017 (Unaudited)
The Arbitrage Credit Opportunities Fund | The Arbitrage Tactical Equity Fund | ||||||||||
ASSETS | |||||||||||
Investments: | |||||||||||
At cost of unaffiliated investments | $ | 66,243,092 | $ | 1,949,880 | |||||||
At cost of affiliated investments | $ | – | $ | – | |||||||
At fair value of unaffiliated investments (Note 2) | $ | 65,777,844 | $ | 2,041,400 | |||||||
At fair value of affiliated investments (Note 2) | $ | – | $ | – | |||||||
Cash | – | – | |||||||||
Deposits with brokers for securities sold short (Note 2) | 7,864,287 | 790,078 | |||||||||
Segregated cash for swaps (Note 2) | – | – | |||||||||
Receivable for investment securities sold | – | 185,742 | |||||||||
Receivable for capital shares sold | 12,008 | – | |||||||||
Unrealized appreciation on forward foreign currency exchange contracts (Note 8) | 45,421 | 2,561 | |||||||||
Unrealized appreciation on swap contracts | – | – | |||||||||
Dividends and interest receivable | 493,193 | 1,535 | |||||||||
Receivable due from Adviser (Note 5) | – | 18,124 | |||||||||
Prepaid expenses and other assets | 35,737 | 7,385 | |||||||||
Total Assets | 74,228,490 | 3,046,825 | |||||||||
LIABILITIES | |||||||||||
Securities sold short, at value (Note 2) (proceeds $386,456,955, $31,756,685, $8,008,553 and $650,410) | 7,897,534 | 693,596 | |||||||||
Written options, at value (Note 2) (premiums received $2,098,574, $231,725, $0 and $3,574) | – | 2,016 | |||||||||
Payable for investment securities purchased | 12,452,693 | 175,378 | |||||||||
Unrealized depreciation on forward foreign currency exchange contracts (Note 8) | 20,642 | 1,062 | |||||||||
Unrealized depreciation on swap contracts | – | – | |||||||||
Payable for capital shares redeemed | 323,112 | – | |||||||||
Payable to Adviser (Note 5) | 29,538 | – | |||||||||
Dividends payable on securities sold short (Note 2) | – | 844 | |||||||||
Payable to Distributor (Note 5) | 3,630 | 13 | |||||||||
Payable to Administrator (Note 5) | 5,033 | 2,115 | |||||||||
Payable to Transfer Agent (Note 5) | 6,363 | 161 | |||||||||
Payable to Custodian | 2,678 | 6,114 | |||||||||
Income distribution payable | 2,895 | – | |||||||||
Interest expense payable | 114,745 | 59 | |||||||||
Interest payable on swap contracts | – | – | |||||||||
Audit and legal fees payable | 14,493 | 11,602 | |||||||||
Payable to Trustees | 22,040 | 21,903 | |||||||||
Chief Compliance Officer Fees payable (Note 5) | 391 | 15 | |||||||||
Chief Financial Officer Fees payable (Note 5) | 778 | 628 | |||||||||
Other accrued expenses and liabilities | 1,200 | 2,767 | |||||||||
Total Liabilities | 20,897,765 | 918,273 | |||||||||
NET ASSETS | $ | 53,330,725 | $ | 2,128,552 | |||||||
NET ASSETS CONSIST OF: | |||||||||||
Paid-in capital | $ | 56,662,367 | $ | 2,125,730 | |||||||
Accumulated net investment income (loss) | 40,727 | (6,173 | ) | ||||||||
Accumulated net realized gain (loss) on investments, swap contracts, securities sold short, written option contracts and foreign currencies | (3,042,919 | ) | (42,403 | ) | |||||||
Net unrealized appreciation (depreciation) on investments, swap contracts, securities sold short, written option contracts and translation of assets and liabilities denominated in foreign currencies | (329,450 | ) | 51,398 | ||||||||
NET ASSETS | $ | 53,330,725 | $ | 2,128,552 |
Semi-Annual Report | November 30, 2017
53
The Arbitrage Funds
The Arbitrage Fund | The Arbitrage Event-Driven Fund | ||||||||||
PRICING OF SHARES: | |||||||||||
CLASS R SHARES: | |||||||||||
Net assets applicable to Class R shares | $ | 229,377,387 | $ | 43,365,221 | |||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 17,550,329 | 4,636,671 | |||||||||
Net asset value and offering price per share(a) | $ | 13.07 | $ | 9.35 | |||||||
CLASS I SHARES: | |||||||||||
Net assets applicable to Class I shares | $ | 1,600,052,960 | $ | 99,151,465 | |||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 118,694,696 | 10,491,107 | |||||||||
Net asset value and offering price per share(a) | $ | 13.48 | $ | 9.45 | |||||||
CLASS C SHARES: | |||||||||||
Net assets applicable to Class C shares | $ | 25,005,576 | $ | 1,423,528 | |||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 2,000,700 | 155,216 | |||||||||
Net asset value and offering price per share(a) | $ | 12.50 | $ | 9.17 | |||||||
CLASS A SHARES: | |||||||||||
Net assets applicable to Class A shares | $ | 11,568,892 | $ | 626,281 | |||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 884,965 | 66,905 | |||||||||
Net asset value and offering price per share(a) | $ | 13.07 | $ | 9.36 | |||||||
Maximum offering price per share (NAV/(100% — maximum sales charge)) | $ | 13.41 | $ | 9.67 | |||||||
Maximum sales charge | 2.50 | % | 3.25 | % |
(a) Redemption price varies based on length of time held (Note 1).
(b) Per share amounts may not recalculate due to rounding of net assets and/or shares
outstanding.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
54
Statement of Assets and Liabilities
November 30, 2017 (Unaudited)
The Arbitrage Credit Opportunities Fund | The Arbitrage Tactical Equity Fund | ||||||||||
PRICING OF SHARES: | |||||||||||
CLASS R SHARES: | |||||||||||
Net assets applicable to Class R shares | $ | 14,083,472 | $ | 10,128 | |||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 1,464,517 | 1,010 | |||||||||
Net asset value and offering price per share(a) | $ | 9.62 | $ | 10.03 | |||||||
CLASS I SHARES: | |||||||||||
Net assets applicable to Class I shares | $ | 38,330,287 | $ | 2,098,168 | |||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 3,994,409 | 209,135 | |||||||||
Net asset value and offering price per share(a) | $ | 9.60 | $ | 10.03 | |||||||
CLASS C SHARES: | |||||||||||
Net assets applicable to Class C shares | $ | 809,761 | $ | 10,128 | |||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 84,705 | 1,010 | |||||||||
Net asset value and offering price per share(a) | $ | 9.56 | $ | 10.03 | |||||||
CLASS A SHARES: | |||||||||||
Net assets applicable to Class A shares | $ | 107,205 | $ | 10,128 | |||||||
Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value) | 11,169 | 1,009 | |||||||||
Net asset value and offering price per share(a) | $ | 9.60 | $ | 10.03 | (b) | ||||||
Maximum offering price per share (NAV/(100% — maximum sales charge)) | $ | 9.92 | $ | 10.37 | |||||||
Maximum sales charge | 3.25 | % | 3.25 | % |
Semi-Annual Report | November 30, 2017
55
The Arbitrage Funds
The Arbitrage Fund | The Arbitrage Event-Driven Fund | ||||||||||
INVESTMENT INCOME | |||||||||||
Dividend income | $ | 38,333,799 | $ | 1,283,939 | |||||||
Foreign taxes withheld on dividends | (167,942 | ) | (4,315 | ) | |||||||
Interest income | 912,322 | 812,468 | |||||||||
Securities lending income | 6,543 | – | |||||||||
Total Investment Income | 39,084,722 | 2,092,092 | |||||||||
EXPENSES | |||||||||||
Investment advisory fees (Note 5) | 9,907,224 | 866,976 | |||||||||
Distribution and service fees (Note 5) | |||||||||||
Class R | 393,920 | 69,049 | |||||||||
Class C | 130,039 | 7,652 | |||||||||
Class A | 13,348 | 1,013 | |||||||||
Administrative fees (Note 5) | 187,331 | 23,565 | |||||||||
Chief Compliance Officer fees (Note 5) | 124,446 | 9,145 | |||||||||
Trustees' fees | 59,787 | 49,761 | |||||||||
Dividend expense | 5,065,893 | 307,635 | |||||||||
Interest rebate expense | 207,961 | – | |||||||||
Transfer agent fees (Note 5) | 666,264 | 162,485 | |||||||||
Custodian and bank service fees | 227,253 | 70,730 | |||||||||
Registration and filing fees | 43,923 | 29,422 | |||||||||
Printing of shareholder reports | 88,009 | 23,880 | |||||||||
Professional fees | 148,421 | 19,532 | |||||||||
Line of credit interest expense (Note 4) | 1,424 | 516 | |||||||||
Insurance expense | 44,253 | 4,171 | |||||||||
Chief Financial Officer fees (Note 5) | 31,528 | 5,595 | |||||||||
Other expenses | 35,428 | 81,719 | |||||||||
Total Expenses | 17,376,452 | 1,732,846 | |||||||||
Fees waived by the Adviser, Class R (Note 5) | (1,541 | ) | (138,966 | ) | |||||||
Fees waived by the Adviser, Class I (Note 5) | (10,550 | ) | (203,384 | ) | |||||||
Fees waived by the Adviser, Class C (Note 5) | (165 | ) | (3,843 | ) | |||||||
Fees waived by the Adviser, Class A (Note 5) | (77 | ) | (2,032 | ) | |||||||
Net Expenses | 17,364,119 | 1,384,621 | |||||||||
NET INVESTMENT INCOME (LOSS) | 21,720,603 | 707,471 | |||||||||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES | |||||||||||
Net realized gains (losses) from: | |||||||||||
Unaffiliated investments | 12,068,752 | 3,252,198 | |||||||||
Purchased option contracts | 1,362,085 | (2,836 | ) | ||||||||
Swap contracts | (1,379,958 | ) | (40,984 | ) | |||||||
Securities sold short | (4,870,225 | ) | (2,976,676 | ) | |||||||
Written option contracts | 638,360 | 245,969 | |||||||||
Forward currency contracts | (9,299,691 | ) | (242,439 | ) | |||||||
Foreign currency transactions (Note 8) | 484,876 | 30,176 | |||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Unaffiliated investments | 8,434,532 | 969,448 | |||||||||
Affiliated investments | (92,727 | ) | – | ||||||||
Purchased option contracts | (2,737,587 | ) | (185,791 | ) | |||||||
Swap contracts | (119,842 | ) | (6,376 | ) | |||||||
Securities sold short | (27,687,482 | ) | (1,729,953 | ) | |||||||
Written option contracts | 1,408,613 | 130,046 | |||||||||
Forward currency contracts | 2,738,770 | 57,235 | |||||||||
Foreign currency transactions (Note 8) | (95,470 | ) | (8,956 | ) | |||||||
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES | (19,146,994 | ) | (508,939 | ) | |||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 2,573,609 | $ | 198,532 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
56
Statement of Operations
For the Six Months Ended November 30, 2017 (Unaudited)
The Arbitrage Credit Opportunities Fund | The Arbitrage Tactical Equity Fund | ||||||||||
INVESTMENT INCOME | |||||||||||
Dividend income | $ | 32,891 | $ | 16,458 | |||||||
Foreign taxes withheld on dividends | – | (236 | ) | ||||||||
Interest income | 1,235,127 | 3,294 | |||||||||
Securities lending income | 894 | – | |||||||||
Total Investment Income | 1,268,912 | 19,516 | |||||||||
EXPENSES | |||||||||||
Investment advisory fees (Note 5) | 287,327 | 13,156 | |||||||||
Distribution and service fees (Note 5) | |||||||||||
Class R | 18,150 | 13 | |||||||||
Class C | 4,625 | 51 | |||||||||
Class A | 135 | 13 | |||||||||
Administrative fees (Note 5) | 15,472 | 6,194 | |||||||||
Chief Compliance Officer fees (Note 5) | 3,947 | 138 | |||||||||
Trustees' fees | 49,268 | 48,941 | |||||||||
Dividend expense | 163,488 | 6,521 | |||||||||
Interest rebate expense | 13,046 | – | |||||||||
Transfer agent fees (Note 5) | 20,321 | 888 | |||||||||
Custodian and bank service fees | 9,279 | 34,382 | |||||||||
Registration and filing fees | 29,290 | 6,741 | |||||||||
Printing of shareholder reports | 4,414 | 962 | |||||||||
Professional fees | 11,500 | 7,407 | |||||||||
Line of credit interest expense (Note 4) | 7,383 | 68 | |||||||||
Insurance expense | 1,369 | 38 | |||||||||
Chief Financial Officer fees (Note 5) | 4,382 | 3,552 | |||||||||
Other expenses | 6,290 | 4,303 | |||||||||
Total Expenses | 649,686 | 133,368 | |||||||||
Fees waived by the Adviser, Class R (Note 5) | (21,235 | ) | (536 | ) | |||||||
Fees waived by the Adviser, Class I (Note 5) | (60,962 | ) | (109,939 | ) | |||||||
Fees waived by the Adviser, Class C (Note 5) | (1,346 | ) | (536 | ) | |||||||
Fees waived by the Adviser, Class A (Note 5) | (158 | ) | (536 | ) | |||||||
Net Expenses | 565,985 | 21,821 | |||||||||
NET INVESTMENT INCOME (LOSS) | 702,927 | (2,305 | ) | ||||||||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES | |||||||||||
Net realized gains (losses) from: | |||||||||||
Unaffiliated investments | (340,527 | ) | 102,770 | ||||||||
Purchased option contracts | (9,095 | ) | (1,079 | ) | |||||||
Swap contracts | – | 3,484 | |||||||||
Securities sold short | 190,981 | (111,443 | ) | ||||||||
Written option contracts | 14,650 | 5,595 | |||||||||
Forward currency contracts | – | (10,332 | ) | ||||||||
Foreign currency transactions (Note 8) | 4,117 | 46 | |||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Unaffiliated investments | (136,432 | ) | 44,741 | ||||||||
Affiliated investments | – | – | |||||||||
Purchased option contracts | 2,224 | (1,715 | ) | ||||||||
Swap contracts | – | – | |||||||||
Securities sold short | (52,983 | ) | (26,940 | ) | |||||||
Written option contracts | (9,273 | ) | 1,648 | ||||||||
Forward currency contracts | 24,779 | 4,909 | |||||||||
Foreign currency transactions (Note 8) | – | (124 | ) | ||||||||
NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES | (311,559 | ) | 11,560 | ||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 391,368 | $ | 9,255 |
Semi-Annual Report | November 30, 2017
57
The Arbitrage Funds
The Arbitrage Fund | |||||||||||
Six Months Ended November 30, 2017 (Unaudited) | Year Ended May 31, 2017 | ||||||||||
FROM OPERATIONS: | |||||||||||
Net investment income (loss) | $ | 21,720,603 | $ | (14,830,252 | ) | ||||||
Net realized gains (losses) from: | |||||||||||
Unaffiliated investments | 12,068,752 | 101,364,828 | |||||||||
Purchased option contracts | 1,362,085 | 2,853,110 | |||||||||
Swap contracts | (1,379,958 | ) | 1,858,269 | ||||||||
Securities sold short | (4,870,225 | ) | (44,011,784 | ) | |||||||
Written option contracts | 638,360 | 4,796,325 | |||||||||
Forward currency contracts | (9,299,691 | ) | 13,100,442 | ||||||||
Foreign currency transactions | 484,876 | (2,488,898 | ) | ||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Unaffiliated investments | 8,434,532 | (22,413,145 | ) | ||||||||
Affiliated investments | (92,727 | ) | – | ||||||||
Purchased option contracts | (2,737,587 | ) | 246,353 | ||||||||
Swap contracts | (119,842 | ) | – | ||||||||
Securities sold short | (27,687,482 | ) | 21,034,735 | ||||||||
Written option contracts | 1,408,613 | (271,909 | ) | ||||||||
Forward currency contracts | 2,738,770 | (1,720,704 | ) | ||||||||
Foreign currency transactions | (95,470 | ) | 40,435 | ||||||||
Net increase in net assets resulting from operations | 2,573,609 | 59,557,805 | |||||||||
FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: | |||||||||||
NET INVESTMENT INCOME | |||||||||||
Distributions from net investment income, Class R | – | – | |||||||||
Distributions from net investment income, Class I | – | – | |||||||||
Distributions from net investment income, Class C | – | – | |||||||||
Distributions from net investment income, Class A | – | – | |||||||||
NET REALIZED GAINS | |||||||||||
Distributions from net realized gains, Class R | – | (3,358,948 | ) | ||||||||
Distributions from net realized gains, Class I | – | (12,685,437 | ) | ||||||||
Distributions from net realized gains, Class C | – | (272,256 | ) | ||||||||
Distributions from net realized gains, Class A | – | (87,176 | ) | ||||||||
Decrease in net assets from distributions to shareholders | – | (16,403,817 | ) | ||||||||
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7): | |||||||||||
Proceeds from shares sold | 346,994,732 | 630,766,572 | |||||||||
Shares issued in reinvestment of distributions | – | 12,430,707 | |||||||||
Proceeds from redemption fees collected (Note 2) | 4,227 | 5,567 | |||||||||
Payments for shares redeemed | (352,926,104 | ) | (685,347,494 | ) | |||||||
Net increase (decrease) in net assets from capital share transactions | (5,927,145 | ) | (42,144,648 | ) | |||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (3,353,536 | ) | 1,009,340 | ||||||||
NET ASSETS: | |||||||||||
Beginning of period | 1,869,358,351 | 1,868,349,011 | |||||||||
End of period* | $ | 1,866,004,815 | $ | 1,869,358,351 | |||||||
* Including accumulated net investment income (loss) of: | $ | 23,156,880 | $ | 1,436,277 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
58
Statement of Changes in Net Assets
The Arbitrage Event-Driven Fund | |||||||||||
Six Months Ended November 30, 2017 (Unaudited) | Year Ended May 31, 2017 | ||||||||||
FROM OPERATIONS: | |||||||||||
Net investment income (loss) | $ | 707,471 | $ | (539,607 | ) | ||||||
Net realized gains (losses) from: | |||||||||||
Unaffiliated investments | 3,252,198 | 12,158,851 | |||||||||
Purchased option contracts | (2,836 | ) | (656,442 | ) | |||||||
Swap contracts | (40,984 | ) | 201,222 | ||||||||
Securities sold short | (2,976,676 | ) | (5,127,247 | ) | |||||||
Written option contracts | 245,969 | 893,281 | |||||||||
Forward currency contracts | (242,439 | ) | 972,246 | ||||||||
Foreign currency transactions | 30,176 | (162,623 | ) | ||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Unaffiliated investments | 969,448 | (2,482,526 | ) | ||||||||
Affiliated investments | – | – | |||||||||
Purchased option contracts | (185,791 | ) | 8,695 | ||||||||
Swap contracts | (6,376 | ) | 383 | ||||||||
Securities sold short | (1,729,953 | ) | 714,902 | ||||||||
Written option contracts | 130,046 | (9,522 | ) | ||||||||
Forward currency contracts | 57,235 | (3,708 | ) | ||||||||
Foreign currency transactions | (8,956 | ) | 194,534 | ||||||||
Net increase in net assets resulting from operations | 198,532 | 6,162,439 | |||||||||
FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: | |||||||||||
NET INVESTMENT INCOME | |||||||||||
Distributions from net investment income, Class R | – | – | |||||||||
Distributions from net investment income, Class I | – | – | |||||||||
Distributions from net investment income, Class C | – | – | |||||||||
Distributions from net investment income, Class A | – | – | |||||||||
NET REALIZED GAINS | |||||||||||
Distributions from net realized gains, Class R | – | – | |||||||||
Distributions from net realized gains, Class I | – | – | |||||||||
Distributions from net realized gains, Class C | – | – | |||||||||
Distributions from net realized gains, Class A | – | – | |||||||||
Decrease in net assets from distributions to shareholders | – | – | |||||||||
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7): | |||||||||||
Proceeds from shares sold | 43,403,515 | 23,299,478 | |||||||||
Shares issued in reinvestment of distributions | – | – | |||||||||
Proceeds from redemption fees collected (Note 2) | 201 | 78 | |||||||||
Payments for shares redeemed | (39,962,146 | ) | (68,404,216 | ) | |||||||
Net increase (decrease) in net assets from capital share transactions | 3,441,570 | (45,104,660 | ) | ||||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | 3,640,102 | (38,942,221 | ) | ||||||||
NET ASSETS: | |||||||||||
Beginning of period | 140,926,393 | 179,868,614 | |||||||||
End of period* | $ | 144,566,495 | $ | 140,926,393 | |||||||
* Including accumulated net investment income (loss) of: | $ | 514,815 | $ | (192,656 | ) |
Semi-Annual Report | November 30, 2017
59
The Arbitrage Funds
The Arbitrage Credit Opportunities Fund | |||||||||||
Six Months Ended November 30, 2017 (Unaudited) | Year Ended May 31, 2017 | ||||||||||
FROM OPERATIONS: | |||||||||||
Net investment income (loss) | $ | 702,927 | $ | 1,428,928 | |||||||
Net realized gains (losses) from: | |||||||||||
Unaffiliated investments | (340,527 | ) | 1,261,159 | ||||||||
Purchased option contracts | (9,095 | ) | (280,859 | ) | |||||||
Swap contracts | – | – | |||||||||
Securities sold short | 190,981 | (1,040,241 | ) | ||||||||
Written option contracts | 14,650 | 185,291 | |||||||||
Forward currency contracts | – | (24,467 | ) | ||||||||
Foreign currency transactions | 4,117 | 23,924 | |||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Unaffiliated investments | (136,432 | ) | (1,099,294 | ) | |||||||
Affiliated investments | – | – | |||||||||
Purchased option contracts | 2,224 | 39,747 | |||||||||
Swap contracts | – | – | |||||||||
Securities sold short | (52,983 | ) | 971,998 | ||||||||
Written option contracts | (9,273 | ) | (21,529 | ) | |||||||
Forward currency contracts | 24,779 | 25,632 | |||||||||
Foreign currency transactions | – | (84 | ) | ||||||||
Net increase in net assets resulting from operations | 391,368 | 1,470,205 | |||||||||
FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: | |||||||||||
NET INVESTMENT INCOME | |||||||||||
Distributions from net investment income, Class R | (166,468 | ) | (324,446 | ) | |||||||
Distributions from net investment income, Class I | (528,250 | ) | (1,264,244 | ) | |||||||
Distributions from net investment income, Class C | (7,075 | ) | (17,244 | ) | |||||||
Distributions from net investment income, Class A | (1,231 | ) | (2,874 | ) | |||||||
NET REALIZED GAINS | |||||||||||
Distributions from net realized gains, Class R | – | – | |||||||||
Distributions from net realized gains, Class I | – | – | |||||||||
Distributions from net realized gains, Class C | – | – | |||||||||
Distributions from net realized gains, Class A | – | – | |||||||||
Decrease in net assets from distributions to shareholders | (703,024 | ) | (1,608,808 | ) | |||||||
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7): | |||||||||||
Proceeds from shares sold | 7,994,965 | 13,064,982 | |||||||||
Shares issued in reinvestment of distributions | 648,233 | 1,420,267 | |||||||||
Proceeds from redemption fees collected (Note 2) | – | 80 | |||||||||
Payments for shares redeemed | (12,254,826 | ) | (12,835,516 | ) | |||||||
Net increase (decrease) in net assets from capital share transactions | (3,611,628 | ) | 1,649,813 | ||||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (3,923,284 | ) | 1,511,210 | ||||||||
NET ASSETS: | |||||||||||
Beginning of period | 57,254,009 | 55,742,799 | |||||||||
End of period* | $ | 53,330,725 | $ | 57,254,009 | |||||||
* Including accumulated net investment income (loss) of: | $ | 40,727 | $ | 40,824 |
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
60
Statement of Changes in Net Assets
The Arbitrage Tactical Equity Fund | |||||||||||
Six Months Ended November 30, 2017 (Unaudited) | Year Ended May 31, 2017 | ||||||||||
FROM OPERATIONS: | |||||||||||
Net investment income (loss) | $ | (2,305 | ) | $ | (31,021 | ) | |||||
Net realized gains (losses) from: | |||||||||||
Unaffiliated investments | 102,770 | 220,210 | |||||||||
Purchased option contracts | (1,079 | ) | (11,918 | ) | |||||||
Swap contracts | 3,484 | 1,769 | |||||||||
Securities sold short | (111,443 | ) | (102,583 | ) | |||||||
Written option contracts | 5,595 | 17,471 | |||||||||
Forward currency contracts | (10,332 | ) | 8,574 | ||||||||
Foreign currency transactions | 46 | 155 | |||||||||
Net change in unrealized appreciation (depreciation) on: | |||||||||||
Unaffiliated investments | 44,741 | 32,896 | |||||||||
Affiliated investments | – | – | |||||||||
Purchased option contracts | (1,715 | ) | 78 | ||||||||
Swap contracts | – | – | |||||||||
Securities sold short | (26,940 | ) | (10,212 | ) | |||||||
Written option contracts | 1,648 | (917 | ) | ||||||||
Forward currency contracts | 4,909 | (5,570 | ) | ||||||||
Foreign currency transactions | (124 | ) | 129 | ||||||||
Net increase in net assets resulting from operations | 9,255 | 119,061 | |||||||||
FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: | |||||||||||
NET INVESTMENT INCOME | |||||||||||
Distributions from net investment income, Class R | – | – | |||||||||
Distributions from net investment income, Class I | – | – | |||||||||
Distributions from net investment income, Class C | – | – | |||||||||
Distributions from net investment income, Class A | – | – | |||||||||
NET REALIZED GAINS | |||||||||||
Distributions from net realized gains, Class R | – | – | |||||||||
Distributions from net realized gains, Class I | – | – | |||||||||
Distributions from net realized gains, Class C | – | – | |||||||||
Distributions from net realized gains, Class A | – | – | |||||||||
Decrease in net assets from distributions to shareholders | – | – | |||||||||
FROM CAPITAL SHARE TRANSACTIONS (NOTE 7): | |||||||||||
Proceeds from shares sold | 40,751 | 641,626 | |||||||||
Shares issued in reinvestment of distributions | – | – | |||||||||
Proceeds from redemption fees collected (Note 2) | – | – | |||||||||
Payments for shares redeemed | (13 | ) | (11,950 | ) | |||||||
Net increase (decrease) in net assets from capital share transactions | 40,738 | 629,676 | |||||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | 49,993 | 748,737 | |||||||||
NET ASSETS: | |||||||||||
Beginning of period | 2,078,559 | 1,329,822 | |||||||||
End of period* | $ | 2,128,552 | $ | 2,078,559 | |||||||
* Including accumulated net investment income (loss) of: | $ | (6,173 | ) | $ | (3,868 | ) |
Semi-Annual Report | November 30, 2017
61
The Arbitrage Fund – Class R
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 13.06 | |||||
Income (loss) from investment operations | |||||||
Net investment income (loss)(a) | 0.15 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.14 | ) | |||||
Total from investment operations | 0.01 | ||||||
Less distributions | |||||||
From net investment income | – | ||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Proceeds from redemption fees collected(d) | 0.00 | ||||||
Net asset value, end of period | $ | 13.07 | |||||
Total return(e) | 0.08 | %(f) | |||||
Net assets, end of period (in 000s) | $ | 229,377 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(h) | 2.03 | %(g) | |||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 2.03 | %(g) | |||||
Net investment income (loss) | 2.31 | %(g) | |||||
Portfolio turnover rate | 174 | %(f) |
(a) Per share amounts were calculated using average shares outstanding for the period.
(b) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.
(c) Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(f) Not annualized.
(g) Annualized.
(h) Dividend expense totaled 0.54% (annualized), 0.36%, 0.34%, 0.68%, 0.60% and 0.42% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.02% (annualized), 0.03%, 0.07%, 0.18%, 0.12% and 0.10% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(i) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.47% (annualized), 1.48%, 1.47%, 1.45%, 1.45% and 1.45% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
62
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net asset value, beginning of period | $ | 12.78 | $ | 12.97 | $ | 12.58 | $ | 12.50 | $ | 12.80 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income (loss)(a) | (0.13 | )(b) | (0.06 | ) | (0.11 | ) | (0.09 | ) | (0.10 | ) | |||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.53 | (c) | 0.17 | 0.53 | 0.23 | 0.15 | |||||||||||||||||
Total from investment operations | 0.40 | 0.11 | 0.42 | 0.14 | 0.05 | ||||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | – | – | – | – | (0.09 | ) | |||||||||||||||||
From net realized gains | (0.12 | ) | (0.30 | ) | (0.03 | ) | (0.06 | ) | (0.26 | ) | |||||||||||||
Total distributions | (0.12 | ) | (0.30 | ) | (0.03 | ) | (0.06 | ) | (0.35 | ) | |||||||||||||
Proceeds from redemption fees collected(d) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||||
Net asset value, end of period | $ | 13.06 | $ | 12.78 | $ | 12.97 | $ | 12.58 | $ | 12.50 | |||||||||||||
Total return(e) | 3.17 | % | 0.87 | % | 3.35 | % | 1.10 | % | 0.42 | % | |||||||||||||
Net assets, end of period (in 000s) | $ | 340,353 | $ | 433,936 | $ | 500,440 | $ | 760,750 | $ | 916,677 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(h) | 1.87 | %(b) | 1.88 | % | 2.31 | % | 2.17 | % | 1.97 | % | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 1.87 | %(b) | 1.88 | % | 2.31 | % | 2.17 | % | 1.97 | % | |||||||||||||
Net investment income (loss) | (1.00 | %)(b) | (0.51 | %) | (0.87 | %) | (0.70 | %) | (0.78 | %) | |||||||||||||
Portfolio turnover rate | 363 | % | 321 | % | 514 | % | 462 | % | 459 | % |
Semi-Annual Report | November 30, 2017
63
The Arbitrage Fund – Class I
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 13.46 | |||||
Income (loss) from investment operations | |||||||
Net investment income (loss)(a) | 0.16 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.14 | ) | |||||
Total from investment operations | 0.02 | ||||||
Less distributions | |||||||
From net investment income | – | ||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Proceeds from redemption fees collected(d) | 0.00 | ||||||
Net asset value, end of period | $ | 13.48 | |||||
Total return(e) | 0.15 | %(f) | |||||
Net assets, end of period (in 000s) | $ | 1,600,053 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(h) | 1.78 | %(g) | |||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 1.78 | %(g) | |||||
Net investment income (loss) | 2.31 | %(g) | |||||
Portfolio turnover rate | 174 | %(f) |
(a) Per share amounts were calculated using average shares outstanding for the period.
(b) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.
(c) Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(f) Not annualized.
(g) Annualized.
(h) Dividend expense totaled 0.54% (annualized), 0.36%, 0.34%, 0.68%, 0.60% and 0.42% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.02% (annualized), 0.03%, 0.07%, 0.18%, 0.12% and 0.10% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(i) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.22% (annualized), 1.23%, 1.22%, 1.20%, 1.20% and 1.20% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
64
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net asset value, beginning of period | $ | 13.13 | $ | 13.28 | $ | 12.86 | $ | 12.74 | $ | 13.04 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income (loss)(a) | (0.10 | )(b) | (0.03 | ) | (0.09 | ) | (0.05 | ) | (0.07 | ) | |||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.55 | (c) | 0.18 | 0.54 | 0.23 | 0.16 | |||||||||||||||||
Total from investment operations | 0.45 | 0.15 | 0.45 | 0.18 | 0.09 | ||||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | – | – | – | – | (0.13 | ) | |||||||||||||||||
From net realized gains | (0.12 | ) | (0.30 | ) | (0.03 | ) | (0.06 | ) | (0.26 | ) | |||||||||||||
Total distributions | (0.12 | ) | (0.30 | ) | (0.03 | ) | (0.06 | ) | (0.39 | ) | |||||||||||||
Proceeds from redemption fees collected(d) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||||
Net asset value, end of period | $ | 13.46 | $ | 13.13 | $ | 13.28 | $ | 12.86 | $ | 12.74 | |||||||||||||
Total return(e) | 3.47 | % | 1.16 | % | 3.51 | % | 1.39 | % | 0.67 | % | |||||||||||||
Net assets, end of period (in 000s) | $ | 1,492,094 | $ | 1,395,178 | $ | 1,514,685 | $ | 1,712,120 | $ | 1,937,514 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(h) | 1.62 | %(b) | 1.63 | % | 2.06 | % | 1.92 | % | 1.72 | % | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 1.62 | %(b) | 1.63 | % | 2.06 | % | 1.92 | % | 1.72 | % | |||||||||||||
Net investment income (loss) | (0.76 | %)(b) | (0.24 | %) | (0.65 | %) | (0.42 | %) | (0.51 | %) | |||||||||||||
Portfolio turnover rate | 363 | % | 321 | % | 514 | % | 462 | % | 459 | % |
Semi-Annual Report | November 30, 2017
65
The Arbitrage Fund – Class C
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 12.54 | |||||
Income (loss) from investment operations | |||||||
Net investment income (loss)(b) | 0.09 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.13 | ) | |||||
Total from investment operations | (0.04 | ) | |||||
Less distributions | |||||||
From net investment income | – | ||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Proceeds from redemption fees collected | – | ||||||
Net asset value, end of period | $ | 12.50 | |||||
Total return(f) | (0.32 | %)(g) | |||||
Net assets, end of period (in 000s) | $ | 25,006 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(i) | 2.78 | %(h) | |||||
Net expenses after advisory fees waived and expenses reimbursed(i)(j) | 2.78 | %(h) | |||||
Net investment income (loss) | 1.37 | %(h) | |||||
Portfolio turnover rate | 174 | %(g) |
(a) Commenced operations on June 1, 2012.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.
(d) Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(g) Not annualized.
(h) Annualized.
(i) Dividend expense totaled 0.54% (annualized), 0.36%, 0.34%, 0.68%, 0.60% and 0.42% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.02% (annualized), 0.03%, 0.07%, 0.18%, 0.12% and 0.11% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(j) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 2.22% (annualized), 2.23%, 2.22%, 2.20%, 2.20% and 2.20% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014, and 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
66
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013(a) | |||||||||||||||||||
Net asset value, beginning of period | $ | 12.37 | $ | 12.65 | $ | 12.37 | $ | 12.38 | $ | 12.80 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income (loss)(b) | (0.22 | )(c) | (0.16 | ) | (0.20 | ) | (0.18 | ) | (0.23 | ) | |||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.51 | (d) | 0.18 | 0.51 | 0.23 | 0.20 | |||||||||||||||||
Total from investment operations | 0.29 | 0.02 | 0.31 | 0.05 | (0.03 | ) | |||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | – | – | – | – | (0.13 | ) | |||||||||||||||||
From net realized gains | (0.12 | ) | (0.30 | ) | (0.03 | ) | (0.06 | ) | (0.26 | ) | |||||||||||||
Total distributions | (0.12 | ) | (0.30 | ) | (0.03 | ) | (0.06 | ) | (0.39 | ) | |||||||||||||
Proceeds from redemption fees collected | – | – | – | – | 0.00 | (e) | |||||||||||||||||
Net asset value, end of period | $ | 12.54 | $ | 12.37 | $ | 12.65 | $ | 12.37 | $ | 12.38 | |||||||||||||
Total return(f) | 2.38 | % | 0.18 | % | 2.52 | % | 0.38 | % | (0.27 | %) | |||||||||||||
Net assets, end of period (in 000s) | $ | 26,900 | $ | 30,814 | $ | 32,958 | $ | 33,589 | $ | 18,741 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(i) | 2.62 | %(c) | 2.63 | % | 3.06 | % | 2.92 | % | 2.75 | % | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(i)(j) | 2.62 | %(c) | 2.63 | % | 3.06 | % | 2.92 | % | 2.75 | % | |||||||||||||
Net investment income (loss) | (1.76 | %)(c) | (1.28 | %) | (1.60 | %) | (1.45 | %) | (1.84 | %) | |||||||||||||
Portfolio turnover rate | 363 | % | 321 | % | 514 | % | 462 | % | 459 | % |
Semi-Annual Report | November 30, 2017
67
The Arbitrage Fund – Class A
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 13.07 | |||||
Income (loss) from investment operations | |||||||
Net investment income (loss)(b) | 0.14 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.14 | ) | |||||
Total from investment operations | – | ||||||
Less distributions | |||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Proceeds from redemption fees collected | – | ||||||
Net asset value, end of period | $ | 13.07 | |||||
Total return(f) | 0 | %(g) | |||||
Net assets, end of period (in 000s) | $ | 11,569 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(i) | 2.03 | %(h) | |||||
Net expenses after advisory fees waived and expenses reimbursed(i)(j) | 2.03 | %(h) | |||||
Net investment income (loss) | 2.13 | %(h) | |||||
Portfolio turnover rate | 174 | %(g) |
(a) Commenced operations on June 1, 2013.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.
(d) Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(g) Not annualized.
(h) Annualized.
(i) Dividend expense totaled 0.54% (annualized), 0.36%, 0.33%, 0.68% and 0.60% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively. Interest rebate expense and line of credit interest expense totaled 0.02% (annualized), 0.03%, 0.07%, 0.18% and 0.12% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively.
(j) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.47% (annualized), 1.48%, 1.47%, 1.45% and 1.46% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
68
Financial Highlights
Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014(a) | ||||||||||||||||
Net asset value, beginning of period | $ | 12.79 | $ | 12.97 | $ | 12.59 | $ | 12.50 | |||||||||||
Income (loss) from investment operations | |||||||||||||||||||
Net investment income (loss)(b) | (0.13 | )(c) | (0.07 | ) | (0.09 | ) | (0.09 | ) | |||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.53 | (d) | 0.19 | 0.50 | 0.24 | ||||||||||||||
Total from investment operations | 0.40 | 0.12 | 0.41 | 0.15 | |||||||||||||||
Less distributions | |||||||||||||||||||
From net realized gains | (0.12 | ) | (0.30 | ) | (0.03 | ) | (0.06 | ) | |||||||||||
Total distributions | (0.12 | ) | (0.30 | ) | (0.03 | ) | (0.06 | ) | |||||||||||
Proceeds from redemption fees collected | – | – | – | 0.00 | (e) | ||||||||||||||
Net asset value, end of period | $ | 13.07 | $ | 12.79 | $ | 12.97 | $ | 12.59 | |||||||||||
Total return(f) | 3.17 | % | 0.95 | % | 3.27 | % | 1.18 | % | |||||||||||
Net assets, end of period (in 000s) | $ | 10,012 | $ | 8,421 | $ | 17,458 | $ | 6,655 | |||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||
Gross expenses(i) | 1.87 | %(c) | 1.87 | % | 2.31 | % | 2.18 | % | |||||||||||
Net expenses after advisory fees waived and expenses reimbursed(i)(j) | 1.87 | %(c) | 1.87 | % | 2.31 | % | 2.18 | % | |||||||||||
Net investment income (loss) | (1.02 | %)(c) | (0.56 | %) | (0.70 | %) | (0.69 | %) | |||||||||||
Portfolio turnover rate | 363 | % | 321 | % | 514 | % | 462 | % |
Semi-Annual Report | November 30, 2017
69
The Arbitrage Event-Driven Fund – Class R
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 9.34 | |||||
Income (loss) from investment operations | |||||||
Net investment income (loss)(a) | 0.06 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.05 | ) | |||||
Total from investment operations | 0.01 | ||||||
Less distributions | |||||||
From net investment income | – | ||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Proceeds from redemption fees collected(d) | 0.00 | ||||||
Net asset value, end of period | $ | 9.35 | |||||
Total return(e) | 0.11 | %(f) | |||||
Net assets, end of period (in 000s) | $ | 43,365 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(h) | 2.63 | %(g) | |||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 2.13 | %(g) | |||||
Net investment income (loss) | 1.19 | %(g) | |||||
Portfolio turnover rate | 187 | %(f) |
(a) Per share amounts were calculated using average shares outstanding for the period.
(b) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.
(c) Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(f) Not annualized.
(g) Annualized.
(h) Dividend expense totaled 0.44% (annualized), 0.53%, 0.58%, 0.55%, 0.49% and 0.36% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.00% (annualized), 0.04%, 0.19%, 0.26%, 0.13% and 0.13% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(i) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.69% (annualized), 1.69%, 1.69%, 1.69%, 1.69% and 1.69% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
70
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net asset value, beginning of period | $ | 8.98 | $ | 9.73 | $ | 10.29 | $ | 9.80 | $ | 9.79 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income (loss)(a) | (0.04 | )(b) | (0.02 | ) | 0.04 | 0.10 | 0.15 | ||||||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.40 | (c) | (0.53 | ) | (0.36 | ) | 0.46 | 0.11 | |||||||||||||||
Total from investment operations | 0.36 | (0.55 | ) | (0.32 | ) | 0.56 | 0.26 | ||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | – | (0.20 | ) | (0.08 | ) | (0.06 | ) | (0.10 | ) | ||||||||||||||
From net realized gains | – | (0.00 | )(d) | (0.16 | ) | (0.01 | ) | (0.15 | ) | ||||||||||||||
Total distributions | – | (0.20 | ) | (0.24 | ) | (0.07 | ) | (0.25 | ) | ||||||||||||||
Proceeds from redemption fees collected(d) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||||
Net asset value, end of period | $ | 9.34 | $ | 8.98 | $ | 9.73 | $ | 10.29 | $ | 9.80 | |||||||||||||
Total return(e) | 4.01 | % | (5.55 | %) | (3.12 | %) | 5.75 | % | 2.72 | % | |||||||||||||
Net assets, end of period (in 000s) | $ | 70,277 | $ | 80,114 | $ | 195,014 | $ | 204,055 | $ | 10,080 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(h) | 2.56 | %(b) | 2.62 | % | 2.52 | % | 2.33 | % | 2.55 | % | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 2.26 | % | 2.46 | % | 2.50 | % | 2.31 | % | 2.18 | % | |||||||||||||
Net investment income (loss) | (0.45 | %)(b) | (0.27 | %) | 0.37 | % | 1.04 | % | 1.58 | % | |||||||||||||
Portfolio turnover rate | 409 | % | 350 | % | 451 | % | 340 | % | 336 | % |
Semi-Annual Report | November 30, 2017
71
The Arbitrage Event-Driven Fund – Class I
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 9.43 | |||||
Income (loss) from investment operations | |||||||
Net investment income (loss)(a) | 0.04 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.02 | ) | |||||
Total from investment operations | 0.02 | ||||||
Less distributions | |||||||
From net investment income | – | ||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Proceeds from redemption fees collected(d) | 0.00 | ||||||
Net asset value, end of period | $ | 9.45 | |||||
Total return(e) | 0.21 | %(f) | |||||
Net assets, end of period (in 000s) | $ | 99,151 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(h) | 2.38 | %(g) | |||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 1.88 | %(g) | |||||
Net investment income (loss) | 0.93 | %(g) | |||||
Portfolio turnover rate | 187 | %(f) |
(a) Per share amounts were calculated using average shares outstanding for the period.
(b) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.
(c) Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(f) Not annualized.
(g) Annualized.
(h) Dividend expense totaled 0.44% (annualized), 0.53%, 0.58%, 0.55%, 0.49% and 0.36% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.00% (annualized), 0.04%, 0.19%, 0.26%, 0.13% and 0.13% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(i) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.44% (annualized), 1.44%, 1.44%, 1.44%, 1.44% and 1.44% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
72
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||||||
Net asset value, beginning of period | $ | 9.04 | $ | 9.81 | $ | 10.37 | $ | 9.86 | $ | 9.82 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income (loss)(a) | (0.02 | )(b) | (0.02 | ) | 0.06 | 0.13 | 0.16 | ||||||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.41 | (c) | (0.51 | ) | (0.37 | ) | 0.46 | 0.13 | |||||||||||||||
Total from investment operations | 0.39 | (0.53 | ) | (0.31 | ) | 0.59 | 0.29 | ||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | – | (0.24 | ) | (0.09 | ) | (0.07 | ) | (0.10 | ) | ||||||||||||||
From net realized gains | – | (0.00 | )(d) | (0.16 | ) | (0.01 | ) | (0.15 | ) | ||||||||||||||
Total distributions | – | (0.24 | ) | (0.25 | ) | (0.08 | ) | (0.25 | ) | ||||||||||||||
Proceeds from redemption fees collected(d) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||||
Net asset value, end of period | $ | 9.43 | $ | 9.04 | $ | 9.81 | $ | 10.37 | $ | 9.86 | |||||||||||||
Total return(e) | 4.31 | % | (5.27 | %) | (2.96 | %) | 6.02 | % | 3.04 | % | |||||||||||||
Net assets, end of period (in 000s) | $ | 68,272 | $ | 95,155 | $ | 390,102 | $ | 290,999 | $ | 41,493 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(h) | 2.31 | %(b) | 2.37 | % | 2.27 | % | 2.11 | % | 2.31 | % | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 2.01 | % | 2.21 | % | 2.25 | % | 2.06 | % | 1.93 | % | |||||||||||||
Net investment income (loss) | (0.22 | %)(b) | (0.26 | %) | 0.62 | % | 1.31 | % | 1.68 | % | |||||||||||||
Portfolio turnover rate | 409 | % | 350 | % | 451 | % | 340 | % | 336 | % |
Semi-Annual Report | November 30, 2017
73
The Arbitrage Event-Driven Fund – Class C
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 9.19 | |||||
Income (loss) from investment operations | |||||||
Net investment income (loss)(b) | 0.01 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.03 | ) | |||||
Total from investment operations | (0.02 | ) | |||||
Less distributions | |||||||
From net investment income | – | ||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Net asset value, end of period | $ | 9.17 | |||||
Total return(f) | (0.22 | %)(g) | |||||
Net assets, end of period (in 000s) | $ | 1,424 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(i) | 3.38 | %(h) | |||||
Net expenses after advisory fees waived and expenses reimbursed(i)(j) | 2.88 | %(h) | |||||
Net investment income (loss) | 0.14 | %(h) | |||||
Portfolio turnover rate | 187 | %(g) |
(a) Commenced operations on June 1, 2012.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.
(d) Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(g) Not annualized.
(h) Annualized.
(i) Dividend expense totaled 0.44% (annualized), 0.53%, 0.59%, 0.55%, 0.49% and 0.36% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.00% (annualized), 0.04%, 0.18%, 0.26%, 0.13% and 0.13% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and 2013, respectively.
(j) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 2.44% (annualized), 2.44%, 2.44%, 2.44%, 2.44% and 2.44% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014, and 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
74
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013(a) | |||||||||||||||||||
Net asset value, beginning of period | $ | 8.91 | $ | 9.62 | $ | 10.22 | $ | 9.78 | $ | 9.79 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income (loss)(b) | (0.11 | )(c) | (0.09 | ) | (0.04 | ) | 0.03 | 0.09 | |||||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.39 | (d) | (0.50 | ) | (0.36 | ) | 0.46 | 0.13 | |||||||||||||||
Total from investment operations | 0.28 | (0.59 | ) | (0.40 | ) | 0.49 | 0.22 | ||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | – | (0.12 | ) | (0.04 | ) | (0.04 | ) | (0.08 | ) | ||||||||||||||
From net realized gains | – | (0.00 | )(e) | (0.16 | ) | (0.01 | ) | (0.15 | ) | ||||||||||||||
Total distributions | – | (0.12 | ) | (0.20 | ) | (0.05 | ) | (0.23 | ) | ||||||||||||||
Net asset value, end of period | $ | 9.19 | $ | 8.91 | $ | 9.62 | $ | 10.22 | $ | 9.78 | |||||||||||||
Total return(f) | 3.14 | % | (6.14 | %) | (3.95 | %) | 5.05 | % | 2.33 | % | |||||||||||||
Net assets, end of period (in 000s) | $ | 1,567 | $ | 2,538 | $ | 5,020 | $ | 4,232 | $ | 342 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(i) | 3.31 | %(c) | 3.37 | % | 3.27 | % | 3.12 | % | 3.31 | % | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(i)(j) | 3.01 | % | 3.21 | % | 3.25 | % | 3.06 | % | 2.93 | % | |||||||||||||
Net investment income (loss) | (1.26 | %)(c) | (0.95 | %) | (0.37 | %) | 0.32 | % | 0.95 | % | |||||||||||||
Portfolio turnover rate | 409 | % | 350 | % | 451 | % | 340 | % | 336 | % |
Semi-Annual Report | November 30, 2017
75
The Arbitrage Event-Driven Fund – Class A
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 9.35 | |||||
Income (loss) from investment operations | |||||||
Net investment income (loss)(b) | 0.04 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.03 | ) | |||||
Total from investment operations | 0.01 | ||||||
Less distributions | |||||||
From net investment income | – | ||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Proceeds from redemption fees collected | – | ||||||
Net asset value, end of period | $ | 9.36 | |||||
Total return(f) | 0.11 | %(g) | |||||
Net assets, end of period (in 000s) | $ | 626 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(i) | 2.63 | %(h) | |||||
Net expenses after advisory fees waived and expenses reimbursed(i)(j) | 2.13 | %(h) | |||||
Net investment income (loss) | 0.88 | %(h) | |||||
Portfolio turnover rate | 187 | %(g) |
(a) Commenced operations on June 1, 2013.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.
(d) Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.
(e) Amount rounds to less than $0.01 per share.
(f) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(g) Not annualized.
(h) Annualized.
(i) Dividend expense totaled 0.44% (annualized), 0.53%, 0.59%, 0.55% and 0.49% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively. Interest rebate expense and line of credit interest expense totaled 0.00% (annualized), 0.04%, 0.19%, 0.26% and 0.13% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively.
(j) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.69% (annualized), 1.69%, 1.69%, 1.69% and 1.69% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
76
Financial Highlights
Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014(a) | ||||||||||||||||
Net asset value, beginning of period | $ | 8.98 | $ | 9.73 | $ | 10.30 | $ | 9.80 | |||||||||||
Income (loss) from investment operations | |||||||||||||||||||
Net investment income (loss)(b) | (0.05 | )(c) | (0.03 | ) | 0.03 | 0.10 | |||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.42 | (d) | (0.52 | ) | (0.36 | ) | 0.47 | ||||||||||||
Total from investment operations | 0.37 | (0.55 | ) | (0.33 | ) | 0.57 | |||||||||||||
Less distributions | |||||||||||||||||||
From net investment income | – | (0.20 | ) | (0.08 | ) | (0.06 | ) | ||||||||||||
From net realized gains | – | (0.00 | )(e) | (0.16 | ) | (0.01 | ) | ||||||||||||
Total distributions | – | (0.20 | ) | (0.24 | ) | (0.07 | ) | ||||||||||||
Proceeds from redemption fees collected | – | – | – | 0.00 | (e) | ||||||||||||||
Net asset value, end of period | $ | 9.35 | $ | 8.98 | $ | 9.73 | $ | 10.30 | |||||||||||
Total return(f) | 4.12 | % | (5.54 | %) | (3.22 | %) | 5.85 | % | |||||||||||
Net assets, end of period (in 000s) | $ | 810 | $ | 2,062 | $ | 5,341 | $ | 3,830 | |||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||
Gross expenses(i) | 2.56 | %(c) | 2.63 | % | 2.52 | % | 2.36 | % | |||||||||||
Net expenses after advisory fees waived and expenses reimbursed(i)(j) | 2.26 | % | 2.47 | % | 2.50 | % | 2.31 | % | |||||||||||
Net investment income (loss) | (0.53 | %)(c) | (0.28 | %) | 0.35 | % | 0.98 | % | |||||||||||
Portfolio turnover rate | 409 | % | 350 | % | 451 | % | 340 | % |
Semi-Annual Report | November 30, 2017
77
The Arbitrage Credit Opportunities Fund – Class R
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 9.67 | |||||
Income (loss) from investment operations | |||||||
Net investment income(b) | 0.11 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.05 | ) | |||||
Total from investment operations | 0.06 | ||||||
Less distributions | |||||||
From net investment income | (0.11 | ) | |||||
Total distributions | (0.11 | ) | |||||
Proceeds from redemption fees collected | – | ||||||
Net asset value, end of period | $ | 9.62 | |||||
Total return(e) | 0.52 | %(f) | |||||
Net assets, end of period (in 000s) | $ | 14,083 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(h) | 2.43 | %(g) | |||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 2.14 | %(g) | |||||
Net investment income | 2.28 | %(g) | |||||
Portfolio turnover rate | 128 | %(f) |
(a) Commenced operations on October 1, 2012.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(f) Not annualized.
(g) Annualized.
(h) Dividend expense totaled 0.57% (annualized), 0.16%, 0.03%, 0.06%, 0.10% and 0.03% (annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and the period ended May 31, 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.00%, 0.14% , 0.47%, 0.07% and 0.02% (annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and the period ended May 31, 2013, respectively.
(i) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.50% (annualized), 1.50%, 1.50%, 1.50%, 1.50% and 1.50%(annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and the period ended May 31, 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
78
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013(a) | |||||||||||||||||||
Net asset value, beginning of period | $ | 9.69 | $ | 9.95 | $ | 10.28 | $ | 10.18 | $ | 10.00 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income(b) | 0.23 | (c) | 0.25 | 0.28 | 0.40 | 0.17 | |||||||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.01 | (0.24 | ) | (0.29 | ) | 0.08 | 0.06 | ||||||||||||||||
Total from investment operations | 0.24 | 0.01 | (0.01 | ) | 0.48 | 0.23 | |||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | (0.26 | ) | (0.27 | ) | (0.32 | ) | (0.39 | ) | (0.05 | ) | |||||||||||||
Total distributions | (0.26 | ) | (0.27 | ) | (0.32 | ) | (0.39 | ) | (0.05 | ) | |||||||||||||
Proceeds from redemption fees collected | 0.00 | (d) | – | 0.00 | (d) | 0.01 | 0.00 | (d) | |||||||||||||||
Net asset value, end of period | $ | 9.67 | $ | 9.69 | $ | 9.95 | $ | 10.28 | $ | 10.18 | |||||||||||||
Total return(e) | 2.58 | % | 0.10 | % | (0.10 | %) | 4.99 | % | 2.33 | %(f) | |||||||||||||
Net assets, end of period (in 000s) | $ | 11,935 | $ | 12,426 | $ | 22,728 | $ | 6,393 | $ | 1,671 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(h) | 1.96 | %(c) | 1.92 | % | 2.27 | % | 2.71 | % | 3.79 | %(g) | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 1.66 | % | 1.67 | % | 2.03 | % | 1.67 | % | 1.55 | %(g) | |||||||||||||
Net investment income | 2.34 | %(c) | 2.62 | % | 2.84 | % | 3.97 | % | 2.49 | %(g) | |||||||||||||
Portfolio turnover rate | 211 | % | 181 | % | 191 | % | 181 | % | 92 | %(f) |
Semi-Annual Report | November 30, 2017
79
The Arbitrage Credit Opportunities Fund – Class I
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 9.65 | |||||
Income (loss) from investment operations | |||||||
Net investment income(b) | 0.12 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.05 | ) | |||||
Total from investment operations | 0.07 | ||||||
Less distributions | |||||||
From net investment income | (0.12 | ) | |||||
Total distributions | (0.12 | ) | |||||
Proceeds from redemption fees collected | – | ||||||
Net asset value, end of period | $ | 9.60 | |||||
Total return(e) | 0.75 | %(f) | |||||
Net assets, end of period (in 000s) | $ | 38,330 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(h) | 2.18 | %(g) | |||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 1.89 | %(g) | |||||
Net investment income | 2.52 | %(g) | |||||
Portfolio turnover rate | 128 | %(f) |
(a) Commenced operations on October 1, 2012.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.
(d) Amount rounds to less than $0.01 per share.
(e) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(f) Not annualized.
(g) Annualized.
(h) Dividend expense totaled 0.57% (annualized), 0.16%, 0.04% 0.06%, 0.10% and 0.03% (annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014 and the period ended May 31, 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.00%, 0.14%, 0.47%, 0.07% and 0.01% (annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014 and the period ended May 31, 2013, respectively.
(i) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.25% (annualized), 1.25%, 1.25%, 1.25%, 1.25% and 1.25% (annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and the period ended May 31, 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
80
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013(a) | |||||||||||||||||||
Net asset value, beginning of period | $ | 9.67 | $ | 9.93 | $ | 10.25 | $ | 10.16 | $ | 10.00 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income(b) | 0.25 | (c) | 0.27 | 0.33 | 0.42 | 0.17 | |||||||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.02 | (0.24 | ) | (0.31 | ) | 0.08 | 0.08 | ||||||||||||||||
Total from investment operations | 0.27 | 0.03 | 0.02 | 0.50 | 0.25 | ||||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | (0.29 | ) | (0.29 | ) | (0.34 | ) | (0.41 | ) | (0.09 | ) | |||||||||||||
Total distributions | (0.29 | ) | (0.29 | ) | (0.34 | ) | (0.41 | ) | (0.09 | ) | |||||||||||||
Proceeds from redemption fees collected | – | – | 0.00 | (d) | 0.00 | (d) | – | ||||||||||||||||
Net asset value, end of period | $ | 9.65 | $ | 9.67 | $ | 9.93 | $ | 10.25 | $ | 10.16 | |||||||||||||
Total return(e) | 2.78 | % | 0.30 | % | 0.16 | % | 5.08 | % | 2.49 | %(f) | |||||||||||||
Net assets, end of period (in 000s) | $ | 44,159 | $ | 41,992 | $ | 46,118 | $ | 23,039 | $ | 3,462 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(h) | 1.71 | %(c) | 1.68 | % | 2.04 | % | 2.37 | % | 3.64 | %(g) | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(h)(i) | 1.41 | % | 1.43 | % | 1.78 | % | 1.42 | % | 1.29 | %(g) | |||||||||||||
Net investment income | 2.62 | %(c) | 2.84 | % | 3.28 | % | 4.16 | % | 2.62 | %(g) | |||||||||||||
Portfolio turnover rate | 211 | % | 181 | % | 191 | % | 181 | % | 92 | %(f) |
Semi-Annual Report | November 30, 2017
81
The Arbitrage Credit Opportunities Fund – Class C
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 9.62 | |||||
Income (loss) from investment operations | |||||||
Net investment income(b) | 0.07 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.06 | ) | |||||
Total from investment operations | 0.01 | ||||||
Less distributions | |||||||
From net investment income | (0.07 | ) | |||||
Total distributions | (0.07 | ) | |||||
Net asset value, end of period | $ | 9.56 | |||||
Total return(d) | 0.14 | %(e) | |||||
Net assets, end of period (in 000s) | $ | 810 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(g) | 3.18 | %(f) | |||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.89 | %(f) | |||||
Net investment income | 1.54 | %(f) | |||||
Portfolio turnover rate | 128 | %(e) |
(a) Commenced operations on October 1, 2012.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.
(d) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(e) Not annualized.
(f) Annualized.
(g) Dividend expense totaled 0.57% (annualized), 0.16%, 0.04%, 0.06%, 0.10%, 0.03% (annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and the period ended May 31, 2013, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.00%, 0.14%, 0.47%, 0.07% and 0.01% (annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and the period ended May 31, 2013, respectively.
(h) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 2.25% (annualized), 2.25%, 2.25%, 2.25%, 2.25% and 2.25% (annualized) of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015, 2014 and the period ended May 31, 2013, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
82
Financial Highlights
Year Ended May 31, | |||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013(a) | |||||||||||||||||||
Net asset value, beginning of period | $ | 9.61 | $ | 9.89 | $ | 10.23 | $ | 10.17 | $ | 10.00 | |||||||||||||
Income (loss) from investment operations | |||||||||||||||||||||||
Net investment income(b) | 0.16 | (c) | 0.18 | 0.22 | 0.34 | 0.11 | |||||||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.02 | (0.25 | ) | (0.30 | ) | 0.07 | 0.09 | ||||||||||||||||
Total from investment operations | 0.18 | (0.07 | ) | (0.08 | ) | 0.41 | 0.20 | ||||||||||||||||
Less distributions | |||||||||||||||||||||||
From net investment income | (0.17 | ) | (0.21 | ) | (0.26 | ) | (0.35 | ) | (0.03 | ) | |||||||||||||
Total distributions | (0.17 | ) | (0.21 | ) | (0.26 | ) | (0.35 | ) | (0.03 | ) | |||||||||||||
Net asset value, end of period | $ | 9.62 | $ | 9.61 | $ | 9.89 | $ | 10.23 | $ | 10.17 | |||||||||||||
Total return(d) | 1.83 | % | (0.72 | %) | (0.76 | %) | 4.17 | % | 2.01 | %(e) | |||||||||||||
Net assets, end of period (in 000s) | $ | 1,053 | $ | 1,220 | $ | 2,020 | $ | 716 | $ | 26 | |||||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||||||
Gross expenses(g) | 2.71 | %(c) | 2.68 | % | 3.05 | % | 3.37 | % | 4.69 | %(f) | |||||||||||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.41 | % | 2.43 | % | 2.78 | % | 2.42 | % | 2.30 | %(f) | |||||||||||||
Net investment income | 1.69 | %(c) | 1.92 | % | 2.24 | % | 3.37 | % | 1.58 | %(f) | |||||||||||||
Portfolio turnover rate | 211 | % | 181 | % | 191 | % | 181 | % | 92 | %(e) |
Semi-Annual Report | November 30, 2017
83
The Arbitrage Credit Opportunities Fund – Class A
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | |||||||
(Unaudited) | |||||||
Net asset value, beginning of period | $ | 9.66 | |||||
Income (loss) from investment operations | |||||||
Net investment income(b) | 0.11 | ||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | (0.06 | ) | |||||
Total from investment operations | 0.05 | ||||||
Less distributions | |||||||
From net investment income | (0.11 | ) | |||||
Total distributions | (0.11 | ) | |||||
Net asset value, end of period | $ | 9.60 | |||||
Total return(d) | 0.52 | %(e) | |||||
Net assets, end of period (in 000s) | $ | 107 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(g) | 2.43 | %(f) | |||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.14 | %(f) | |||||
Net investment income | 2.28 | %(f) | |||||
Portfolio turnover rate | 128 | %(e) |
(a) Commenced operations on June 1, 2013.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.
(d) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(e) Not annualized.
(f) Annualized.
(g) Dividend expense totaled 0.57% (annualized), 0.16%, 0.02%, 0.06% and 0.10% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.00%, 0.14%, 0.47% and 0.07% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively.
(h) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.50% (annualized), 1.50%, 1.50%, 1.50% and 1.50% of average net assets for the six months ended November 30, 2017 and the years ended May 31, 2017, 2016, 2015 and 2014, respectively.
See Notes to Financial Statements.
www.arbitragefunds.com | 1-800-295-4485
84
Financial Highlights
Year Ended May 31, | |||||||||||||||||||
2017 | 2016 | 2015 | 2014(a) | ||||||||||||||||
Net asset value, beginning of period | $ | 9.67 | $ | 9.93 | $ | 10.25 | $ | 10.18 | |||||||||||
Income (loss) from investment operations | |||||||||||||||||||
Net investment income(b) | 0.23 | (c) | 0.25 | 0.29 | 0.39 | ||||||||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.02 | (0.25 | ) | (0.29 | ) | 0.09 | |||||||||||||
Total from investment operations | 0.25 | – | – | 0.48 | |||||||||||||||
Less distributions | |||||||||||||||||||
From net investment income | (0.26 | ) | (0.26 | ) | (0.32 | ) | (0.41 | ) | |||||||||||
Total distributions | (0.26 | ) | (0.26 | ) | (0.32 | ) | (0.41 | ) | |||||||||||
Net asset value, end of period | $ | 9.66 | $ | 9.67 | $ | 9.93 | $ | 10.25 | |||||||||||
Total return(d) | 2.58 | % | 0.02 | % | (0.01 | %) | 4.86 | % | |||||||||||
Net assets, end of period (in 000s) | $ | 107 | $ | 104 | $ | 630 | $ | 28 | |||||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||||||
Gross expenses(g) | 1.96 | %(c) | 1.91 | % | 2.29 | % | 2.77 | % | |||||||||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 1.66 | % | 1.66 | % | 2.03 | % | 1.67 | % | |||||||||||
Net investment income | 2.35 | %(c) | 2.62 | % | 2.95 | % | 3.89 | % | |||||||||||
Portfolio turnover rate | 211 | % | 181 | % | 191 | % | 181 | % |
Semi-Annual Report | November 30, 2017
85
The Arbitrage Tactical Equity Fund – Class R
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | Year Ended May 31, | ||||||||||||||
(Unaudited) | 2017 | 2016 | |||||||||||||
Net asset value, beginning of period | $ | 9.99 | $ | 9.31 | $ | 10.12 | |||||||||
Income (loss) from investment operations | |||||||||||||||
Net investment loss(b) | (0.02 | ) | (0.20 | )(c) | (0.03 | ) | |||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.06 | 0.88 | (0.69 | ) | |||||||||||
Total from investment operations | 0.04 | 0.68 | (0.72 | ) | |||||||||||
Less distributions | |||||||||||||||
From net realized gains | – | – | (0.09 | ) | |||||||||||
Total distributions | – | – | (0.09 | ) | |||||||||||
Net asset value, end of period | $ | 10.03 | $ | 9.99 | $ | 9.31 | |||||||||
Total return(d) | 0.40 | %(e) | 7.30 | % | (7.12 | %) | |||||||||
Net assets, end of period (in 000s) | $ | 10 | $ | 10 | $ | 9 | |||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||
Gross expenses(g) | 12.89 | %(f) | 15.85 | %(c) | 20.24 | % | |||||||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.29 | %(f) | 2.66 | % | 2.62 | % | |||||||||
Net investment loss | (0.44 | %)(f) | (2.14 | %)(c) | (0.34 | %) | |||||||||
Portfolio turnover rate | 221 | %(e) | 449 | % | 416 | % |
(a) Commenced operations on January 2, 2015.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to $0.01 per share and 0.08% of average net assets.
(d) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(e) Not annualized.
(f) Annualized.
(g) Dividend expense totaled 0.60% (annualized), 0.84%, 0.70% and 1.01% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively. Interest rebate expense and line of credit interest expense totaled 0.00% (annualized), 0.13%, 0.23% and 0.15% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively.
(h) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.69% (annualized), 1.69%, 1.69% and 1.69% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively.
See Notes to Financial Statements.
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Financial Highlights
Period Ended May 31, | |||||||
2015(a) | |||||||
Net asset value, beginning of period | $ | 10.00 | |||||
Income (loss) from investment operations | |||||||
Net investment loss(b) | (0.10 | ) | |||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.22 | ||||||
Total from investment operations | 0.12 | ||||||
Less distributions | |||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Net asset value, end of period | $ | 10.12 | |||||
Total return(d) | 1.20 | %(e) | |||||
Net assets, end of period (in 000s) | $ | 10 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(g) | 44.48 | %(f) | |||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.85 | %(f) | |||||
Net investment loss | (2.35 | %)(f) | |||||
Portfolio turnover rate | 235 | %(e) |
Semi-Annual Report | November 30, 2017
87
The Arbitrage Tactical Equity Fund – Class I
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | Year Ended May 31, | ||||||||||||||
(Unaudited) | 2017 | 2016 | |||||||||||||
Net asset value, beginning of period | $ | 9.99 | $ | 9.31 | $ | 10.12 | |||||||||
Income (loss) from investment operations | |||||||||||||||
Net investment loss(b) | (0.01 | ) | (0.18 | )(c) | (0.04 | ) | |||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.05 | 0.86 | (0.68 | ) | |||||||||||
Total from investment operations | 0.04 | 0.68 | (0.72 | ) | |||||||||||
Less distributions | |||||||||||||||
From net realized gains | – | – | (0.09 | ) | |||||||||||
Total distributions | – | – | (0.09 | ) | |||||||||||
Net asset value, end of period | $ | 10.03 | $ | 9.99 | $ | 9.31 | |||||||||
Total return(d) | 0.40 | %(e) | 7.30 | % | (7.12 | %) | |||||||||
Net assets, end of period (in 000s) | $ | 2,098 | $ | 2,048 | $ | 1,302 | |||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||
Gross expenses(g) | 12.67 | %(f) | 15.60 | %(c) | 20.02 | % | |||||||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.07 | %(f) | 2.41 | % | 2.40 | % | |||||||||
Net investment loss | (0.21 | %)(f) | (1.88 | %)(c) | (0.47 | %) | |||||||||
Portfolio turnover rate | 221 | %(e) | 449 | % | 416 | % |
(a) Commenced operations on January 2, 2015.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to $0.01 per share and 0.08% of average net assets.
(d) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(e) Not annualized.
(f) Annualized.
(g) Dividend expense totaled 0.62% (annualized), 0.84%, 0.72% and 1.01% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively. Interest rebate expense and line of credit interest expense totaled 0.01% (annualized), 0.13%, 0.24% and 0.15 (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively.
(h) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.44% (annualized), 1.44%, 1.44% and 1.44% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively.
See Notes to Financial Statements.
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Financial Highlights
Period Ended May 31, | |||||||
2015(a) | |||||||
Net asset value, beginning of period | $ | 10.00 | |||||
Income (loss) from investment operations | |||||||
Net investment loss(b) | (0.09 | ) | |||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.21 | ||||||
Total from investment operations | 0.12 | ||||||
Less distributions | |||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Net asset value, end of period | $ | 10.12 | |||||
Total return(d) | 1.20 | %(e) | |||||
Net assets, end of period (in 000s) | $ | 1,386 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(g) | 28.08 | %(f) | |||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.60 | %(f) | |||||
Net investment loss | (2.15 | %)(f) | |||||
Portfolio turnover rate | 235 | %(e) |
Semi-Annual Report | November 30, 2017
89
The Arbitrage Tactical Equity Fund – Class C
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | Year Ended May 31, | ||||||||||||||
(Unaudited) | 2017 | 2016 | |||||||||||||
Net asset value, beginning of period | $ | 9.99 | $ | 9.30 | $ | 10.12 | |||||||||
Income (loss) from investment operations | |||||||||||||||
Net investment loss(b) | (0.06 | ) | (0.28 | )(c) | (0.10 | ) | |||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.10 | 0.97 | (0.63 | ) | |||||||||||
Total from investment operations | 0.04 | 0.69 | (0.73 | ) | |||||||||||
Less distributions | |||||||||||||||
From net realized gains | – | – | (0.09 | ) | |||||||||||
Total distributions | – | – | (0.09 | ) | |||||||||||
Net asset value, end of period | $ | 10.03 | $ | 9.99 | $ | 9.30 | |||||||||
Total return(d) | 0.40 | %(e) | 7.30 | % | (7.12 | %) | |||||||||
Net assets, end of period (in 000s) | $ | 10 | $ | 10 | $ | 9 | |||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||
Gross expenses(g) | 13.64 | %(f) | 16.59 | %(c) | 20.99 | % | |||||||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 3.04 | %(f) | 3.40 | % | 3.37 | % | |||||||||
Net investment loss | (1.19 | %)(f) | (2.89 | %)(c) | (1.09 | %) | |||||||||
Portfolio turnover rate | 221 | %(e) | 449 | % | 416 | % |
(a) Commenced operations on January 2, 2015.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to $0.01 per share and 0.08% of average net assets.
(d) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(e) Not annualized.
(f) Annualized.
(g) Dividend expense totaled 0.60% (annualized), 0.83%, 0.70% and 1.01% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively. Interest rebate expense and line of credit interest expense totaled 0.00% (annualized), 0.13%, 0.23% and 0.15% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively.
(h) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 2.44% (annualized), 2.44%, 2.44% and 2.44% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively.
See Notes to Financial Statements.
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Financial Highlights
Period Ended May 31, | |||||||
2015(a) | |||||||
Net asset value, beginning of period | $ | 10.00 | |||||
Income (loss) from investment operations | |||||||
Net investment loss(b) | (0.13 | ) | |||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.25 | ||||||
Total from investment operations | 0.12 | ||||||
Less distributions | |||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Net asset value, end of period | $ | 10.12 | |||||
Total return(d) | 1.20 | %(e) | |||||
Net assets, end of period (in 000s) | $ | 10 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(g) | 45.25 | %(f) | |||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 3.60 | %(f) | |||||
Net investment loss | (3.10 | %)(f) | |||||
Portfolio turnover rate | 235 | %(e) |
Semi-Annual Report | November 30, 2017
91
The Arbitrage Tactical Equity Fund – Class A
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:
Six Months Ended November 30, 2017 | Year Ended May 31, | ||||||||||||||
(Unaudited) | 2017 | 2016 | |||||||||||||
Net asset value, beginning of period | $ | 9.99 | $ | 9.31 | $ | 10.12 | |||||||||
Income (loss) from investment operations | |||||||||||||||
Net investment loss(b) | (0.02 | ) | (0.20 | )(c) | (0.03 | ) | |||||||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.06 | 0.88 | (0.69 | ) | |||||||||||
Total from investment operations | 0.04 | 0.68 | (0.72 | ) | |||||||||||
Less distributions | |||||||||||||||
From net realized gains | – | – | (0.09 | ) | |||||||||||
Total distributions | – | – | (0.09 | ) | |||||||||||
Net asset value, end of period | $ | 10.03 | $ | 9.99 | $ | 9.31 | |||||||||
Total return(d) | 0.40 | %(e) | 7.30 | % | (7.12 | %) | |||||||||
Net assets, end of period (in 000s) | $ | 10 | $ | 10 | $ | 9 | |||||||||
RATIOS TO AVERAGE NET ASSETS: | |||||||||||||||
Gross expenses(g) | 12.89 | %(f) | 15.84 | %(c) | 20.24 | % | |||||||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.29 | %(f) | 2.65 | % | 2.62 | % | |||||||||
Net investment loss | (0.44 | %)(f) | (2.13 | %)(c) | (0.34 | %) | |||||||||
Portfolio turnover rate | 221 | %(e) | 449 | % | 416 | % |
(a) Commenced operations on January 2, 2015.
(b) Per share amounts were calculated using average shares outstanding for the period.
(c) Includes a non-recurring reimbursement by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to $0.01 per share and 0.08% of average net assets.
(d) Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
(e) Not annualized.
(f) Annualized.
(g) Dividend expense totaled 0.60% (annualized), 0.83%, 0.70% and 1.01% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively. Interest rebate expense and line of credit interest expense totaled 0.00% (annualized), 0.13%, 0.23% and 0.15% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively.
(h) Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.69% (annualized), 1.69%, 1.69% and 1.69% (annualized) of average net assets for the six months ended November 30, 2017, the years ended May 31, 2017 and 2016, and the period ended May 31, 2015, respectively.
See Notes to Financial Statements.
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92
Financial Highlights
Period Ended May 31, | |||||||
2015(a) | |||||||
Net asset value, beginning of period | $ | 10.00 | |||||
Income (loss) from investment operations | |||||||
Net investment loss(b) | (0.10 | ) | |||||
Net realized and unrealized gains (losses) on investments and foreign currencies | 0.22 | ||||||
Total from investment operations | 0.12 | ||||||
Less distributions | |||||||
From net realized gains | – | ||||||
Total distributions | – | ||||||
Net asset value, end of period | $ | 10.12 | |||||
Total return(d) | 1.20 | %(e) | |||||
Net assets, end of period (in 000s) | $ | 10 | |||||
RATIOS TO AVERAGE NET ASSETS: | |||||||
Gross expenses(g) | 44.49 | %(f) | |||||
Net expenses after advisory fees waived and expenses reimbursed(g)(h) | 2.85 | %(f) | |||||
Net investment loss | (2.35 | %)(f) | |||||
Portfolio turnover rate | 235 | %(e) |
Semi-Annual Report | November 30, 2017
93
The Arbitrage Funds Notes to Financial Statements
November 30, 2017 (Unaudited)
1. ORGANIZATION
The Arbitrage Funds (the "Trust") is a Delaware statutory trust, which was organized on December 22, 1999 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company issuing its shares in series. Each series represents a distinct portfolio with its own investment objective and policies. The four series presently authorized are The Arbitrage Fund (the "Arbitrage Fund"), The Arbitrage Event-Driven Fund (the "Event-Driven Fund"), The Arbitrage Credit Opportunities Fund (the "Credit Opportunities Fund") and The Arbitrage Tactical Equity Fund (the "Tactical Equity Fund"), each a "Fund" and collectively the "Funds", which offer four classes of shares. The Arbitrage Fund, the Event-Driven Fund and the Credit Opportunities Fund are each a diversified series of the Trust. The Tactical Equity Fund is a non-diversified series of the trust. The Funds' investments are managed by Water Island Capital, LLC (the "Adviser").
Commencement of Operations | |||||||||||||||||||
Fund | Class R shares | Class I shares | Class C shares | Class A shares | |||||||||||||||
Arbitrage Fund | September 18, 2000 | October 17, 2003 | June 1, 2012 | June 1, 2013 | |||||||||||||||
Event-Driven Fund | October 1, 2010 | October 1, 2010 | June 1, 2012 | June 1, 2013 | |||||||||||||||
Credit Opportunities Fund | October 1, 2012 | October 1, 2012 | October 1, 2012 | June 1, 2013 | |||||||||||||||
Tactical Equity Fund | January 2, 2015 | January 2, 2015 | January 2, 2015 | January 2, 2015 |
The investment objective of the Arbitrage Fund is to seek to achieve capital growth by engaging in merger arbitrage. The investment objective of the Event-Driven Fund is to seek to achieve capital growth by investing in companies that are impacted by corporate events such as mergers, acquisitions, restructurings, recapitalizations, refinancings, reorganizations and other special situations. The investment objective of the Credit Opportunities Fund is to seek to provide current income and capital growth by investing in debt securities impacted by events such as reorganizations, restructurings, recapitalizations, debt maturities, refinancings, mergers, acquisitions, regulatory changes and other special situations. The investment objective of the Tactical Equity Fund is to seek to achieve capital appreciation by investing in securities of companies where the market may not fully appreciate the impact of fundamental changes to the business, industry or regulatory environment.
The Funds' four classes of shares, Class R, Class I, Class C and Class A, represent interests in the same portfolio of investments and have the same rights, but differ primarily in the expenses to which they are subject and the investment eligibility requirements. Class R shares, Class C shares and Class A shares are subject to an annual distribution and servicing fee of up to 0.25%, 1.00% and 0.25%, respectively, of each Fund's average daily net assets attributable to Class R shares, Class C shares and Class A shares, respectively, whereas Class I shares are not subject to any distribution and servicing fees. Class C shares are also subject to a 1.00% contingent deferred sales charge on all purchases redeemed within 12 months of purchase. Class A shares of the Arbitrage Fund are sold subject to a maximum front-end sales load equal to 2.50% of the offering price and are also subject to a 1.00% contingent deferred sales load on purchases at or above $250,000, purchased without a front-end sales charge and redeemed within 18 months of purchase. Class A shares of the Arbitrage Fund purchased without a front end sales charge prior to April 3, 2017 (determined on a first-in, first-out basis) are subject to a deferred sales charge of up to 0.50% if redeemed within 12 months of purchase. Class A shares of the Event-Driven Fund, the Credit Opportunities Fund and the Tactical Equity Fund are sold subject to a maximum
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94
The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
front-end sales load equal to 3.25% of the offering price and are also subject to a 1.00% contingent deferred sales load on purchases at or above $500,000, purchased without a front-end sales charge and redeemed within 18 months of purchase.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the Funds. These policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). The Funds are considered investment companies for financial reporting purposes under GAAP and Accounting Standards Codification Topic 946 — Investment Companies.
Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
Valuation of Investments — The Funds' portfolio securities are valued as of the close of trading of the New York Stock Exchange ("NYSE") (normally 4:00 p.m., Eastern time). Common stocks and other securities, including open short positions that are traded on a securities exchange, are valued at the last quoted sales price at the close of regular trading on the day the valuation is made. Securities which are quoted by NASDAQ are valued at the NASDAQ Official Closing Price. Price information on listed stocks is taken from the exchange where the security is primarily traded. Market quotations of foreign securities from the principal markets in which they trade may not be reliable if events or circumstances that may affect the value of portfolio securities occur between the time of the market quotation and the close of trading on the NYSE. If a significant event that affects the valuation of a foreign security occurs between the close of a foreign security's primary exchange and the time the Funds calculate their net asset value ("NAV"), the Funds will fair value the foreign security to account for this discrepancy. Securities which are listed on an exchange but which are not traded on the valuation date are valued at the mean of the most recent bid and ask prices. Put and call options and securities traded in the over-the-counter market are valued at the mean of the most recent bid and ask prices. When there is no bid price available, put and call options will be valued using the average of the last ask price and zero. Foreign currency forward contracts are valued at the current day's interpolated foreign exchange rate, as calculated using the current day's spot rate, and the thirty, sixty, ninety and one-hundred eighty day forward rates provided by an independent source.
If available, debt securities are priced based upon an evaluated bid provided by independent, third-party pricing agents. The third-party pricing agents may also value debt securities at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Unlisted securities for which market quotations are readily available are valued at the latest quoted bid price. Swap contracts that are listed or traded on a national securities exchange, commodities exchange, contract market or comparable over-the-counter market, and that are freely transferable, are valued at their closing settlement price on the exchange on which they are primarily traded or based upon the current settlement price for a like instrument acquired on the day on which the instrument is being valued. Over-the-counter swap contracts for which market quotations are readily available are valued based on quotes received from independent pricing services or one or more dealers that make markets in such securities.
Other assets and securities for which no quotations are readily available are valued at fair value using methods determined in good faith by the Pricing Committee, which is under the supervision
Semi-Annual Report | November 30, 2017
95
The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
of the Board of Trustees of the Trust. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security's trading has been halted or suspended; the security has been delisted from a national exchange; the security's primary trading market is temporarily closed at a time when under normal conditions it would be open; the security has been acquired through completion of a merger/tender or the security's primary pricing source is not able or willing to provide a price. Such methods of fair valuation may include, but are not limited to: multiple of earnings, multiple of book value, discount from market of a similar freely traded security, purchase price of a security, subsequent private transactions in the security or related securities, or a combination of these and other factors. Foreign securities are translated from the local currency into U.S. dollars using currency exchange rates supplied by a quotation service.
Fair Value Measurements — In accordance with the authoritative guidance on fair value measurements under GAAP, the Funds disclose fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The guidance establishes three levels of the fair value hierarchy as follows:
Level 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Funds have the ability to access at the measurement date;
Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and
Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing each Fund's own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
Investments are classified within the level of the lowest significant input considered in determining fair value. Investments classified within Level 3, whose fair value measurement considers several inputs, may include Level 1 or Level 2 inputs as components of the overall fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The Funds recognize transfers between levels as of the beginning of the annual period in which the transfer occurred.
For the six months ended November 30, 2017, there were no significant changes to the Funds' fair value methodologies. Additionally, during the six months ended November 30, 2017, there were no transfers between Level 1 and 2 securities. Transfers for Level 3 securities, if any, are shown as part of the leveling table in each Fund's Portfolio of Investments.
Share Valuation and Redemption Fees — The net asset value per share of each class of shares of the Funds is calculated daily by dividing the total value of a Fund's assets attributable to that class, less liabilities attributable to that class, by the number of shares of that class outstanding. The offering price and redemption price per share of each class of each Fund is equal to the net asset value per share. The Class A redemption fee does not apply for purchases over $250,000 in the Arbitrage Fund and purchases over $500,000 in the Event-Driven Fund, Credit Opportunities Fund and Tactical Equity Fund, as these purchases are subject to a contingent deferred sales
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The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
charge. Class C shares are not subject to a redemption fee. Proceeds from redemption fees for the six months ended November 30, 2017 are disclosed in Note 7. The redemption fee is paid directly to each Fund rather than the Adviser and is allocated pro-rata to the shareholders based on net assets attributed to each class. Effective September 30, 2017, the Trust no longer imposes a redemption fee for shares of the Fund sold within a certain number of days of purchase. Prior to September 30, 2017, Class R, Class I and Class A shares of the Arbitrage Fund, Event-Driven Fund and Tactical Equity Fund were subject to a redemption fee of 2% if redeemed within 30 days of purchase and Class R, Class I and Class A shares of the Credit Opportunities Fund were subject to a redemption fee of 2% if redeemed within 60 days of purchase.
Security Transactions — Security transactions are accounted for on trade date. Gains and losses on securities sold are determined on a specific identification basis.
Short Positions — The Funds may sell securities short for economic hedging purposes. Subsequent fluctuations in the market prices of securities sold short may require purchasing the securities at prices which may differ from the market value reflected on the Portfolio of Investments. The Funds are liable for any dividends and interest payable on securities while those securities are in a short position. As collateral for their short positions, the Funds are required under the 1940 Act to maintain assets consisting of cash, cash equivalents or liquid securities. The amount of the collateral is required to be adjusted daily to reflect changes in the value of the securities sold short. The Funds are charged an interest rebate expense by the prime broker on securities sold short. The interest rebate expense is charged for the duration of time that a security is sold short and is shown on the Statements of Operations. The interest rebate expense is charged for the duration of time that a security is sold short.
Derivative Instruments and Hedging Activities — The following discloses the Funds' use of derivative instruments and hedging activities.
The Funds' investment objectives not only permit the Funds to purchase investment securities, but they also allow certain Funds to enter into various types of derivative contracts, including, but not limited to, swap contracts, forward foreign currency exchange contracts, and purchased and written option contracts. In doing so, the Funds will employ strategies in differing combinations to permit them to increase, decrease, or change the level or types of exposure to market factors. Central to those strategies are features inherent to derivatives that make them more attractive for this purpose than equity or debt securities: they require little or no initial cash investment; they can focus exposure on only certain selected risk factors; and they may not require the ultimate receipt or delivery of the underlying security (or securities) to satisfy the contract. This may allow the Funds to pursue their objectives more quickly and efficiently than if they were to make direct purchases or sales of securities capable of effecting a similar response to market factors. The Funds may, but are not required to, seek to reduce their currency risk by hedging part or all of their exposure to various foreign currencies.
Market Risk Factors: In pursuit of their investment objectives, the Funds may seek to use derivatives to increase or decrease their exposure to the following market risk factors:
Equity Risk: Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. Investments in securities issued by small and medium capitalization companies tend to be less liquid and more volatile than stocks of companies with relatively large market capitalizations. To the extent a Fund invests in securities of small and medium capitalization companies, it may be more vulnerable to adverse business events than larger, more established companies.
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The Arbitrage Funds Notes to Financial Statements (continued)
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Interest Rate Risk: Interest rate risk refers to the fluctuations in value of fixed-income securities resulting from the inverse relationship between price and yield. For example, an increase in general interest rates will tend to reduce the market value of fixed income investments, and a decline in general interest rates will tend to increase the value of such investments. In addition, debt securities with longer maturities, which tend to have higher yields, are subject to potentially greater fluctuations in value from changes in interest rates than obligations with shorter maturities.
Foreign Exchange Rate Risk: Foreign exchange rate risk relates to the change in the U.S. dollar value of a security held that is denominated in a foreign currency. The value of a foreign currency denominated security will decrease as the dollar appreciates against the currency, while the value of the foreign currency denominated security will increase as the dollar depreciates against the currency. Adverse changes in exchange rates may erode or reverse any gains produced by foreign currency denominated investments and may widen any losses.
Credit Risk: Credit risk relates to the ability of the issuer to meet interest and principal payments, or both, as they come due. In general, lower-grade, higher-yield bonds are subject to credit risk to a greater extent than lower-yield, higher-quality bonds.
Risk of Investing in Derivatives: The Funds' use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the Funds are using derivatives to decrease or hedge exposures to market risk factors for securities held by the Funds, there are also risks that those derivatives may not perform as expected, resulting in losses for the combined or hedged positions.
Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant gains or losses in excess of their cost. This use of embedded leverage allows the Funds to increase their market value exposure relative to their net assets and can substantially increase the volatility of the Funds' performance.
Additional associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative instruments and the Funds. Typically, the associated risks are not the risks that the Funds are attempting to increase or decrease exposure to, per their investment objectives, but are the additional risks from investing in derivatives.
Examples of these associated risks are liquidity risk, which is the risk that the Funds will not be able to sell the derivative in the open market in a timely manner, and counterparty credit risk, which is the risk that the counterparty to a transaction will not fulfill its obligation to the Funds. Associated risks can be different for each type of derivative and are discussed by derivative type in the notes that follow.
Option Writing/Purchasing: Certain Funds may write or purchase option contracts to adjust risk and return of their overall investment positions. When a Fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options that expire unexercised are treated by the Fund on the expiration date as realized gains or losses. The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or received is added to the cost of the purchase or proceeds from the sale in determining whether the Fund has realized a gain or loss on investment transactions. Risks from entering into option transactions arise from the potential inability of counterparties to meet the
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The Arbitrage Funds Notes to Financial Statements (continued)
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terms of the contracts, the potential inability to enter into closing transactions because of an illiquid secondary market and from unexpected movements in security values.
Foreign Currency Exchange Contracts: The Funds may enter into forward foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Funds may enter into these contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross-hedge against either specific transactions or portfolio positions. The objective of the Funds' foreign currency hedging transactions is to reduce risk that the U.S. dollar value of the Funds' securities denominated in foreign currency will decline in value due to changes in foreign currency exchange rates.
Warrants/Rights: Each Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a set price. The Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in options above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit each Fund's ability to exercise the warrants or rights at such times and in such quantities as each Fund would otherwise wish. Warrants and rights generally pay no dividends and confer no voting or other rights other than to purchase the underlying security.
Swaps: Certain Funds may enter into interest rate, index, equity, total return and credit default swap agreements, for hedging and non-hedging purposes. These transactions would be entered into in an attempt to obtain a particular return when it is considered desirable to do so, possibly at a lower cost to a Fund than if the Fund had invested directly in the asset that yielded the desired return. Swap agreements may be executed in a multilateral or other trade facility program, such as a registered exchange ("centrally cleared swaps") or may be privately negotiated in the over-the-counter market. The duration of a swap agreement typically ranges from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or "swapped" between the parties are generally calculated with respect to a "notional amount" (i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency, or in a "basket" of securities representing a particular index). In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the "CCP") and the Fund's counterparty on the swap agreement becomes the CCP.
Forms of swap agreements include interest rate caps, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified rate, or "cap"; interest rate floors, under which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates fall below a specified level, or "floor"; and interest rate collars, under which a party sells a cap and purchases a floor, or vice versa, in an attempt to protect itself against interest rate movements exceeding given minimum or maximum levels.
Credit default swaps are a type of swap agreement in which the protection "buyer" is generally obligated to pay the protection "seller" an upfront and/or a periodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. The credit default swap agreement may have as reference obligations one or more
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The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
securities that are not currently held by a Fund. If a credit event occurs, the seller generally must pay the buyer the "par value" (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount if the swap is cash settled. A Fund may be either the buyer or seller in the transaction. If a Fund is a buyer and no credit event occurs, the Fund may recover nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased. As a seller, a Fund generally receives an upfront payment and/or a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, a Fund would effectively add leverage to its portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap. Credit default swap agreements involve greater risks than if a Fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk. A Fund will enter into credit default swap agreements only with counterparties that meet certain standards of creditworthiness or that are centrally cleared.
Total return swap agreements are contracts in which one party agrees to make periodic payments based on the change in market value of underlying assets, which may include a specified security, basket of securities, defined portfolios of bonds, loans and mortgages, or securities indexes during the specified period in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying assets or indices. Total return swap agreements may be used to obtain exposure to a security or market index without owning or taking physical custody of such security or component securities of a market index. Total return swap agreements may effectively add leverage to a Fund's portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap. Total return swaps are a mechanism for the user to accept the economic benefits of asset ownership without utilizing the balance sheet. The other leg of the swap, usually the London Interbank Offered Rate (LIBOR), is spread to reflect the non-balance sheet nature of the product. Total return swaps can be designed with any underlying asset agreed upon between two parties. Typically no notional amounts are exchanged with total return swaps. Total return swap agreements entail the risk that a party will default on its payment obligations to a Fund thereunder. Swap agreements also entail the risk that a Fund will not be able to meet its obligation to the counterparty. Generally, a Fund will enter into total return swaps on a net basis (i.e., the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
Most swap agreements entered into by a Fund calculate the obligations of the parties to the agreement on a "net basis." Consequently, a Fund's current obligations (or rights) under a swap agreement will generally be equal only to the net present value of amounts to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). A Fund's current obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund), and any accrued but unpaid net amounts owed to a swap counterparty will be covered in accordance with applicable regulatory requirements to limit any potential leveraging of a Fund's portfolio. Any net amount accrued but not yet paid to a Fund by the counterparty under a swap agreement (i.e., the Fund's current rights under the swap agreement) is recorded as unrealized appreciation until the amount is paid to the Fund. The Fund's maximum risk of loss from counterparty credit risk is generally limited to the net payment to be received by the Fund and/or the termination value at the end of the
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The Arbitrage Funds Notes to Financial Statements (continued)
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contract. Obligations under swap agreements so covered will not be construed to be "senior securities" for purposes of the Funds' investment restriction concerning senior securities.
Whether a Fund's use of swap agreements will be successful in furthering its investment objective will depend on Management's ability to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Swap agreements that cannot be terminated or sold within seven days may be considered to be illiquid investments. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Although centrally cleared swaps typically present less counterparty risk than non-centrally cleared swaps, a Fund that has entered into centrally cleared swaps is subject to the risk of the failure of the CCP. A Fund will enter into swap agreements only with counterparties that meet certain standards for creditworthiness (generally, such counterparties would have to be eligible counterparties under the terms of the Fund's repurchase agreement guidelines) or that are centrally cleared. Certain restrictions imposed on the Funds by the Internal Revenue Code of 1986, as amended (the "Code"), may limit a Fund's ability to use swap agreements. It is possible that developments in the swap market, including additional government regulation, could adversely affect a Fund's ability to terminate existing swap agreements or to realize amounts to be received under such agreements.
International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") govern over-the-counter financial derivative transactions entered into by a Fund and counterparty. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements.
Swap agreements held by the Funds at November 30, 2017 are disclosed in the Portfolio of Investments.
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The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
Fair Value of Derivative Instruments — Fair values of derivatives presented in the financial statements are not netted with the fair value of other derivatives or with any collateral amounts posted by the Funds or any counterparty. The fair value of derivative instruments for each of the Funds as of the six months ended November 30, 2017, was as follows:
Derivatives Not Accounted For As Hedging Instruments | Asset Derivatives Statement of Assets and Liabilities Location | Fair Value | Liability Derivatives Statement of Assets and Liabilities Location | Fair Value | |||||||||||||||
Arbitrage Fund | |||||||||||||||||||
Foreign Currency Contracts | Unrealized appreciation on forward foreign currency exchange contracts | $ | 3,469,359 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 2,038,141 | |||||||||||||
Equity Contracts (swap contracts) | Unrealized appreciation on swap contracts | – | Unrealized depreciation on swap contracts | 119,842 | |||||||||||||||
Equity Contracts (rights) | Investments: at value | 3,717,853 | Securities sold short, at value | – | |||||||||||||||
Equity Contracts (purchased option contracts) | Investments: at value | 3,799,037 | |||||||||||||||||
Equity Contracts (written option contracts) | Written options, at value | 955,450 | |||||||||||||||||
$ | 10,986,249 | $ | 3,113,433 |
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The Arbitrage Funds Notes to Financial Statements (continued)
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Derivatives Not Accounted For As Hedging Instruments | Asset Derivatives Statement of Assets and Liabilities Location | Fair Value | Liability Derivatives Statement of Assets and Liabilities Location | Fair Value | |||||||||||||||
Event-Driven Fund | |||||||||||||||||||
Foreign Currency Contracts | Unrealized appreciation on forward foreign currency exchange contracts | $ | 101,742 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 48,215 | |||||||||||||
Equity Contracts (swap contracts) | Unrealized appreciation on swap contracts | 460 | Unrealized depreciation on swap contracts | 6,836 | |||||||||||||||
Equity Contracts (rights) | Investments: at value | 408,918 | Securities sold short, at value | – | |||||||||||||||
Equity Contracts (purchased option contracts) | Investments: at value | 463,458 | |||||||||||||||||
Equity Contracts (written option contracts) | Written options, at value | 113,007 | |||||||||||||||||
$ | 974,578 | $ | 168,058 | ||||||||||||||||
Derivatives Not Accounted For As Hedging Instruments | Asset Derivatives Statement of Assets and Liabilities Location | Fair Value | Liability Derivatives Statement of Assets and Liabilities Location | Fair Value | |||||||||||||||
Credit Opportunities Fund | |||||||||||||||||||
Foreign Currency Contracts | Unrealized appreciation on forward foreign currency exchange contracts | $ | 45,421 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 20,642 | |||||||||||||
$ | 45,421 | $ | 20,642 |
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The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
Derivatives Not Accounted For As Hedging Instruments | Asset Derivatives Statement of Assets and Liabilities Location | Fair Value | Liability Derivatives Statement of Assets and Liabilities Location | Fair Value | |||||||||||||||
Tactical Equity Fund | |||||||||||||||||||
Foreign Currency Contracts | Unrealized appreciation on forward foreign currency exchange contracts | $ | 2,561 | Unrealized depreciation on forward foreign currency exchange contracts | $ | 1,062 | |||||||||||||
Equity Contracts (purchased option contracts) | Investments: at value | 8,043 | |||||||||||||||||
Equity Contracts (written option contracts) | Written options, at value | 2,016 | |||||||||||||||||
$ | 10,604 | $ | 3,078 |
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The Arbitrage Funds Notes to Financial Statements (continued)
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The effect of derivative instruments on the Funds' Statement of Operations for the six months ended November 30, 2017, was as follows:
Derivatives Not Accounted For As Hedging Instruments | Location Of Gains/(Loss) On Derivatives Recognized In Income | Realized Gain/(Loss) On Derivatives Recognized In Income | Change in Unrealized Gain/(Loss) On Derivatives Recognized In Income | ||||||||||||
Arbitrage Fund | |||||||||||||||
Foreign Currency Contracts | Net realized gains (losses) from: Foreign currency transactions / Net change in unrealized appreciation (depreciation) on: Foreign currency transactions | $ | (9,299,691 | ) | $ | 2,738,770 | |||||||||
Equity Contracts (swap contracts) | Net realized gains (losses) from: Swap contracts / Net change in unrealized appreciation (depreciation) on: Swap contracts | (1,379,958 | ) | (119,842 | ) | ||||||||||
Equity Contracts Long (rights) | Net realized gains (losses) from: Investments / Net change in unrealized appreciation (depreciation) on: Investments | – | (228,962 | ) | |||||||||||
Equity Contracts (purchased option contracts) | Net realized gains (losses) from: Investments / Net change in unrealized appreciation (depreciation) on: Investments | 1,362,085 | (2,737,587 | ) | |||||||||||
Equity Contracts (written option contracts) | Net realized gains (losses) from: Written option contracts / Net change in unrealized appreciation (depreciation) on: Written option contracts | 638,360 | 1,408,613 | ||||||||||||
$ | (8,679,204 | ) | $ | 1,060,992 |
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The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
Derivatives Not Accounted For As Hedging Instruments | Location Of Gains/(Loss) On Derivatives Recognized In Income | Realized Gain/(Loss) On Derivatives Recognized In Income | Change in Unrealized Gain/(Loss) On Derivatives Recognized In Income | ||||||||||||
Event-Driven Fund | |||||||||||||||
Foreign Currency Contracts | Net realized gains (losses) from: Foreign currency transactions / Net change in unrealized appreciation (depreciation) on: Foreign currency transactions | $ | (242,439 | ) | $ | 57,235 | |||||||||
Equity Contracts (swap contracts) | Net realized gains (losses) from: Swap contracts / Net change in unrealized appreciation (depreciation) on: Swap contracts | (40,984 | ) | (6,376 | ) | ||||||||||
Equity Contracts Long (rights) | Net realized gains (losses) from: Investments / Net change in unrealized appreciation (depreciation) on: Investments | – | 19,069 | ||||||||||||
Equity Contracts (purchased option contracts) | Net realized gains (losses) from: Investments / Net change in unrealized appreciation (depreciation) on: Investments | (2,836 | ) | (185,791 | ) | ||||||||||
Equity Contracts (written option contracts) | Net realized gains (losses) from: Written option contracts / Net change in unrealized appreciation (depreciation) on: Written option contracts | 245,969 | 130,046 | ||||||||||||
$ | (40,290 | ) | $ | 14,183 |
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The Arbitrage Funds Notes to Financial Statements (continued)
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Derivatives Not Accounted For As Hedging Instruments | Location Of Gains/(Loss) On Derivatives Recognized In Income | Realized Gain/(Loss) On Derivatives Recognized In Income | Change in Unrealized Gain/(Loss) On Derivatives Recognized In Income | ||||||||||||
Credit Opportunities Fund | |||||||||||||||
Foreign Currency Contracts | Net realized gains (losses) from: Foreign currency transactions / Net change in unrealized appreciation (depreciation) on: Foreign currency transactions | $ | – | $ | 24,779 | ||||||||||
Equity Contracts (purchased option contracts) | Net realized gains (losses) from: Investments / Net change in unrealized appreciation (depreciation) on: Investments | (9,095 | ) | 2,224 | |||||||||||
Equity Contracts (written option contracts) | Net realized gains (losses) from: Written option contracts / Net change in unrealized appreciation (depreciation) on: Written option contracts | 14,650 | (9,273 | ) | |||||||||||
$ | 5,555 | $ | 17,730 | ||||||||||||
Derivatives Not Accounted For As Hedging Instruments | Location Of Gains/(Loss) On Derivatives Recognized In Income | Realized Gain/(Loss) On Derivatives Recognized In Income | Change in Unrealized Gain/(Loss) On Derivatives Recognized In Income | ||||||||||||
Tactical Equity Fund | |||||||||||||||
Foreign Currency Contracts | Net realized gains (losses) from: Foreign currency transactions / Net change in unrealized appreciation (depreciation) on: Foreign currency transactions | $ | (10,332 | ) | $ | 4,909 | |||||||||
Equity Contracts (swap contracts) | Net realized gains (losses) from: Swap contracts / Net change in unrealized appreciation (depreciation) on: Swap contracts | 3,484 | – | ||||||||||||
Equity Contracts (purchased option contracts) | Net realized gains (losses) from: Investments / Net change in unrealized appreciation (depreciation) on: Investments | (1,079 | ) | (1,715 | ) | ||||||||||
Equity Contracts (written option contracts) | Net realized gains (losses) from: Written option contracts / Net change in unrealized appreciation (depreciation) on: Written option contracts | 5,595 | 1,648 | ||||||||||||
$ | (2,332 | ) | $ | 4,842 |
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The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
Volume of derivative instruments held by the Funds during the six months ended November 30, 2017, was as follows:
Derivative Type | Unit of Measurement | Monthly Average | |||||||||
Arbitrage Fund | |||||||||||
Swap Contracts | Notional Quantity | 2,858,222 | |||||||||
Forward Foreign Currency Exchange Contracts | Net Contracts to Deliver/(Receive) | (109,646,101 | ) | ||||||||
Purchased Option Contracts | Contracts | 10,421 | |||||||||
Rights | Shares | 15,771,935 | |||||||||
Rights — Short | Shares | (1,100 | ) | ||||||||
Written Option Contracts | Contracts | (11,794 | ) | ||||||||
Derivative Type | Unit of Measurement | Monthly Average | |||||||||
Event-Driven Fund | |||||||||||
Swap Contracts | Notional Quantity | 486,689 | |||||||||
Forward Foreign Currency Exchange Contracts | Net Contracts to Deliver/(Receive) | (3,650,517 | ) | ||||||||
Purchased Option Contracts | Contracts | 2,362 | |||||||||
Rights | Shares | 2,251,188 | |||||||||
Rights — Short | Shares | (200 | ) | ||||||||
Written Option Contracts | Contracts | (1,492 | ) | ||||||||
Derivative Type | Unit of Measurement | Monthly Average | |||||||||
Credit Opportunities Fund | |||||||||||
Forward Foreign Currency Exchange Contracts | Net Contracts to Deliver/(Receive) | (255,267 | ) | ||||||||
Purchased Option Contracts | Contracts | 97 | |||||||||
Written Option Contracts | Contracts | (13 | ) | ||||||||
Derivative Type | Unit of Measurement | Monthly Average | |||||||||
Tactical Equity Fund | |||||||||||
Swap Contracts | Notional Quantity | 8,928 | |||||||||
Forward Foreign Currency Exchange Contracts | Net Contracts to Deliver/(Receive) | (102,099 | ) | ||||||||
Purchased Option Contracts | Contracts | 59 | |||||||||
Written Option Contracts | Contracts | (51 | ) |
Certain derivative contracts are executed under either standardized netting agreements or, for exchange-traded derivatives, the relevant contracts for a particular exchange which contain enforceable netting provisions. A derivative netting arrangement creates an enforceable right of set-off that becomes effective, and affects the realization of settlement on individual assets, liabilities and collateral amounts, only following a specified event of default or early termination. Default events may include the failure to make payments or deliver securities timely, material adverse changes in financial condition or insolvency, the breach of minimum regulatory capital requirements, or loss of license, charter or other legal authorization necessary to perform under the contract.
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The Arbitrage Funds Notes to Financial Statements (continued)
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The following tables present financial instruments that are subject to enforceable netting arrangements or other similar agreements as of the six months ended November 30, 2017.
Arbitrage Fund
Gross | Gross Amounts Offset in | Net Amounts Presented in | Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||
Description | Amounts of Recognized Liabilities | the Statements of Assets and Liabilities | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged | Net Amount | |||||||||||||||||||||
Equity Swaps | $ | 119,842 | $ | – | $ | 119,842 | $ | – | $ | – | $ | 119,842 | |||||||||||||||
Total | $ | 119,842 | $ | – | $ | 119,842 | $ | – | $ | – | $ | 119,842 |
Event-Driven Fund
Gross | Gross Amounts Offset in | Net Amounts Presented in | Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||
Description | Amounts of Recognized Assets | the Statements of Assets and Liabilities | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Received | Net Amount | |||||||||||||||||||||
Equity Swaps | $ | 460 | $ | – | $ | 460 | $ | – | $ | – | $ | 460 | |||||||||||||||
Total | $ | 460 | $ | – | $ | 460 | $ | – | $ | – | $ | 460 | |||||||||||||||
Gross | Gross Amounts Offset in | Net Amounts Presented in | Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||
Description | Amounts of Recognized Liabilities | the Statements of Assets and Liabilities | the Statement of Assets and Liabilities | Financial Instruments | Cash Collateral Pledged | Net Amount | |||||||||||||||||||||
Equity Swaps | $ | 6,836 | $ | – | $ | 6,836 | $ | – | $ | – | $ | 6,836 | |||||||||||||||
Total | $ | 6,836 | $ | – | $ | 6,836 | $ | – | $ | – | $ | 6,836 |
Investment Income — Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, net of any non-reclaimable tax withholdings. Payment-in-kind securities have the option at each interest payment date of making interest payments in cash or additional debt securities. Any interest accrued on payment-in-kind securities is recorded as interest income.
Dividends and Distributions to Shareholders — Dividends arising from net investment income and net capital gain distributions, if any, are declared and paid at least annually to shareholders of the Arbitrage Fund, Event-Driven Fund and Tactical Equity Fund. Dividends arising from net investment income, if any, are declared daily and paid monthly, and net capital gain distributions, if any, are declared and paid at least annually to shareholders of the Credit Opportunities Fund.
Allocation Between Classes — Investment income earned, realized capital gains and losses, and unrealized appreciation and depreciation are allocated daily to each class of shares based upon the proportionate shares of total net assets of each Fund. Class-specific expenses are charged directly to the class incurring the expense. Common expenses which are not attributable to a specific class are allocated daily to each class of shares based upon the proportionate share of total net assets of each Fund.
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The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
Federal Income Tax — It is the Funds' policy to continue to comply with the special provisions of Subchapter M of the Code, as amended, applicable to regulated investment companies. As provided therein, in any fiscal year in which a fund so qualifies and distributes at least 90% of its taxable net income, a fund (but not the shareholders) will be relieved of Federal income tax on the income distributed. Accordingly, no provision for income taxes has been made.
As of and during the six months ended November 30, 2017, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and, if applicable, penalties for any uncertain tax positions. Interest and penalty expense will be recorded as a component of interest or other tax expense. No interest or penalties were recorded during the six months ended November 30, 2017. The Funds file U.S. federal, state, and local tax returns as required. The Funds' tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations which is generally three years after the filing of the tax return. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.
3. INVESTMENT TRANSACTIONS
During the six months ended November 30, 2017, cost of purchases and proceeds from sales and maturities of investment securities, excluding short-term investments, U.S. government securities, equity swap contracts, purchased and written option contracts and securities sold short, were as follows:
Arbitrage Fund | Event-Driven Fund | Credit Opportunities Fund | Tactical Equity Fund | ||||||||||||||||
Purchases | $ | 3,037,639,577 | $ | 239,865,087 | $ | 66,289,178 | $ | 4,103,972 | |||||||||||
Sales and Maturities | 3,072,952,095 | 254,109,616 | 84,350,399 | 4,172,744 |
4. LINE OF CREDIT
The Trust, on behalf of the Funds, entered into an agreement which enables the Arbitrage Fund, the Event-Driven Fund, the Credit Opportunities Fund and the Tactical Equity Fund to participate in a $100,000,000 unsecured committed revolving line of credit (the "Committed Line") and a $100,000,000 unsecured uncommitted revolving line of credit (the "Uncommitted Line," together with the Committed Line, the "Credit Agreement") with State Street Bank and Trust Company (the "Custodian"). Borrowings are made solely to temporarily finance the purchase or sale of securities or to finance the redemption of the shares of an investor of the Funds. Interest is charged to the Funds based on their borrowings at a rate per annum of the higher of the LIBOR rate plus 1.25% and the overnight federal funds rate plus 1.25%. The Committed Line has a commitment fee of 0.25% per annum on the unused portion of the Committed Line and is payable quarterly. The Uncommitted Line has an upfront fee of $25,000, is held available on a discretionary demand basis and may be terminated by the Custodian or the Trust at any time for any or no reason. The Trust accrues, on behalf of each of the Funds, the commitment fee on the unused portion of the Committed Line. Such fees are included in the custodian and bank service fees on the Statement of Operations.
For the six months ended November 30, 2017, the Arbitrage Fund, the Event-Driven Fund, the Credit Opportunities Fund and the Tactical Equity Fund had average borrowings of $10,200,000, $1,500,000, $2,717,436 and $33,333, respectively, over a period of 2 days, 5 days, 39 days and 3 days, respectively, at a weighted average interest rate of 2.51%, 2.48%, 2.48% and 2.49%, respectively. Interest expense on the line of credit for the Arbitrage Fund, the Event-Driven Fund, the Credit Opportunities Fund and the Tactical Equity Fund during the six months ended
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November 30, 2017, is shown as line of credit interest expense on the Statements of Operations. The Funds had no outstanding borrowings at November 30, 2017.
5. ADVISORY FEES, ADMINISTRATION FEES AND OTHER AGREEMENTS
Investment Advisory Agreement
The Funds' investments are managed by the Adviser according to the terms of Investment Advisory Agreements. Under the Investment Advisory Agreement between the Adviser and the Arbitrage Fund, as amended and restated on October 1, 2007, the Arbitrage Fund pays the Adviser an annual fee, which is computed and accrued daily and paid monthly, of 1.25% on the first $250 million, 1.20% on the next $50 million, 1.15% on the next $50 million, 1.10% on the next $75 million, 1.05% on the next $75 million and 1.00% for amounts over $500 million, based on the Arbitrage Fund's average daily net assets. Under the Investment Advisory Agreement between the Adviser and the Event-Driven Fund dated September 27, 2010, the Event-Driven Fund pays the Adviser an annual fee, which is computed and accrued daily and paid monthly, of 1.25% based on the Event-Driven Fund's average daily net assets. Under the Investment Advisory Agreement between the Adviser and the Credit Opportunities Fund dated October 1, 2012, the Credit Opportunities Fund pays the Adviser an annual fee, which is computed and accrued daily and paid monthly, of 1.00% based on the Credit Opportunities Fund's average daily net assets. Under the Investment Advisory Agreement between the Adviser and the Tactical Equity Fund dated December 22, 2014, the Tactical Equity Fund pays the Adviser an annual fee, which is computed and accrued daily and paid monthly, of 1.25% based on the Tactical Equity Fund's average daily net assets.
The Adviser has contractually agreed, at least until September 30, 2018 for the Arbitrage Fund, the Event-Driven Fund, the Credit Opportunities Fund, and the Tactical Equity Fund, to waive its advisory fee and/or reimburse the Funds' other expenses to the extent that total operating expenses (exclusive of taxes, interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses and other costs incurred in connection with the purchase or sale of portfolio securities) exceed the annual rate of the Funds' average daily net assets attributable to each share class as shown in the table below:
Arbitrage Fund | Event-Driven Fund | Credit Opportunities Fund | Tactical Equity Fund | ||||||||||||||||
Class R | 1.69 | % | 1.69 | % | 1.50 | % | 1.69 | % | |||||||||||
Class I | 1.44 | % | 1.44 | % | 1.25 | % | 1.44 | % | |||||||||||
Class C | 2.44 | % | 2.44 | % | 2.25 | % | 2.44 | % | |||||||||||
Class A | 1.69 | % | 1.69 | % | 1.50 | % | 1.69 | % |
During the six months ended November 30, 2017, the Arbitrage Fund invested in the Event-Driven Fund. The Adviser has agreed to waive the advisory fee paid by the Arbitrage Fund on the Arbitrage Fund's assets that are invested in the Event-Driven Fund.
As of November 30, 2017, the Tactical Equity Fund had $18,124 receivable from the Adviser due to an advisory fee reimbursement.
For the six months ended November 30, 2017, the aggregate net fee paid to the Adviser as a percentage of average net assets for the Arbitrage Fund, Event-Driven Fund, Credit Opportunities Fund and Tactical Equity Fund was 1.05%, 0.75%, 0.71% and 0.00%, respectively.
The Adviser is permitted to recapture fees waived and expenses reimbursed to the extent actual fees and expenses for a period are less than the expense limitation of each class, provided, however, that the Adviser shall only be entitled to recapture such amounts for a period of three
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years from the end of the fiscal year during which such amount was waived or reimbursed. The Adviser can recapture any fees it has waived within three fiscal years of the year in which fees were waived subject to the applicable annual rate of: 1.69% for Class R shares, 1.44% for Class I shares, 2.44% for Class C shares and 1.69% for Class A shares of the Arbitrage Fund, Event-Driven Fund and Tactical Equity Fund, 1.50% for Class R shares, 1.25% for Class I shares, 2.25% for Class C shares and 1.50% for Class A shares of the Credit Opportunities Fund.
As of November 30, 2017, the balances of future fee and expense recaptures for each Fund were as follows:
Expiring May 31, 2018 | Expiring May 31, 2019 | Expiring May 31, 2020 | Total | ||||||||||||||||
Event-Driven Fund | |||||||||||||||||||
Class R | $ | 42,377 | $ | 193,596 | $ | 222,866 | $ | 458,839 | |||||||||||
Class I | $ | 96,022 | $ | 332,746 | $ | 236,150 | $ | 664,918 | |||||||||||
Class C | $ | 1,230 | $ | 5,871 | $ | 5,997 | $ | 13,098 | |||||||||||
Class A | $ | 1,377 | $ | 5,132 | $ | 3,680 | $ | 10,189 | |||||||||||
Credit Opportunities Fund | |||||||||||||||||||
Class R | $ | 25,136 | $ | 44,465 | $ | 37,259 | $ | 106,860 | |||||||||||
Class I | $ | 92,962 | $ | 107,990 | $ | 129,977 | $ | 330,929 | |||||||||||
Class C | $ | 4,587 | $ | 4,018 | $ | 2,984 | $ | 11,589 | |||||||||||
Class A | $ | 1,194 | $ | 1,093 | $ | 330 | $ | 2,617 | |||||||||||
Tactical Equity Fund | |||||||||||||||||||
Class R | $ | 1,733 | $ | 1,665 | $ | 1,275 | $ | 4,673 | |||||||||||
Class I | $ | 97,858 | $ | 256,320 | $ | 213,108 | $ | 567,286 | |||||||||||
Class C | $ | 1,733 | $ | 1,665 | $ | 1,275 | $ | 4,673 | |||||||||||
Class A | $ | 1,733 | $ | 1,665 | $ | 1,275 | $ | 4,673 |
There were no amounts recaptured during the six months ended November 30, 2017, from the Funds.
Administration Agreement
State Street Bank & Trust Company serves as the Trust's administrator pursuant to an Administration Agreement with the Trust.
Distribution Agreement
ALPS Distributors, Inc. (the "Distributor") serves as the Funds' distributor. The Distributor acts as an agent for the Funds and the distributor of their shares. The Funds have adopted, with respect to their Class R, Class C shares and Class A shares, a plan of distribution pursuant to Rule 12b-1 under the 1940 Act which permits each Fund to pay for expenses incurred in the distribution and promotion of the Funds' Class R shares, Class C shares and Class A shares and for services provided to shareholders. The Plan is a "reimbursement" plan. This means that a Fund's Class R shares, Class C shares and Class A shares only pay a particular 12b-1 fee to the extent that the Adviser, the Distributor or others have incurred expenses in the promotion and distribution of the shares, including but not limited to, the printing of prospectuses and reports used for sales purposes, expenses of preparation of sales literature and related expenses, advertisements, and other distribution-related expenses, as well as any distribution fees paid to securities dealers or others. Under the distribution plan, a Fund may pay compensation to any broker-dealer with whom the Distributor or the Funds has entered into a contract to distribute Class R shares, Class C shares or Class A shares, or to any other qualified financial services firm, for distribution and/or shareholder-related services with respect to shares held or purchased by their respective
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customers or in connection with the purchase of shares attributable to their efforts. The amount of payments under the Plan in any year shall not exceed 0.25% for Class R shares, 0.75% for Class C shares and 0.25% for Class A shares, respectively, of the average daily net assets allocable to a Fund's Class R shares, Class C shares and Class A shares, respectively. In addition, the Plan permits each Fund to make payments at an annual rate of up to 0.25% of the Fund's Class C shares for expenses incurred in connection with the provision of shareholder support or administrative services for the Fund's Class C shares.
During the six months ended November 30, 2017, The Arbitrage Fund's Class R shares incurred $393,920, Class C shares incurred $130,039 and Class A shares incurred $13,348, respectively, in distribution expenses for Class R shares and Class A shares and distribution and shareholder support expenses for Class C shares, all of which was used to compensate broker-dealers. With respect to the Event-Driven Fund, during the six months ended November 30, 2017, the Event-Driven Fund's Class R shares incurred $69,049, Class C shares incurred $7,652 and Class A shares incurred $1,013, respectively, in distribution expenses for Class R shares and Class A shares and distribution and shareholder support expenses for Class C shares, all of which was used to compensate broker-dealers. With respect to the Credit Opportunities Fund, during the six months ended November 30, 2017, the Credit Opportunities Fund's Class R shares incurred $18,150, Class C shares incurred $4,625 and Class A shares incurred $135, respectively, in distribution expenses for Class R shares and Class A shares and distribution and shareholder support expenses for Class C shares, all of which was used to compensate broker-dealers. With respect to the Tactical Equity Fund, during the six months ended November 30, 2017, the Tactical Equity Fund's Class R shares incurred $13, Class C shares incurred $51 and Class A shares incurred $13, respectively, in distribution expenses for Class R shares and Class A shares and distribution and shareholder support expenses for Class C shares, all of which was used to compensate broker-dealers.
Chief Compliance Officer
Certain officers of the Trust are also officers of the Adviser. The Chief Compliance Officer ("CCO") of the Trust also serves as the CCO of the Adviser. The Funds currently pay the Adviser 50% of the CCO's salary for the CCO's provision of services to the Funds.
Chief Financial Officer
Foreside Management Services, LLC provides Chief Financial Officer ("CFO") services to the Trust. Foreside Management Services, LLC is compensated by the Trust under a Fund CFO/Treasurer Agreement.
Transfer Agent And Shareholder Services Agreement
DST Systems, Inc. ("DST") is the Funds' transfer agent, and per an agency agreement, maintains the records of each shareholder's account, answers shareholders' inquiries concerning their accounts, processes purchases and redemptions of the Funds shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions.
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6. AFFILIATED ISSUER TRANSACTIONS
A summary of affiliated transactions for the Arbitrage Fund for the six months ended November 30, 2017 follows:
Affiliated Issuer | Beginning Value as of May 31, 2017 | Purchases at Cost | Proceeds from Sales | Net Realized Gain/ (Loss) on Sales | Change in Unrealized Appreciation/ Depreciation | Ending Value as of November 30, 2017 | Shares as of November 30, 2017 | Dividend Income | Capital Gain Distributions | ||||||||||||||||||||||||||||||
Event- Driven Fund | $ | – | $ | 12,000,000 | $ | – | $ | – | $ | (92,727 | ) | $ | 11,907,273 | 1,260,029 | $ | – | $ | – |
7. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statement of Changes in Net Assets are the result of the following capital share transactions for the periods shown:
Six Months Ended November 30, 2017 (Unaudited) | Year Ended May 31, 2017 | ||||||||||||||||||
Arbitrage Fund - Class R | Shares | Value | Shares | Value | |||||||||||||||
Proceeds from shares sold | 2,278,844 | $ | 29,909,095 | 5,742,451 | $ | 73,830,066 | |||||||||||||
Shares issued in reinvestment of distributions | – | – | 258,753 | 3,314,622 | |||||||||||||||
Proceeds from redemption fees collected | – | 718 | – | 2,196 | |||||||||||||||
Payments for shares redeemed | (10,782,638 | ) | (141,963,306 | ) | (13,904,195 | ) | (178,433,046 | ) | |||||||||||
Net decrease | (8,503,794 | ) | $ | (112,053,493 | ) | (7,902,991 | ) | $ | (101,286,162 | ) | |||||||||
Arbitrage Fund - Class I | |||||||||||||||||||
Proceeds from shares sold | 23,039,385 | $ | 312,317,477 | 41,539,817 | $ | 550,169,123 | |||||||||||||
Shares issued in reinvestment of distributions | – | – | 673,837 | 8,881,174 | |||||||||||||||
Proceeds from redemption fees collected | – | 3,509 | – | 3,371 | |||||||||||||||
Payments for shares redeemed | (15,208,484 | ) | (205,944,452 | ) | (37,600,114 | ) | (496,999,117 | ) | |||||||||||
Net increase | 7,830,901 | $ | 106,376,534 | 4,613,540 | $ | 62,054,551 | |||||||||||||
Arbitrage Fund - Class C | |||||||||||||||||||
Proceeds from shares sold | 179,364 | $ | 2,254,779 | 340,679 | $ | 4,222,527 | |||||||||||||
Shares issued in reinvestment of distributions | – | – | 14,115 | 174,174 | |||||||||||||||
Payments for shares redeemed | (323,545 | ) | (4,069,803 | ) | (701,738 | ) | (8,693,299 | ) | |||||||||||
Net decrease | (144,181 | ) | $ | (1,815,024 | ) | (346,944 | ) | $ | (4,296,598 | ) | |||||||||
Arbitrage Fund - Class A | |||||||||||||||||||
Proceeds from shares sold | 191,061 | $ | 2,513,381 | 197,586 | $ | 2,544,856 | |||||||||||||
Shares issued in reinvestment of distributions | – | – | 4,741 | 60,737 | |||||||||||||||
Payments for shares redeemed | (72,242 | ) | (948,543 | ) | (94,824 | ) | (1,222,032 | ) | |||||||||||
Net increase | 118,819 | $ | 1,564,838 | 107,503 | $ | 1,383,561 |
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Six Months Ended November 30, 2017 (Unaudited) | Year Ended May 31, 2017 | ||||||||||||||||||
Event-Driven Fund - Class R | Shares | Value | Shares | Value | |||||||||||||||
Proceeds from shares sold | 314,168 | $ | 2,947,318 | 1,293,576 | $ | 11,794,590 | |||||||||||||
Proceeds from redemption fees collected | – | 129 | – | 68 | |||||||||||||||
Payments for shares redeemed | (3,201,336 | ) | (30,008,901 | ) | (2,689,583 | ) | (24,496,682 | ) | |||||||||||
Net decrease | (2,887,168 | ) | $ | (27,061,454 | ) | (1,396,007 | ) | $ | (12,702,024 | ) | |||||||||
Event-Driven Fund - Class I | |||||||||||||||||||
Proceeds from shares sold | 4,229,656 | $ | 40,127,501 | 1,223,090 | $ | 11,232,007 | |||||||||||||
Proceeds from redemption fees collected | – | 72 | – | 10 | |||||||||||||||
Payments for shares redeemed | (981,085 | ) | (9,297,804 | ) | (4,505,749 | ) | (41,305,130 | ) | |||||||||||
Net increase/(decrease) | 3,248,571 | $ | 30,829,769 | (3,282,659 | ) | $ | (30,073,113 | ) | |||||||||||
Event-Driven Fund - Class C | |||||||||||||||||||
Proceeds from shares sold | 6,699 | $ | 61,586 | 5,794 | $ | 51,831 | |||||||||||||
Payments for shares redeemed | (21,922 | ) | (201,901 | ) | (120,323 | ) | (1,080,088 | ) | |||||||||||
Net decrease | (15,223 | ) | $ | (140,315 | ) | (114,529 | ) | $ | (1,028,257 | ) | |||||||||
Event-Driven Fund - Class A | |||||||||||||||||||
Proceeds from shares sold | 28,368 | $ | 267,110 | 24,320 | $ | 221,050 | |||||||||||||
Payments for shares redeemed | (48,150 | ) | (453,540 | ) | (167,173 | ) | (1,522,316 | ) | |||||||||||
Net decrease | (19,782 | ) | $ | (186,430 | ) | (142,853 | ) | $ | (1,301,266 | ) |
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The Arbitrage Funds Notes to Financial Statements (continued)
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Six Months Ended November 30, 2017 (Unaudited) | Year Ended May 31, 2017 | ||||||||||||||||||
Credit Opportunities Fund - Class R | Shares | Value | Shares | Value | |||||||||||||||
Proceeds from shares sold | 413,103 | $ | 4,008,158 | 273,277 | $ | 2,659,849 | |||||||||||||
Shares issued in reinvestment of distributions | 17,159 | 166,458 | 33,374 | 324,371 | |||||||||||||||
Proceeds from redemption fees collected | – | – | – | 80 | |||||||||||||||
Payments for shares redeemed | (199,410 | ) | (1,935,196 | ) | (355,419 | ) | (3,459,360 | ) | |||||||||||
Net increase/(decrease) | 230,852 | $ | 2,239,420 | (48,768 | ) | $ | (475,060 | ) | |||||||||||
Credit Opportunities Fund - Class I | |||||||||||||||||||
Proceeds from shares sold | 411,312 | $ | 3,986,801 | 1,003,158 | $ | 9,764,655 | |||||||||||||
Shares issued in reinvestment of distributions | 48,929 | 473,525 | 110,963 | 1,075,983 | |||||||||||||||
Payments for shares redeemed | (1,039,967 | ) | (10,073,723 | ) | (880,812 | ) | (8,554,794 | ) | |||||||||||
Net increase/(decrease) | (579,726 | ) | $ | (5,613,397 | ) | 233,309 | $ | 2,285,844 | |||||||||||
Credit Opportunities Fund - Class C | |||||||||||||||||||
Proceeds from shares sold | – | $ | 5 | 61,839 | $ | 600,537 | |||||||||||||
Shares issued in reinvestment of distributions | 734 | 7,075 | 1,785 | 17,241 | |||||||||||||||
Payments for shares redeemed | (25,496 | ) | (245,823 | ) | (81,059 | ) | (781,608 | ) | |||||||||||
Net decrease | (24,762 | ) | $ | (238,743 | ) | (17,435 | ) | $ | (163,830 | ) | |||||||||
Credit Opportunities Fund - Class A | |||||||||||||||||||
Proceeds from shares sold | – | $ | 1 | 4,086 | $ | 39,941 | |||||||||||||
Shares issued in reinvestment of distributions | 121 | 1,175 | 275 | 2,672 | |||||||||||||||
Payments for shares redeemed | (7 | ) | (84 | ) | (4,078 | ) | (39,754 | ) | |||||||||||
Net increase | 114 | $ | 1,092 | 283 | $ | 2,859 | |||||||||||||
Six Months Ended November 30, 2017 (Unaudited) | Year Ended May 31, 2017 | ||||||||||||||||||
Tactical Equity Fund - Class R | Shares | Value | Shares | Value | |||||||||||||||
Net increase | – | $ | – | – | $ | – | |||||||||||||
Tactical Equity Fund - Class I | |||||||||||||||||||
Proceeds from shares sold | 4,081 | $ | 40,751 | 66,461 | $ | 641,626 | |||||||||||||
Payments for shares redeemed | (1 | ) | (13 | ) | (1,241 | ) | (11,950 | ) | |||||||||||
Net increase | 4,080 | $ | 40,738 | 65,220 | $ | 629,676 | |||||||||||||
Tactical Equity Fund - Class C | |||||||||||||||||||
Net increase | – | $ | – | – | $ | – | |||||||||||||
Tactical Equity Fund - Class A | |||||||||||||||||||
Net increase | – | $ | – | – | $ | – |
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8. FOREIGN CURRENCY TRANSLATION
Amounts denominated in or expected to settle in foreign currencies are translated to U.S. dollars based on exchange rates on the basis outlined below:
A. The market values of investment securities and other assets and liabilities are translated at the closing rate of exchange each day.
B. Purchases and sales of investment securities and income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.
C. The Funds do not isolate that portion of the results of operations caused by changes in foreign exchange rates on investments from those caused by changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses on investments. Reported net realized foreign exchange gains or losses arise from 1) purchases and sales of foreign currencies; 2) currency gains or losses realized between the trade and settlement dates on security transactions; and 3) the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid. Reported net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investment securities, resulting from changes in exchange rates.
9. CONTINGENCIES AND COMMITMENTS
The Funds indemnify the Trust's officers and trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.
10. SECURITIES LENDING
To generate additional income, the Funds may, from time to time, lend portfolio securities to broker-dealers, banks or institutional borrowers of securities. At the time of the loan, the Funds must receive from the borrower 102% collateral in the form of cash or U.S. government securities. This collateral must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Funds. During the time portfolio securities are on loan, the borrower pays the Funds any dividends or interest paid on such securities.
Loans are subject to termination by the Funds or the borrower at any time. While the Funds do not have the right to vote securities on loan they have the right to terminate the loan and regain the right to vote if that is considered important with respect to the investment. In the event the borrower defaults in its obligation to the Fund, the Funds bear the risk of delay in the recovery of portfolio securities and the risk of loss of rights in the collateral.
The Funds may participate in a securities lending program under which the Funds' custodian, State Street Bank and Trust Company (the "Custodian") acting as securities lending agent, is authorized to lend Fund portfolio securities to qualified brokers/dealers and financial institutions that post appropriate collateral. The value of securities loaned will not exceed one-third of the value of the total assets of the Fund making the loan. The Custodian has agreed to indemnify the Fund in case of default of any security borrower.
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The Arbitrage Funds Notes to Financial Statements (continued)
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Securities on loan are fully collateralized and the collateral was equal to or exceeded the securities on loan. Cash collateral is invested in the State Street Institutional U.S. Government Money Market Fund, Premier Class. The Custodian receives a portion of the interest earned on any reinvested collateral. Income received by the Funds in securities lending transactions during the six months ended November 30, 2017 is reflected as securities lending income in the Statement of Operations. The Arbitrage Fund and the Credit Opportunities Fund lent out securities during the six months ended November 30, 2017. The Funds had no securities on loan as of November 30, 2017.
11. FEDERAL TAX INFORMATION
In order to avoid imposition of the excise tax applicable to regulated investment companies, it is also the Funds' intention to declare as dividends in each calendar year at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts from prior years.
The amount of distributions from net investment income and net realized gains, if any, are determined in accordance with Federal income tax regulations which may differ from accounting principles generally accepted in the United States of America. These "book/tax" differences are either temporary or permanent in nature and permanent differences are charged or credited to undistributed net investment income (loss), accumulated net realized gain (loss) or paid-in capital as appropriate in the period that the differences arise.
Permanent differences between the Funds' financial statement and income tax reporting requirements are primarily attributable to gains and losses on certain foreign currency related transactions, short sale related dividend expense, investments in passive foreign investment companies, investments in swaps, consent fee income, net operating losses, defaulted bonds and partnership basis adjustments. These have no effect on the Funds' net assets or net asset value per share.
Fund | Undistributed Net Investment Income/(Loss) | Accumulated Realized Gain/(Loss) | Paid-in Capital | ||||||||||||
Arbitrage Fund | $ | 16,679,681 | $ | (16,679,681 | ) | $ | – | ||||||||
Event-Driven Fund | 1,380,387 | (2,268,854 | ) | 888,467 | |||||||||||
Credit Opportunities Fund | 28,037 | (28,037 | ) | – | |||||||||||
Tactical Equity Fund | 29,610 | (29,312 | ) | (298 | ) |
The tax character of dividends and distributions declared and paid during the years ended May 31, 2017 and May 31, 2016 was as follows:
Fund | Year Ended | Ordinary Income | Long-Term Capital Gains* | Total Distributions | |||||||||||||||
Arbitrage Fund | 5/31/2017 | $ | 14,966,198 | $ | 1,437,619 | $ | 16,403,817 | ||||||||||||
5/31/2016 | 36,514,253 | 8,351,638 | 44,865,891 | ||||||||||||||||
Event-Driven Fund | 5/31/2017 | $ | – | $ | – | $ | – | ||||||||||||
5/31/2016 | 6,911,803 | 10,047 | 6,921,850 | ||||||||||||||||
Credit Opportunities Fund | 5/31/2017 | $ | 1,608,808 | $ | – | $ | 1,608,808 | ||||||||||||
5/31/2016 | 1,900,708 | – | 1,900,708 | ||||||||||||||||
Tactical Equity Fund | 5/31/2017 | $ | – | $ | – | $ | – | ||||||||||||
5/31/2016 | 14,738 | 35 | 14,773 |
* The Funds designate these distributions as long-term capital gains dividends per IRC code section 852(b)(3)(C).
www.arbitragefunds.com | 1-800-295-4485
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The Arbitrage Funds Notes to Financial Statements (continued)
November 30, 2017 (Unaudited)
As of May 31, 2017, the components of distributable earnings on a tax basis were as follows:
Arbitrage Fund | Event-Driven Fund | Credit Opportunities Fund | Tactical Equity Fund | ||||||||||||||||
Undistributed ordinary income | $ | 31,693,407 | $ | 266 | $ | 161,014 | $ | – | |||||||||||
Accumulated capital gains/losses | 8,313,394 | – | – | – | |||||||||||||||
Unrealized appreciation/ (depreciation) | 19,889,497 | 327,961 | (433,299 | ) | 3,438 | ||||||||||||||
Loss deferral | – | (545,590 | ) | (39,880 | ) | (9,871 | ) | ||||||||||||
Capital loss carryover | – | (60,163,285 | ) | (2,707,821 | ) | – | |||||||||||||
Total distributable earnings | $ | 59,896,298 | $ | (60,380,648 | ) | $ | (3,019,986 | ) | $ | (6,433 | ) |
The following information is computed on a tax basis for each item as of November 30, 2017:
Fund | Gross Appreciation (excess of value over tax cost) | Gross Depreciation (excess of tax cost over value) | Net Unrealized Appreciation (Depreciation) | Aggregate Cost of Investments for Income Tax Purposes | |||||||||||||||
Arbitrage Fund | $ | 57,037,679 | $ | (48,189,254 | ) | $ | 8,848,425 | $ | 1,359,102,145 | ||||||||||
Event-Driven Fund | 5,795,334 | (5,045,632 | ) | 749,702 | 99,523,434 | ||||||||||||||
Credit Opportunities Fund | 627,114 | (956,564 | ) | (329,450 | ) | 58,234,539 | |||||||||||||
Tactical Equity Fund | 128,832 | (77,441 | ) | 51,391 | 1,295,896 |
The differences between book-basis and tax-basis net unrealized appreciation/(depreciation) for the Funds are attributable to constructive sales, dividends related to short securities, investments in passive foreign investment companies, wash sales, convertible bonds, straddle loss deferrals, defaulted bonds, partnership basis adjustments and unsettled short sales.
Capital Losses
As of May 31, 2017, the Event-Driven Fund had $49,874,090 of short term and $10,289,194 of long term capital loss carryforwards and the Credit Opportunities Fund had $1,526,322 of short term and $1,181,498 of long term capital loss carryforwards which may reduce the Funds' taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus may reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Funds of any liability for federal tax. The Tactical Equity Fund utilized $48,530 of capital loss carryforwards during the year ended May 31, 2017.
Late Year Losses
The Event-Driven Fund, the Credit Opportunities Fund and the Tactical Equity Fund elect to defer to the period ending May 31, 2018, capital losses recognized during the period November 1, 2016 to May 31, 2017 in the amount of $545,590, $39,880 and $4,913, respectively.
The Tactical Equity Fund has elected to defer late year ordinary losses of $4,958 as arising on June 1, 2017.
Semi-Annual Report | November 30, 2017
119
The Arbitrage Funds Disclosure of Fund Expenses
November 30, 2017 (Unaudited)
All mutual funds have operating expenses. As a shareholder of a mutual fund, your investment is affected by these ongoing costs, which include (among others) costs for portfolio management, administrative services, distribution (12b-1) expenses, redemption fees and shareholder reports like this one. It is important for you to understand the impact of these costs on your investment returns.
Operating expenses such as these are deducted from a mutual fund's gross income and directly reduce its final investment return. These expenses are expressed as a percentage of a mutual fund's average net assets; this percentage is known as a mutual fund's expense ratio.
The following examples use the expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.
The table on the following page illustrates your Fund's cost in two ways:
Actual Fund Return. The section helps you to estimate the actual expenses after fee waivers that your Fund incurred over the period. The "Expenses Paid During Period" column shows the actual dollar expense cost incurred by a $1,000 investment in the Fund, and the "Ending Account Value" number is derived from deducting that expense cost from the Fund's gross investment return.
You can use this information, together with the actual amount you invested in the Fund, to estimate the expenses you paid over that period. Simply divide your actual account value by $1,000 to arrive at a ratio (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply that ratio by the number shown for your Fund under "Expenses Paid During Period."
Hypothetical 5% Return. This section helps you compare your Fund's costs with those of other mutual funds. It assumes that the Fund had an annual 5% return before expenses during the period, but that expense ratio (Column 3) for the period is unchanged. This example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to make this 5% calculation. You can assess your Fund's comparative cost by comparing the hypothetical result for your Fund in the "Expenses Paid During Period" column with those that appear in the same charts in the shareholder reports for other mutual funds.
Note: Because the return is set at 5% for comparison purposes — NOT your Fund's actual return — the account values shown may not apply to your specific investment.
www.arbitragefunds.com | 1-800-295-4485
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The Arbitrage Funds Disclosure of Fund Expenses (continued)
November 30, 2017 (Unaudited)
Beginning Account Value 06/01/2017 | Ending Account Value 11/30/2017 | Expense Ratio(a) | Expenses Paid During Period(b) | ||||||||||||||||
The Arbitrage Fund | |||||||||||||||||||
Class R | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,000.80 | 2.03 | % | $ | 10.18 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,014.89 | 2.03 | % | $ | 10.25 | |||||||||||
Class I | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,001.50 | 1.78 | % | $ | 8.93 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,016.14 | 1.78 | % | $ | 9.00 | |||||||||||
Class C | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 996.80 | 2.78 | % | $ | 13.92 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,011.13 | 2.78 | % | $ | 14.02 | |||||||||||
Class A | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,000.00 | 2.03 | % | $ | 10.18 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,014.89 | 2.03 | % | $ | 10.25 |
(a) Annualized, based on the Fund's most recent fiscal half-year expenses.
(b) Expenses, are equal to the Fund's annualized ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183), divided by 365.
Beginning Account Value 06/01/2017 | Ending Account Value 11/30/2017 | Expense Ratio(a) | Expenses Paid During Period(b) | ||||||||||||||||
The Arbitrage Event-Driven Fund | |||||||||||||||||||
Class R | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,001.10 | 2.13 | % | $ | 10.69 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,014.39 | 2.13 | % | $ | 10.76 | |||||||||||
Class I | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,002.10 | 1.88 | % | $ | 9.44 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,015.64 | 1.88 | % | $ | 9.50 | |||||||||||
Class C | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 997.80 | 2.88 | % | $ | 14.42 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,010.63 | 2.88 | % | $ | 14.52 | |||||||||||
Class A | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,001.10 | 2.13 | % | $ | 10.69 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,014.39 | 2.13 | % | $ | 10.76 |
(a) Annualized, based on the Fund's most recent fiscal half-year expenses.
(b) Expenses, are equal to the Fund's annualized ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183), divided by 365.
Semi-Annual Report | November 30, 2017
121
The Arbitrage Funds Disclosure of Fund Expenses (continued)
November 30, 2017 (Unaudited)
Beginning Account Value 06/01/2017 | Ending Account Value 11/30/2017 | Expense Ratio(a) | Expenses Paid During Period(b) | ||||||||||||||||
The Arbitrage Credit Opportunities Fund | |||||||||||||||||||
Class R | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,005.20 | 2.14 | % | $ | 10.76 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,014.34 | 2.14 | % | $ | 10.81 | |||||||||||
Class I | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,007.50 | 1.89 | % | $ | 9.51 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,015.59 | 1.89 | % | $ | 9.55 | |||||||||||
Class C | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,001.40 | 2.89 | % | $ | 14.50 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,010.58 | 2.89 | % | $ | 14.57 | |||||||||||
Class A | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,005.20 | 2.14 | % | $ | 10.76 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,014.34 | 2.14 | % | $ | 10.81 |
(a) Annualized, based on the Fund's most recent fiscal half-year expenses.
(b) Expenses, are equal to the Fund's annualized ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183), divided by 365.
Beginning Account Value 06/01/2017 | Ending Account Value 11/30/2017 | Expense Ratio(a) | Expenses Paid During Period(b) | ||||||||||||||||
The Arbitrage Tactical Equity Fund | |||||||||||||||||||
Class R | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,004.00 | 2.29 | % | $ | 11.50 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,013.59 | 2.29 | % | $ | 11.56 | |||||||||||
Class I | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,004.00 | 2.07 | % | $ | 10.40 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,014.69 | 2.07 | % | $ | 10.45 | |||||||||||
Class C | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,004.00 | 3.04 | % | $ | 15.27 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,009.78 | 3.04 | % | $ | 15.32 | |||||||||||
Class A | |||||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,004.00 | 2.29 | % | $ | 11.50 | |||||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,013.59 | 2.29 | % | $ | 11.56 |
(a) Annualized, based on the Fund's most recent fiscal half-year expenses.
(b) Expenses, are equal to the Fund's annualized ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183), divided by 365.
www.arbitragefunds.com | 1-800-295-4485
122
The Arbitrage Funds Additional Information
November 30, 2017 (Unaudited)
1. PROXY VOTING POLICIES AND VOTING RECORD
A description of the policies and procedures that the Funds use to vote proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge upon request by calling toll-free 1-800-295-4485, or on the Securities and Exchange Commission's ("SEC") website at http://www.sec.gov. Information regarding how the Funds voted proxies will be available without charge upon request by calling toll-free 1-800-295-4485, or on the SEC's website at http://www.sec.gov.
2. QUARTERLY PORTFOLIO HOLDINGS
The Funds file a complete listing of their portfolio holdings with the SEC as of the first and third quarters of each fiscal year on Form N-Q. The filings are available upon request by calling 1-800-295-4485. Furthermore, you may obtain a copy of the filing on the SEC's website at http://www.sec.gov. The Funds' Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Semi-Annual Report | November 30, 2017
123
The Arbitrage Funds Privacy Policy
November 30, 2017 (Unaudited)
Commitment to Consumer Privacy
The Arbitrage Funds are committed to handling consumer information responsibly. We recognize and respect the privacy expectations of each of our customers. We believe the confidentiality and protection of consumer information is one of our fundamental responsibilities.
Collection and Disclosure of Shareholder Information
Consumer information collected by, or on behalf, of The Arbitrage Funds generally comes from the following sources:
• Account applications, other required forms, correspondence, written or electronic, or telephone contacts with shareholders or consumers inquiring about The Arbitrage Funds;
• Transaction history of a shareholder's account; or
• Third parties.
We may disclose consumer information to third parties who are not affiliated with The Arbitrage Funds:
• as permitted by law, for example with service providers who maintain or service customer accounts for The Arbitrage Funds or to a shareholder's broker/dealer; or
• to perform marketing services on our behalf or pursuant to a joint marketing agreement with another financial institution.
Security of Customer Information
We require service providers to The Arbitrage Funds:
• to maintain policies and procedures designed to assure only appropriate access to, and use of information about customers of The Arbitrage Funds; and
• to maintain physical, electronic and procedural safeguards that comply with federal standards to guard non-public personal information of customers of The Arbitrage Funds.
www.arbitragefunds.com | 1-800-295-4485
124
The Arbitrage Fund
The Arbitrage Event-Driven Fund
The Arbitrage Credit Opportunities Fund
The Arbitrage Tactical Equity Fund
800-295-4485
www.arbitragefunds.com
Adviser
Water Island Capital LLC
41 Madison Avenue, 42nd Floor
New York, NY 10010
Distributor
ALPS Distributors, Inc.
1290 Broadway, Suite 1100
Denver, CO 80203
Transfer Agent
DST Systems, Inc.
P.O. Box 219842
Kansas City, MO 64121-9842
Custodian
State Street Bank & Trust
225 Liberty Street
New York, NY 10281
This report and the financial statements contained herein are submitted for the general information of shareholders and are not authorized for distribution to prospective investors unless accompanied or preceded by an effective prospectus, which contains information about the fund's investment objectives, risks, fees and expenses. Investors are reminded to read the prospectus carefully before investing in the Funds.
Item 2. Code of Ethics.
Not applicable to semi-annual report.
Item 3. Audit Committee Financial Expert.
Not applicable to semi-annual report.
Item 4. Principal Accountant Fees and Services.
Not applicable to semi-annual report.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
The Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to Vote of Security Holders.
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees.
Item 11. Controls and Procedures.
(a) The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) within 90 days of this filing and have concluded that the registrant’s disclosure controls and procedures were effective, as of that date.
(b) There was no change in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940, as amended) during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable.
Item 13. Exhibits.
(a)(1) Not applicable to semi-annual report.
(a)(2) A separate certification for the principal executive officer and the principal financial officer of the registrant as required by Rule 30a-2(a) under the Investment Company Act of 1940, as amended (17 CFR 270.30a-2(a)), are attached hereto as exhibit Ex-99.CERT.
(a)(3) Not applicable.
(b) The certifications by the registrant’s principal executive officer and principal financial officer, as required by Rule 30a-2(b) of the Investment Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto as Ex-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE ARBITRAGE FUNDS
By: | /s/ John S. Orrico |
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| John S. Orrico |
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| President (Principal Executive Officer) |
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Date: | February 7, 2018 |
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ John S. Orrico |
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| John S. Orrico |
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| President (Principal Executive Officer) |
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Date: | February 7, 2018 |
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By: | /s/ Monique Labbe |
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| Monique Labbe |
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| Chief Financial Officer (Principal Financial Officer) |
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Date: | February 7, 2018 |
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