UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________
FORM N-CSR
________
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
INVESTMENT COMPANY ACT FILE NUMBER 811-09815
THE ARBITRAGE FUNDS
(Exact name of Registrant as specified in charter)
________
41 Madison Avenue
28th Floor
New York, NY 10010
(Address of principal executive offices) (Zip code)
John S. Orrico
Water Island Capital, LLC
41 Madison Avenue
28th Floor
New York, NY 10010
(Name and address of agent for service)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-259-2655
DATE OF FISCAL YEAR END: MAY 31, 2009
DATE OF REPORTING PERIOD: MAY 31, 2009
EXPLANATORY NOTE
The purpose of this Amendment on Form N-CSR/A to the Shareholder Report for the
annual period ended May 31, 2009 (the "Prior Amended Filing"), which was filed
with the Securities and Exchange Commission on August 24, 2009 (Accession Number
0000950123-09-037464), is to include the Registrant's Code of Ethics. No other
items of the Prior Amended Filing are being amended hereby.
ITEM 1. REPORTS TO STOCKHOLDERS.
ITEM 1. REPORTS TO STOCKHOLDERS.
(THE ARBITRAGE FUND LOGO)
41 Madison Avenue
28th Floor
New York, New York 10010
800-295-4485
www.thearbfund.com
ANNUAL REPORT
MAY 31, 2009
(THE ARBITRAGE FUND LOGO)
WATER ISLAND CAPITAL, LLC
41 MADISON AVENUE
28TH FLOOR
NEW YORK, NEW YORK 10010
----------
800-295-4485
www.thearbfund.com
Dear Shareholder,
The Arbitrage Fund's (the "Fund") Class R shares generated a gain of 1.64% (and
a gain of 1.69% in the Class I shares) for our fiscal year that ended May 31,
2009.
Our positive performance was achieved during a period of extreme volatility for
equity and fixed income markets around the globe. Our investment team achieved
the primary investment objective of capital preservation and did so during an
environment that witnessed a decline in excess of 32% in the S&P 500 Index
during the same period. The past year has been a tumultuous one for investors,
and although both the economy and financial markets appear to be stabilizing, we
remain focused on the core investment principles that underpin our investment
strategy: capital preservation, coupled with achieving consistent positive
returns during all market cycles.
We're also pleased to announce that the Fund has been declared the BEST EQUITY
MARKET NEUTRAL FUND over the five year period ending 2008 in this year's Lipper
Fund Awards. It remains our goal to continue to deliver to our shareholders
superior risk-adjusted returns over the months and years ahead.
PROVIDING SHELTER DURING THE MARKET STORM
The second half of 2008 was marked by disruptions in global financial markets
caused in part by the failure of Lehman Brothers and the meltdown of the
financial sector, coupled with an overall lack of transparency, integrity, and
risk discipline among many of the participants, both large and small, within the
financial sector of our economy. The resultant crisis of confidence among the
investing public was further exacerbated by many high-profile episodes of fraud
and dishonest behavior of epic proportions that emerged. Perhaps more
disappointing for investors were the lack of risk discipline and risk management
demonstrated by the caretakers of their investment funds. Our adherence to a
risk discipline that protects investor capital from the possibility of severe
loss is a bedrock principle of our investment strategy and the primary factor
behind the Fund's ability to avoid the massive losses seen throughout the
general markets and among many of our peer funds. Our conservative approach
toward portfolio construction should be viewed in the context of the role we
play as merger arbitrageurs. In essence, we underwrite the risks associated with
a successful merger and for that, we receive a fee, or spread, that reflects the
difference between today's price, and the
1
consideration we can expect to collect upon the merger's successful close. Our
success is predicated upon being able to properly price that risk, and to limit
or avoid losses associated with a failed deal. In that context, our risk
aversion makes perfect sense. We are opportunistic investors, looking to take
advantage of mispriced risk in the marketplace, while positioning our investors'
capital to generate positive returns over all investment cycles. Avoiding large
hits to capital, however, is a prerequisite to achieving that goal.
STRATEGIC TRANSACTIONS
As the current year has progressed, the emergence of competitive bidding for
companies already subject to an announced deal has accelerated. Such activity is
often associated with the early stages of an economic recovery, and can catapult
our projected returns for any given merger situation. To some extent, this
phenomenon is a result of the sharp market declines of 2007 and 2008. Similar
trends were witnessed during the early part of this decade following the
bursting of the tech/telecom bubble and associated recessionary environment.
There are many parallels between that period and today, not only in the software
and technology sectors, but also in the healthcare, biotechnology, energy,
natural resources, and banking sectors. Since many of these assets continue to
trade below their historic highs, they become prized targets for larger, well
capitalized firms that are seeking to generate growth in both their top and
bottom lines, while positioning themselves for accelerated growth once the
downturn ends.
Deal activity was present across all sectors of the global economy. Strategic
transactions continue to dominate both the deal universe and our portfolio, as
the lack of access to credit markets continues to sideline LBO activity and
private equity buyers. "Opportunistic" would be an apt characterization for
today's deal environment. Aggressive approaches and hostile bidding are taking
place, given the growing gap between the haves (strong industry leaders with
access to cash and credit) and the have-nots (their weakened peers, without
strong balance sheets, facing growing competitive pressures).
CONSOLIDATION OVERSEAS
Merger activity outside the U.S. has continued to accelerate as well. Pent up
demand for acquisitions, particularly in the commodities sectors, has triggered
a healthy flow of consolidation activity. We are witnessing aggressive buying on
the part of sovereign funds and entities out of both China and the Middle East,
as they seek to establish dominant global positions across an array of raw
materials sectors, with a goal of ensuring adequate future supplies. The
healthcare, financial and technology sectors dominated cross-border deal
activity, as global aspirations fueled the desire to enlarge competitive
footprints and enhance product offerings. We anticipate this period of robust
consolidation to continue overseas and will maintain our global approach toward
investing.
2
Today's investment environment bodes well for our strategy. Opportunistic
buyers, low valuations, the absence of financial buyers and the frothy
speculation that accompanied their presence during the past few years are
contributing to a healthy and favorable risk-adjusted investment horizon for
merger arbitrage. It is our expectation that the need for growth through
acquisition will lead to strong consolidation activity throughout a number of
sectors over the years ahead, as subdued economic conditions threaten organic
growth opportunities. We also expect that mergers borne of necessity will
continue, particularly within those industries that have undergone considerable
stress during the past year.
Having completed a successful year, despite the turmoil throughout the world's
financial markets, we will continue to work diligently to provide optimal
risk-adjusted returns for our investors. I would like to extend my gratitude, on
behalf of the entire team, for the trust and support you have placed in us.
Please feel free to contact us or visit our website at www.TheArbFund.com should
you have any questions.
Sincerely,
/s/ John S. Orrico
John S. Orrico, CFA
President
THE ARBITRAGE FUND (ARBNX) WAS DECLARED THE BEST EQUITY MARKET NEUTRAL FUND OVER
THE FIVE YEAR PERIOD ENDING DECEMBER 31, 2008 IN THE 2009 LIPPER FUND AWARDS.
LIPPER, INC., A THOMSON REUTERS COMPANY, IS A NATIONALLY RECOGNIZED ORGANIZATION
THAT RANKS THE PERFORMANCE OF MUTUAL FUNDS. THE ARBITRAGE FUND WAS RANKED 1 OUT
OF 23 FUNDS WITHIN THE EQUITY MARKET NEUTRAL FUNDS CATEGORY. PAST PERFORMANCE IS
NO GUARANTEE OF FUTURE RESULTS.
THE MATERIAL ABOVE REFLECTS THE MANAGER'S OPINION OF THE MARKET AS OF A CERTAIN
DATE AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE. THE FUND USES
INVESTMENT TECHNIQUES THAT ARE DIFFERENT FROM THE RISKS ORDINARILY ASSOCIATED
WITH EQUITY INVESTMENTS. SUCH TECHNIQUES AND STRATEGIES INCLUDE MERGER ARBITRAGE
RISKS, HIGH PORTFOLIO RISKS, OPTION RISKS, BORROWING RISKS, SHORT SALE RISKS,
AND FOREIGN INVESTMENT RISKS, WHICH MAY INCREASE VOLATILITY AND MAY INCREASE
COSTS AND LOWER PERFORMANCE.
THE ARBITRAGE FUND IS DISTRIBUTED BY SEI INVESTMENTS DISTRIBUTION CO., WHICH IS
NOT AFFILIATED WITH THE ADVISER OR ANY AFFILIATE.
THIS REPORT IS INTENDED FOR THE FUND'S SHAREHOLDERS. IT MAY NOT BE DISTRIBUTED
TO PROSPECTIVE INVESTORS UNLESS IT IS PRECEDED OR ACCOMPANIED BY A CURRENT
PROSPECTUS.
3
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE ARBITRAGE FUND(C) VERSUS THE S&P 500 INDEX
(PERFORMANCE GRAPH)
The Arbitrage Fund(a) S&P 500 Index
------------------------- --------------------------
Sep 00 $10,000 $10,000
Nov 00 $9,820 $9,125
Feb 01 $12,656 $8,629
May 01 $11,733 $8,769
Aug 01 $10,831 $7,941
Nov 01 $10,740 $8,009
Feb 02 $11,334 $7,808
May 02 $11,593 $7,554
Aug 02 $11,955 $6,512
Nov 02 $11,924 $6,687
Feb 03 $12,180 $6,037
May 03 $12,799 $6,945
Aug 03 $13,009 $7,298
Nov 03 $13,753 $7,696
Feb 04 $14,208 $8,362
May 04 $13,652 $8,218
Aug 04 $13,139 $8,133
Nov 04 $13,608 $8,685
Feb 05 $13,722 $8,946
May 05 $13,506 $8,895
Aug 05 $13,881 $9,154
Nov 05 $13,767 $9,418
Feb 06 $14,165 $9,697
May 06 $14,472 $9,663
Aug 06 $14,552 $9,968
Nov 06 $14,620 $10,758
Feb 07 $15,039 $10,858
May 07 $15,288 $11,866
Aug 07 $15,477 $11,476
Nov 07 $15,761 $11,589
Feb 08 $15,795 $10,467
May 08 $16,200 $11,071
Aug 08 $15,960 $10,198
Nov 08 $15,162 $7,174
Feb 09 $16,015 $5,933
May 09 $16,466 $7,465
AVERAGE ANNUAL TOTAL RETURNS(B)
(FOR PERIODS ENDED MAY 31, 2009)
SINCE
1 YEAR 5 YEARS INCEPTION
------- ------- ----------
The Arbitrage Fund - Class R 1.64% 3.82% 5.90%(c)
The Arbitrage Fund - Class I 1.69% 3.95 3.83%(d)
S&P 500 Index (32.57)% (1.90)% (3.30)%(e)
(a) The line graph above represents performance of Class R shares only, which
will vary from the performance of Class I shares based on the difference in
fees paid by shareholders in the different classes.
(b) The data quoted herein represents past performance; past performance does
not guarantee future results. The returns shown do not reflect the
deduction of taxes a shareholder would pay on Fund distributions or the
redemption of Fund shares. Fee waivers are in effect. If they had not been
in effect, performance would have been lower.
(c) Represents the period from the commencement of operations of Class R shares
(September 17, 2000) through May 31, 2009.
(d) Represents the period from the commencement of operations of Class I shares
(October 17, 2003) through May 31, 2009.
(e) Represents the period from September 18, 2000 through May 31, 2009.
4
THE ARBITRAGE FUND
Statement of Assets and Liabilities
May 31, 2009
ASSETS
Investments:
At acquisition cost $312,256,807
============
At value (Note 1) $344,297,074
Deposits with brokers for securities sold short (Note 1) 139,111,416
Deposits with swap counterparties 521,213
Foreign currency (cost $710,183) 794,690
Receivable for investment securities sold 17,651,634
Receivable for capital shares sold 1,965,690
Unrealized appreciation on forward currency exchange contracts
(Note 9) 5,018,614
Unrealized appreciation on spot currency exchange contracts 16,235
Unrealized appreciation on equity swap contracts 272,130
Dividends receivable 407,094
Prepaid expenses 71,329
Reclaims receivable 11,697
------------
Total Assets 510,138,816
------------
LIABILITIES
Securities sold short, at value (Note 1)
(proceeds $121,857,268) 139,164,185
Written options, at value (Notes 1 and 9) (premiums
received $6,347,326) 5,689,688
Payable for investment securities purchased 24,373,149
Unrealized depreciation on forward currency exchange contracts
(Note 9) 10,762,700
Unrealized depreciation on spot currency exchange contracts 17,083
Unrealized depreciation on equity swap contracts 391,067
Payable for capital shares redeemed 752,440
Payable to Adviser (Note 4) 334,220
Dividends payable on securities sold short (Note 1) 296,156
Payable to Distributor (Note 4) 52,643
Payable to Administrator (Note 4) 27,705
Payable to Trustees 15,069
Payable to Chief Compliance Officer (Note 4) 3,833
Other accrued expenses and liabilities 140,950
------------
Total Liabilities 182,020,888
------------
NET ASSETS $328,117,928
============
NET ASSETS CONSIST OF:
Paid-in capital $326,161,510
Undistributed net investment income 2,583,464
Accumulated net realized losses on investments, equity swap
contracts, securities sold short, written option contracts and
foreign currencies (10,124,356)
Net unrealized appreciation (depreciation) on:
Investments 32,040,267
Equity swap contracts (118,937)
Securities sold short (17,306,917)
Written option contracts 657,638
Translation of assets and liabilities denominated in foreign
currencies (5,774,741)
------------
NET ASSETS $328,117,928
============
CLASS R SHARES
Net assets applicable to Class R shares $219,338,303
============
Shares of beneficial interest outstanding (unlimited number of
shares authorized, no par value) 17,642,862
============
Net asset value and offering price per share (a) $ 12.43
============
CLASS I SHARES
Net assets applicable to Class I shares $108,779,625
============
Shares of beneficial interest outstanding (unlimited number of
shares authorized, no par value) 8,630,935
============
Net asset value and offering price per share (a) $ 12.60
============
(a) Redemption price varies based on length of time held (Note 1).
See accompanying notes to financial statements.
5
THE ARBITRAGE FUND
Statement of Operations
For the Year Ended May 31, 2009
INVESTMENT INCOME
Dividends (net of withholding taxes of $33,461) $ 4,512,443
------------
Total Income 4,512,443
------------
EXPENSES
Investment advisory fees (Note 4) 2,802,056
Distribution expense, Class R (Note 4) 350,896
Administration fees (Note 4) 224,805
Trustees' fees 50,550
Chief Compliance Officer fees (Note 4) 20,000
Dividend expense 1,661,928
Interest rebate expense 1,295,068
Professional fees 231,425
Transfer agent fees (Note 4) 180,738
Custodian and bank service fees 157,117
Registration and filing fees 67,147
Insurance expense 55,820
Printing of shareholder reports 19,314
Other expenses 8,735
------------
Total Expenses 7,125,599
Recovery of investment advisory fees previously waived
(Note 4) 8,157
Net Expenses 7,133,756
------------
NET INVESTMENT LOSS (2,621,313)
------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND
FOREIGN CURRENCIES
Net realized gains (losses) from:
Investments (14,473,238)
Equity swap contracts (5,245,013)
Securities sold short 5,525,291
Written option contracts 12,124,366
Foreign currency transactions (Note 6) 4,515,636
Net change in unrealized appreciation (depreciation) on:
Investments 26,707,371
Equity swap contracts (1,094)
Securities sold short (16,059,789)
Written option contracts 300,102
Foreign currency transactions (Note 6) (5,217,366)
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS AND FOREIGN
CURRENCIES 8,176,266
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,554,953
============
See accompanying notes to financial statements.
6
THE ARBITRAGE FUND
Statement of Changes in Net Assets
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
2009 2008
------------ ------------
FROM OPERATIONS
Net investment loss $ (2,621,313) $ (119,389)
Net realized gains (losses) from:
Investments and equity swap contracts (19,718,251) 11,342,105
Securities sold short 5,525,291 (279,471)
Written option contracts 12,124,366 3,126,665
Foreign currency transactions 4,515,636 (4,701,276)
Net change in unrealized appreciation (depreciation) on:
Investments and equity swap contracts 26,706,277 213,964
Securities sold short (16,059,789) 553,363
Written option contracts 300,102 363,699
Foreign currency transactions (5,217,366) (66,020)
------------ ------------
Net increase in net assets resulting from operations 5,554,953 10,433,640
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net realized gains, Class R (5,041,580) (5,491,369)
Distributions from net realized gains, Class I (3,356,818) (5,509,264)
------------ ------------
Decrease in net assets from distributions to shareholders (8,398,398) (11,000,633)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
CLASS R
Proceeds from shares sold 180,375,541 60,775,206
Shares issued in reinvestment of distributions 4,854,981 5,214,569
Proceeds from redemption fees collected (Note 1) 283,341 6,761
Payments for shares redeemed (77,181,667) (29,038,185)
------------ ------------
Net increase in net assets from Class R share transactions 108,332,196 36,958,351
------------ ------------
CLASS I
Proceeds from shares sold 69,651,784 34,167,669
Shares issued in reinvestment of distributions 2,854,085 4,541,919
Proceeds from redemption fees collected (Note 1) 4,742 8,323
Payments for shares redeemed (43,805,570) (48,327,160)
------------ ------------
Net increase (decrease) in net assets from Class I share
transactions 28,705,041 (9,609,249)
------------ ------------
TOTAL INCREASE IN NET ASSETS 134,193,792 26,782,109
NET ASSETS
Beginning of year 193,924,136 167,142,027
------------ ------------
End of year $328,117,928 $193,924,136
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME (ACCUMULATED NET
INVESTMENT LOSS) $ 2,583,464 $ (1,522,048)
============ ============
See accompanying notes to financial statements.
7
THE ARBITRAGE FUND
Statement of Cash Flows
For the Year Ended May 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations $ 5,554,953
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Purchases of long-term portfolio investments (1,736,492,055)
Proceeds from sales of long-term portfolio investments 1,414,148,437
Proceeds from boxed positions 202,930,233
Purchases of short-term investments (26,996,600)
Payments to cover securities sold short (348,247,433)
Proceeds from securities sold short 452,627,655
Realized gain on written option contracts (12,124,366)
Premiums received from written option contracts 35,077,016
Premiums paid to closed option contracts (17,668,634)
Realized losses from security transactions 8,947,947
Change in unrealized appreciation from security
transactions (10,947,684)
Increase in foreign currency (794,690)
Decrease in deposits with swap counterparties 7,111,837
Increase in deposits with brokers for securities sold short (115,445,161)
Increase in receivable for investment securities sold (4,415,768)
Increase in unrealized appreciation on forward currency
exchange contracts (4,587,814)
Increase in unrealized appreciation on spot currency
exchange contracts (16,229)
Increase in unrealized appreciation on equity swap
contracts (123,455)
Increase in prepaid expenses (8,567)
Decrease in reclaims receivable 3,355
Increase in dividends receivable (402,066)
Decrease in bank overdraft denominated in foreign currency (142,846)
Increase in payable for investment securities purchased 14,242,069
Increase in unrealized depreciation on forward currency
exchange contracts 9,777,775
Increase in unrealized depreciation on spot currency
exchange contracts 16,020
Increase in unrealized depreciation on equity swap
contracts 124,549
Increase in payable to Adviser 141,364
Increase in payable to Distributor 24,900
Increase in payable to Administrator 11,653
Decrease in payable to Trustees (431)
Increase in dividends payable on securities sold short 286,703
Increase in other accrued expenses and liabilities 18,896
---------------
Net cash used in operating activities (127,368,437)
8
THE ARBITRAGE FUND
Statement of Cash Flows (Continued)
For the Year Ended May 31, 2009
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from shares sold $ 250,027,325
Shares issued in reinvestment of distributions 7,709,066
Payments for shares redeemed (120,699,154)
Distributions from net realized gains paid to shareholders (8,398,398)
Increase in receivable for capital shares sold (145,499)
Increase in payable for capital shares redeemed 561,610
---------------
Net cash provided by financing activities 129,054,950
---------------
NET INCREASE IN CASH 1,686,513
BANK OVERDRAFT -- BEGINNING OF YEAR (1,686,513)
---------------
CASH -- END OF YEAR $ --
===============
See accompanying notes to financial statements.
9
THE ARBITRAGE FUND - CLASS R
Financial Highlights
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
2009 2008 2007 2006 2005
----------- ----------- --------- --------- ----------
Net asset value at beginning of year $ 12.79 $ 12.91 $ 12.73 $ 11.88 $ 12.52
-------- -------- ------- ------- --------
Income (loss) from investment operations:
Net investment income (loss) (0.16)(d) (0.03)(d) 0.03(d) (0.10) (0.19)
Net realized and unrealized gains on
investments and foreign currencies 0.30(d) 0.78(d) 0.67(d) 0.95 0.07
-------- -------- ------- ------- --------
Total from investment operations 0.14 0.75 0.70 0.85 (0.12)
-------- -------- ------- ------- --------
Less distributions:
From net realized gains (0.52) (0.87) (0.52) -- (0.52)
-------- -------- ------- ------- --------
Proceeds from redemption fees collected 0.02 0.00(a) 0.00(a) 0.00(a) 0.00(a)
-------- -------- ------- ------- --------
Net asset value at end of year $ 12.43 $ 12.79 $ 12.91 $ 12.73 $ 11.88
======== ======== ======= ======= ========
Total return(b) 1.64% 5.97% 5.64% 7.15% (1.07%)
======== ======== ======= ======= ========
Net assets at end of year (000's) $219,338 $112,092 $75,207 $87,643 $134,035
======== ======== ======= ======= ========
Ratio of gross expenses to average net assets 3.28% 2.44% 2.38% 2.41% 2.36%
Ratio of gross expenses to average net
assets excluding interest and dividend
expense(c)(e) 1.95% 1.96% 2.12% 2.12% 2.06%
Ratio of net expenses to average net assets
excluding interest and dividend expense (c)(e) 1.95% 1.90% 1.95% 1.95% 1.95%
Ratio of net expenses to average net assets
excluding tax, interest and dividend expense 1.88% 1.90% 1.95% 1.95% 1.95%
Ratio of net investment income (loss) to
average net assets:
Before advisory fees waived and
expenses reimbursed (1.34%) (0.31%) 0.06% (0.44%) (1.27%)
After advisory fees waived and
expenses reimbursed (1.34%) (0.25%) 0.23% (0.28%) (1.16%)
Portfolio turnover rate 709% 712% 383% 394% 387%
(a) Amount rounds to less than $0.01 per share.
(b) 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.
(c) Dividend expense totaled 0.74%, 0.48%, 0.26%, 0.29%, and 0.30% of average
net assets for the years ended May 31, 2009, 2008, 2007, 2006 and 2005,
respectively.
(d) Per share amounts were calculated using average shares for the year.
(e) Interest expense and interest rebate expense totaled 0.58% of average net
assets for the year ended May 31, 2009.
Amounts designated as "--" are either $0 or have been rounded to $0.
See accompanying notes to financial statements.
10
THE ARBITRAGE FUND - CLASS I
Financial Highlights
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
2009 2008 2007 2006 2005
----------- ------------- --------- --------- ----------
Net asset value at beginning of year
$ 12.95 $ 13.03 $ 12.81 $ 11.93 $ 12.54
-------- -------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) (0.11)(d) 0.01(d)(e) 0.06(d) (0.10) (0.15)
Net realized and unrealized gains on
investments and foreign currencies 0.28(d) 0.78(d) 0.68(d) 0.98 0.06
-------- -------- ------- ------- -------
Total from investment operations 0.17 0.79 0.74 0.88 (0.09)
-------- -------- ------- ------- -------
Less distributions:
From net realized gains (0.52) (0.87) (0.52) -- (0.52)
-------- -------- ------- ------- -------
Proceeds from redemption fees collected 0.00(a) 0.00(a) 0.00(a) 0.00(a) 0.00(a)
-------- -------- ------- ------- -------
Net asset value at end of year $ 12.60 $ 12.95 $ 13.03 $ 12.81 $ 11.93
======== ======== ======= ======= =======
Total return (b) 1.69% 6.23% 5.92% 7.38% (0.82%)
======== ======== ======= ======= =======
Net assets at end of year (000's) $108,780 $ 81,832 $91,935 $88,011 $94,417
======== ======== ======= ======= =======
Ratio of gross expenses to average net assets 3.03% 2.20% 2.13% 2.16% 2.14%
Ratio of gross expenses to average net
assets excluding interest and dividend
expense (c)(f) 1.70% 1.72% 1.87% 1.87% 1.84%
Ratio of net expenses to average net assets
excluding interest and dividend expense (c)(f) 1.70% 1.65% 1.70% 1.70% 1.70%
Ratio of net expenses to average net assets
excluding tax, interest and dividend expense 1.63% 1.65% 1.70% 1.70% 1.70%
Ratio of net investment income (loss)
to average net assets:
Before advisory fees waived and
expenses reimbursed (0.87%) 0.04% 0.28% (0.29%) (1.05%)
After advisory fees waived and
expenses reimbursed (0.87%) 0.11% 0.46% (0.12%) (0.91%)
Portfolio turnover rate 709% 712% 383% 394% 387%
(a) Amount rounds to less than $0.01 per share.
(b) 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.
(c) Dividend expense totaled 0.74%, 0.48%, 0.26%, 0.29%, and 0.30% of average
net assets for the periods ended May 31, 2009, 2008, 2007, 2006 and 2005,
respectively.
(d) Per share amounts were calculated using average shares for the year.
(e) The amount shown for a share outstanding throughout the period does not
accord with the aggregate net losses on investments for the period because
of the sales and repurchases of Fund shares in relation to fluctuating
market value of the investments of the Fund.
(f) Interest expense and interest rebate expense totaled 0.58% of average net
assets for the year ended May 31, 2009.
Amounts designated as "--" are either $0 or have been rounded to $0.
See accompanying notes to financial statements.
11
THE ARBITRAGE FUND
Portfolio of Investments
May 31, 2009
SHARES COMMON STOCK -- 92.07% VALUE
- ---------- --------------------------------------------------- ------------
AGRICULTURE -- 1.81%
817,690 ABB Grain Ltd...................................... $ 5,956,119
------------
BANKS -- 1.00%
104,487 American Bancorp of New Jersey(e).................. 1,021,695
66,820 Banca Italease SpA(a).............................. 141,208
21,110 Citigroup, Inc..................................... 78,529
295,796 Republic First Bancorp, Inc.(a)(b)(e).............. 2,041,229
------------
3,282,661
------------
BEVERAGES -- 7.56%
1,502,033 Lion Nathan Ltd.................................... 14,127,021
164,603 Pepsi Bottling Group, Inc.(b)...................... 5,408,855
201,058 PepsiAmericas, Inc.(b)............................. 5,287,825
------------
24,823,701
------------
BIOTECHNOLOGY -- 4.76%
1,687,762 Arana Therapeutics Ltd............................. 1,884,598
102,906 CombiMatrix Corp.(a)............................... 823,248
166,057 Cougar Biotechnology, Inc.(a)...................... 7,138,790
47,387 Cubist Pharmaceuticals, Inc.(a)(c)................. 808,422
1,633,087 CuraGen Corp.(a)................................... 2,188,337
1,059,050 IDM Pharma, Inc.(a)................................ 2,785,302
------------
15,628,697
------------
BROADCASTING, NEWSPAPERS, & ADVERTISING -- 1.63%
220,993 Liberty Media Corp. Entertainment(a)(b)............ 5,339,191
------------
BUILDING & CONSTRUCTION SUPPLIES -- 4.16%
1,620,734 Centex Corp.(b)(c)................................. 13,662,788
------------
CHEMICALS -- 0.35%
10,432 CF Industries Holdings, Inc.(c).................... 809,940
57,131 Nova Chemicals Corp................................ 331,360
------------
1,141,300
------------
COAL -- 3.65%
65,617 Alpha Natural Resources, Inc.(a)(b)(c)............. 1,807,748
62,741 Foundation Coal Holdings, Inc.(c).................. 1,841,448
1,416,959 Gloucester Coal Ltd................................ 7,928,075
166,137 Whitehaven Coal Ltd................................ 392,303
------------
11,969,574
------------
12
THE ARBITRAGE FUND
Portfolio of Investments (Continued)
May 31, 2009
SHARES COMMON STOCK -- 92.07% (Continued) VALUE
- ---------- ---------------------------------------------------- ------------
COMPUTERS & SERVICES -- 5.20%
482,270 Data Domain, Inc.(a)................................ $ 12,283,417
208,765 Hypercom Corp.(a)................................... 281,833
499,588 Sun Microsystems, Inc.(a)(b)(c)..................... 4,496,292
------------
17,061,542
------------
FINANCIAL SERVICES -- 5.27%
117,514 Macquarie Communications Infrastructure Group....... 226,694
1,692,283 Thinkorswim Group, Inc.(a)(b)....................... 17,075,135
------------
17,301,829
------------
FOOD PRODUCTS -- 0.56%
249,007 Sadia SA............................................ 1,830,201
------------
INSURANCE -- 0.23%
30,015 IPC Holdings Ltd.(b)................................ 745,873
------------
MEDICAL PRODUCTS & SERVICES -- 10.61%
290,576 Medicult A/S(a)..................................... 478,077
449,661 ScheringPlough Corp.(b)(c).......................... 10,971,728
508,358 Vnus Medical Technologies, Inc.(a)(b)............... 14,722,048
192,496 Wyeth(b)(c)......................................... 8,635,370
------------
34,807,223
------------
METALS & MINING -- 1.21%
22,265 Compass Minerals International, Inc.(b)(c).......... 1,194,072
921,837 Western Goldfields, Inc.(a)(e)...................... 2,767,698
------------
3,961,770
------------
MISCELLANEOUS BUSINESS SERVICES -- 7.12%
300,415 Autobytel, Inc.(a).................................. 135,187
651,804 Gmarket, Inc. ADR(a)................................ 15,591,151
721,005 Goldleaf Financial Solutions, Inc.(a)............... 533,544
548,854 Vignette Corp.(a)(b)................................ 7,102,171
------------
23,362,053
------------
PETROLEUM EXPLORATION & PRODUCTION -- 6.67%
480,481 Atlas Energy Resources LLC(b)....................... 10,056,467
170,463 Legacy Reserves(b).................................. 2,100,104
157,630 PetroCanada(b)...................................... 7,019,264
1,381,825 Profound Energy, Inc.(a)............................ 2,017,631
480,708 UTS Energy Corp.(a)................................. 697,505
------------
21,890,971
------------
13
THE ARBITRAGE FUND
Portfolio of Investments (Continued)
May 31, 2009
SHARES COMMON STOCK -- 92.07% (Continued) VALUE
- ---------- ---------------------------------------------------- ------------
PIPELINES -- 3.85%
41,600 Enterprise Products Partners LP..................... $ 1,081,600
350,138 Magellan Midstream Holdings(b)...................... 7,363,402
140,417 TEPPCO Partners(b).................................. 4,188,639
------------
12,633,641
------------
PUBLIC THOROUGHFARES -- 0.24%
140,690 Itinere Infraestructuras SA(a)...................... 784,609
------------
SEMICONDUCTORS -- 5.01%
146,117 Emulex Corp.(a)(c).................................. 1,605,826
824,966 Logicvision, Inc.(a)................................ 923,962
2,736,671 SiRF Technology Holdings, Inc.(a)................... 10,891,950
528,216 Tundra Semiconductor Corp.(a)....................... 3,003,090
------------
16,424,828
------------
SILVER MINING -- 2.02%
633,709 Silver Wheaton Corp.(a)............................. 6,644,749
------------
SOFTWARE -- 8.54%
2,332,816 Borland Software Corp.(a)........................... 2,288,493
676,093 Catapult Communications Corp.(a)(b)................. 6,341,752
1,188,226 Entrust, Inc.(a).................................... 2,507,157
580,866 Metavante Technologies, Inc.(a)(b).................. 14,899,213
412,910 SumTotal Systems, Inc.(a)........................... 1,981,968
------------
28,018,583
------------
TELEPHONES & TELECOMMUNICATIONS -- 7.22%
440,891 D&E Communications, Inc.(b)......................... 4,298,688
391,261 Embarq Corp.(b)..................................... 16,440,787
263,191 Fibernet Telecom Group, Inc.(a)..................... 2,947,739
------------
23,687,214
------------
TOBACCO -- 0.04%
24,877 Star Scientific Inc.(a)............................. 124,385
------------
TRADING COMPANIES & DISTRIBUTORS -- 0.44%
21,515 Eriks NV............................................ 1,443,185
------------
TRUCKING -- 2.92%
1,042,210 Eveready, Inc....................................... 9,577,528
------------
TOTAL COMMON STOCK (Cost $272,816,341)........... $302,104,215
------------
14
THE ARBITRAGE FUND
Portfolio of Investments (Continued)
May 31, 2009
SHARES PREFERRED STOCK -- 3.22% VALUE
- ---------- ---------------------------------------------------- ------------
BANKS -- 3.22%
18,963 Bank of America Corp. .............................. $ 360,297
18,963 Bank of America Corp. .............................. 295,823
442,381 Citigroup, Inc.(c) ................................. 9,701,415
10,262 Citigroup, Inc.(c) ................................. 227,817
------------
10,585,352
------------
TOTAL PREFERRED STOCK (Cost $8,293,135) ......... $ 10,585,352
------------
SHARES WARRANTS(a) -- 0.00% VALUE
- ---------- ---------------------------------------------------- ------------
308,857 Buru Energy Ltd., Expires 10/10 .................... $ --
49,000 CombiMatrix Corp., Expires 05/14 ................... --
------------
TOTAL WARRANTS (Cost $--) ....................... $ --
------------
CONTRACTS CALL OPTION CONTRACTS(a) -- 0.57% VALUE
- ---------- ---------------------------------------------------- ------------
Alpha Natural Resources, Inc.,
99 06/09 at $ 35 ................................... $ 2,228
100 06/09 at $ 40 ................................... 1,000
Centex Corp.,
500 07/09 at $ 9 .................................... 35,000
Foundation Coal Holdings, Inc.,
100 06/09 at $ 35 ................................... 4,250
Sun Microsystems, Inc.,
959 06/09 at $ 10 ................................... 1,918
795 07/09 at $ 10 ................................... 1,590
5,000 07/09 at $ 8 .................................... 585,000
Suncor Energy, Inc.,
1,535 06/09 at $ 27.5 ................................. 1,228,000
------------
TOTAL CALL OPTION CONTRACTS (Cost $880,954) ..... $ 1,858,986
------------
15
THE ARBITRAGE FUND
Portfolio of Investments (Continued)
May 31, 2009
CONTRACTS PUT OPTION CONTRACTS(a) -- 0.84% VALUE
- ---------- ---------------------------------------------------- ------------
CF Industries Holdings, Inc.,
300 06/09 at $ 70 ................................... $ 34,500
Citigroup, Inc.,
9,767 07/09 at $ 5 .................................... 1,792,244
5,447 07/09 at $ 4 .................................... 509,295
600 09/09 at $ 7 .................................... 237,000
350 09/09 at $ 5 .................................... 71,400
Emulex Corp.,
695 06/09 at $ 7.5 .................................. 3,475
Enterprise Products Partners,
416 06/09 at $ 25 ................................... 5,200
Foundation Coal Holdings, Inc.,
147 06/09 at $ 25 ................................... 8,085
145 06/09 at $ 22.5 ................................. 2,900
Metavante Technologies, Inc.,
300 06/09 at $ 22.5 ................................. 12,000
NetApp, Inc.,
1,191 07/09 at $ 16 ................................... 29,775
995 07/09 at $ 17 ................................... 39,800
Nova Chemicals Corp.,
496 06/09 at $ 5 .................................... 4,960
Sun Microsystems, Inc.,
234 06/09 at $ 8 .................................... 1,287
------------
TOTAL PUT OPTION CONTRACTS (Cost $3,269,777) .... $ 2,751,921
------------
SHARES MONEY MARKET FUND(d) -- 8.23% VALUE
- ---------- ---------------------------------------------------- ------------
26,996,600 State Street Institutional Liquid Reserves Fund,
0.579% (Cost $26,996,600) ....................... $ 26,996,600
------------
TOTAL INVESTMENTS AT VALUE -- 104.93%
(Cost $312,256,807) ............................. $344,297,074
============
16
THE ARBITRAGE FUND
Portfolio of Investments (Concluded)
May 31, 2009
As of May 31, 2009, the Fund had long equity swap contracts outstanding as
follows:
UNREALIZED
SHARES APPRECIATION
- ---------- ------------
250,000 Western Goldfields, Inc., Equity Swap(e)
(Cost $478,463, Market Value $750,593)
Terminating 04/13/10 $ 272,130
============
Percentages are based on Net Assets of $328,117,928.
(a) Non-income producing security.
(b) All or a portion of the shares have been committed as collateral for open
short positions.
(c) Underlying security for a written/purchased call/put option.
(d) Rate shown is the 7-day effective yield as of May 31, 2009.
(e) Security fair valued using methods determined in good faith by the Pricing
Committee. As of May 31, 2009, the total market value of these securities
was $6,102,752, representing 1.9% of net assets.
ADR -- American Depositary Receipt
LLC -- Limited Liability Company
LP -- Limited Partnership
Ltd. -- Limited
Amounts designated as "--" are either $0 or have been rounded to $0.
17
THE ARBITRAGE FUND
Schedule of Securities Sold Short
May 31, 2009
SHARES COMMON STOCK -- 40.67% VALUE
- ---------- ---------------------------------------------------- ------------
BANKS -- 0.72%
80,400 Citigroup, Inc. .................................... $ 299,088
58,753 Investors Bancorp, Inc.(a) ......................... 512,326
86,240 Pennsylvania Commerce Bancorp, Inc.(a) ............. 1,566,119
------------
2,377,533
------------
BEVERAGES -- 1.39%
87,859 PepsiCo, Inc.(b) ................................... 4,573,061
------------
BROADCASTING, NEWSPAPERS, & ADVERTISING -- 0.02%
2,250 DIRECTV Group, Inc.(a)(b) .......................... 50,625
------------
BUILDING & CONSTRUCTION SUPPLIES -- 2.57%
957,592 Pulte Homes, Inc.(b) ............................... 8,426,810
------------
CHEMICALS -- 0.19%
12,733 Agrium, Inc.(b) .................................... 626,718
------------
COMMERCIAL SERVICES & SUPPLIES -- 1.73%
104,172 Clean Harbors, Inc.(a)(b) .......................... 5,679,457
------------
COMPUTERS & SERVICES -- 0.24%
39,603 NetApp, Inc.(a)(b) ................................. 772,259
------------
FINANCIAL SERVICES -- 2.98%
574,429 TD Ameritrade Holding Corp.(a)(b) .................. 9,788,270
------------
FOOD PRODUCTS -- 1.03%
12 MEIJI Holdings Co., Ltd.(a) ........................ 401
49,676 Perdigao SA(a) ..................................... 1,925,442
172,572 Viterra, Inc.(a) ................................... 1,456,736
------------
3,382,579
------------
GAS/NATURAL GAS -- 2.85%
507,172 Atlas America, Inc.(b) ............................. 9,342,108
------------
MEDICAL PRODUCTS & SERVICES -- 3.27%
276,946 Merck & Co., Inc.(b) ............................... 7,638,171
202,892 Pfizer, Inc.(b) .................................... 3,081,929
------------
10,720,100
------------
METALS & MINING -- 0.84%
922,234 New Gold, Inc.(a) .................................. 2,768,890
------------
MISCELLANEOUS BUSINESS SERVICES -- 0.85%
79,336 Open Text Corp.(a) ................................. 2,795,007
------------
18
THE ARBITRAGE FUND
Schedule of Securities Sold Short (Continued)
May 31, 2009
SHARES COMMON STOCKS -- 40.67% (Continued) VALUE
- ---------- ---------------------------------------------------- ------------
PETROLEUM EXPLORATION & PRODUCTION -- 3.24%
267,525 Paramount Energy Trust ............................. $ 1,054,671
270,152 Suncor Energy, Inc. ................................ 9,566,082
------------
10,620,753
------------
PIPELINES -- 3.63%
161,554 Enterprise Products Partners LP(b) ................. 4,200,404
220,687 Magellan Midstream Partners ........................ 7,713,011
------------
11,913,415
------------
SEMICONDUCTORS -- 3.67%
2,143,328 CSR Plc(a) ......................................... 12,053,498
------------
SILVER MINING -- 2.03%
343,900 Silver Wheaton Corp.(a)(b) ......................... 3,617,828
291,285 Silver Wheaton Corp.(a)(b) ......................... 3,054,266
------------
6,672,094
------------
SOFTWARE -- 4.02%
674,011 Fidelity National Information Services, Inc.(b) .... 12,981,452
38,272 Mentor Graphics Corp.(a)(b) ........................ 215,088
------------
13,196,540
------------
TELEPHONES & TELECOMMUNICATIONS -- 5.40%
507,770 CenturyTel, Inc.(b) ................................ 15,664,704
241,855 Windstream Corp.(b) ................................ 2,034,001
------------
17,698,705
------------
TOTAL COMMON STOCK (Proceeds $116,180,357) ......... $133,458,422
------------
SHARES EXCHANGE TRADED FUND -- 1.74% VALUE
- ---------- ---------------------------------------------------- ------------
61,744 SPDR Trust Series 1 (Proceeds $5,676,911) .......... $ 5,705,763
------------
TOTAL SECURITIES SOLD SHORT -- 42.41%
(Proceeds $121,857,268) ............................ $139,164,185
============
19
THE ARBITRAGE FUND
Schedule of Securities Sold Short (Concluded)
May 31, 2009
As of May 31, 2009, the Fund had short equity swap contracts outstanding as
follows:
UNREALIZED
SHARES DEPRECIATION
- ---------- ------------
139,100 Paramount, Equity Swap
(Cost $411,690, Market Value $548,377)
Terminating 04/05/10 - 07/05/10 ................. $ (136,687)
250,000 New Gold, Inc., Equity Swap
(Cost $496,213, Market Value $750,593)
Terminating 04/13/10 ............................ (254,380)
------------
(Total cost $ 907,903, Total Market Value
$1,298,970) ..................................... $ (391,067)
============
Percentages are based on Net Assets of $328,117,928.
(a) Non-income producing security.
(b) Underlying security for a written/purchased call/put option.
Ltd. -- Limited
LP -- Limited Partnership
Plc -- Public Limited Company
SPDR -- Standard & Poor's Depositary Receipt
20
THE ARBITRAGE FUND
Schedule of Open Options Written
May 31, 2009
CONTRACTS WRITTEN CALL OPTIONS(a) -- 1.49% VALUE
- ---------- ---------------------------------------------------- ------------
Agrium, Inc.,
275 06/09 at $ 45 ................................... $ 132,000
25 07/09 at $ 45 ................................... 14,750
Alpha Natural Resources, Inc.,
100 06/09 at $ 25 ................................... 35,500
299 06/09 at $ 30 ................................... 28,405
50 06/09 at $ 32.5 ................................. 2,250
448 06/09 at $ 27.5 ................................. 89,600
Atlas America, Inc.,
368 09/09 at $ 12.5 ................................. 217,120
20 09/09 at $ 17.5 ................................. 4,500
Centex Corp.,
2,164 06/09 at $ 10 ................................... 21,640
500 06/09 at $ 9 .................................... 17,500
CenturyTel, Inc.,
274 06/09 at $ 30 ................................... 32,195
CF Industries Holdings, Inc.,
100 06/09 at $ 80 ................................... 24,750
Citigroup, Inc.,
995 06/06 at $ 47.5 ................................. 12,437
1,491 06/09 at $ 10 ................................... 1,491
28,647 06/09 at $ 5 .................................... 100,264
1,991 06/09 at $ 7.5 .................................. 1,991
9,529 07/09 at $ 5 .................................... 85,761
1,526 07/09 at $ 3 .................................... 106,057
5,705 07/09 at $ 4 .................................... 128,362
600 09/09 at $ 7 .................................... 4,800
350 09/09 at $ 5 .................................... 7,350
2,152 09/09 at $ 2 .................................... 363,688
11,448 09/09 at $ 3 .................................... 915,840
Clean Harbors, Inc.,
336 06/09 at $ 50 ................................... 162,960
Compass Minerals International, Inc.,
75 06/09 at $ 50 ................................... 33,375
75 06/09 at $ 55 ................................... 12,000
75 06/09 at $ 60 ................................... 3,562
Cubist Pharmaceuticals, Inc.,
402 06/09 at $ 17.5 ................................. 25,125
36 08/09 at $ 20 ................................... 2,430
DIRECTV Group, Inc.,
50 06/09 at $ 20 ................................... 13,375
1,544 06/09 at $ 25 ................................... 19,300
449 06/09 at $ 22.5 ................................. 38,165
21
THE ARBITRAGE FUND
Schedule of Open Options Written (Continued)
May 31, 2009
CONTRACTS WRITTEN CALL OPTIONS(a) -- 1.49% (Continued) VALUE
- ---------- ---------------------------------------------------- ------------
DIRECTV Group, Inc. (continued),
945 06/09 at $27.5 .................................. $ 9,450
99 07/09 at $25 .................................... 3,960
Emulex Corp.,
1,299 06/09 at $10 .................................... 136,395
915 06/09 at $12.5 .................................. 13,725
Enterprise Products Partners,
416 06/09 at $25 .................................... 40,560
Fidelity National Information Services, Inc.,
377 06/09 at $20 .................................... 6,598
979 06/09 at $17.5 .................................. 173,773
Foundation Coal Holdings, Inc.,
145 06/09 at $25 .................................... 68,875
571 06/09 at $30 .................................... 95,642
Mentor Graphics Corp.,
1,075 06/09 at $7.5 ................................... 5,375
NetApp, Inc.,
998 06/09 at $20 .................................... 62,375
209 06/09 at $21 .................................... 7,315
832 06/09 at $19 .................................... 91,520
1,396 07/09 at $20 .................................... 136,110
498 07/09 at $18 .................................... 103,335
597 07/09 at $21 .................................... 37,313
1,288 07/09 at $19 .................................... 189,980
PepsiCo, Inc.,
62 06/09 at $52.5 .................................. 3,410
Pulte Homes, Inc.,
3,808 06/09 at $10 .................................... 57,120
500 06/09 at $9 ..................................... 22,500
4,013 06/09 at $11 .................................... 20,065
Schering-Plough Corp.,
300 06/09 at $24 .................................... 24,750
249 06/09 at $23 .................................... 39,218
Silver Wheaton Corp.,
198 06/09 at $10 .................................... 17,325
Sun Microsystems, Inc.,
5,000 06/09 at $9 ..................................... 70,000
Suncor Energy, Inc.,
299 06/09 at $31 .................................... 143,520
299 06/09 at $30 .................................... 170,430
199 06/09 at $32 .................................... 79,600
100 06/09 at $33 .................................... 32,000
22
THE ARBITRAGE FUND
Schedule of Open Options Written (Continued)
May 31, 2009
CONTRACTS WRITTEN CALL OPTIONS(a) -- 1.49% (Continued) VALUE
- ---------- ---------------------------------------------------- ------------
TD Ameritrade Holding Corp.,
997 06/09 at $15 .................................... $ 216,848
99 06/09 at $17.5 .................................. 4,950
Windstream Corp.,
447 06/09 at $7.5 ................................... 42,465
Wyeth,
200 06/09 at $45 .................................... 14,500
349 06/09 at $42.5 .................................. 90,740
------------
TOTAL WRITTEN CALL OPTIONS (Premiums Received
$5,445,867) ..................................... $ 4,890,285
------------
CONTRACTS WRITTEN PUT OPTIONS(a) -- 0.24% VALUE
- ---------- ---------------------------------------------------- ------------
Agrium, Inc.,
100 06/09 at $45 .................................... $ 8,000
300 06/09 at $50 .................................... 84,000
Alpha Natural Resources, Inc.,
100 06/09 at $27.5 .................................. 18,000
Centex Corp.,
330 06/09 at $10 .................................... 56,100
657 06/09 at $7.5 ................................... 16,425
CF Industries Holdings, Inc.,
300 06/09 at $65 .................................... 15,750
DIRECTV Group, Inc.,
200 06/09 at $20 .................................... 3,000
1,463 06/09 at $22.5 .................................. 128,012
Emulex Corp.,
925 06/09 at $10 .................................... 16,187
Merck & Co., Inc.,
149 06/09 at $25 .................................... 2,607
300 06/09 at $26 .................................... 10,500
100 06/09 at $27 .................................... 6,500
NetApp, Inc.,
933 06/09 at $15 .................................... 9,330
899 06/09 at $19 .................................... 58,435
323 06/09 at $17.5 .................................. 8,883
978 07/09 at $18 .................................... 63,570
779 07/09 at $19 .................................... 81,795
Pfizer, Inc.,
649 06/09 at $15 .................................... 22,391
Pulte Homes, Inc.,
300 06/09 at $10 .................................... 41,250
500 06/09 at $8 ..................................... 13,750
1,467 06/09 at $9 ..................................... 102,690
23
THE ARBITRAGE FUND
Schedule of Open Options Written (Concluded)
May 31, 2009
CONTRACTS WRITTEN PUT OPTIONS(a) -- 0.24% (Continued) VALUE
- ---------- ---------------------------------------------------- ------------
Silver Wheaton Corp.,
99 06/09 at $5 ..................................... $ 990
Sun Microsystems, Inc.,
896 06/09 at $9 ..................................... 11,200
1,145 07/09 at $9 ..................................... 20,038
------------
TOTAL WRITTEN PUT OPTIONS
(Premiums Received $901,459) .................... $ 799,403
------------
TOTAL OPEN OPTIONS WRITTEN -- 1.73%
(Premiums Received $6,347,326) .................. $ 5,689,688
============
Percentages are based on Net Assets of $328,117,928.
(a) Non-income producing security.
See accompanying notes to financial statements.
24
THE ARBITRAGE FUND
Notes to the Financial Statements
May 31, 2009
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Arbitrage Fund (the "Trust") was organized as a Delaware business trust 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 representing a distinct portfolio with its own
investment objective and policies. The one series presently authorized is The
Arbitrage Fund (the "Fund"), a diversified series, which offers two classes of
shares. Class R shares and Class I shares commenced operations on September 17,
2000 and October 17, 2003, respectively.
The investment objective of the Fund is to achieve capital growth by engaging in
merger arbitrage.
The Fund's two classes of shares, Class R and Class I, 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 are subject to an annual distribution fee of up to
0.25% of the Fund's average daily net assets attributable to Class R shares,
whereas Class I shares are not subject to any distribution fees.
The following is a summary of the Fund's significant accounting policies:
USE OF ESTIMATES - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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 Fund's 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. 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 asked 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 asked prices. Unlisted securities for which market quotations are
readily available are valued at the latest quoted bid price. Other assets and
securities for which no quotations are readily available are valued at fair
value as determined in good faith under the supervision 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; or the security's primary pricing source is
not able or willing to provide a price. Such
25
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
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 (see Note
6). As of May 31, 2009, the market value of securities valued in accordance with
the fair value procedures was $6,102,752 and represented 1.9% of net assets.
In September, 2006, the Financial Accounting Standards Board ("FASB") released
Statement of Financial Accounting Standards ("SFAS") No. 157, which provides
enhanced guidance for using fair value to measure assets and liabilities. The
Fund adopted SFAS No. 157 on June 1, 2008. SFAS No. 157 establishes a fair value
hierarchy and specifies that a valuation technique used to measure fair value
shall maximize the use of observable inputs and minimize the use of unobservable
inputs. 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 three levels of
the fair value hierarchy under SFAS No. 157 are described below:
- - Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that the Fund has the ability to access
at the measurement date;
- - Level 2 -- Quoted prices which are not active, or inputs that are
observable (either directly or indirectly) for substantially the full term
of the asset or liability; and
- - Level 3 -- Prices, inputs or exotic modeling techniques which are both
significant to the fair value measurement and unobservable (supported by
little or no market activity).
As required by SFAS No.157, 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 table below sets forth information about the level within
the fair value hierarchy at which the Fund's investments are measured at May 31,
2009:
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
------------- ---------- ------- -------------
Investments in securities $ 338,466,452 $5,830,622 $-- $ 344,297,074
Investments in securities
sold short (139,164,185) -- -- (139,164,185)
Open options written (5,689,688) -- -- (5,689,688)
Other financial instruments* (6,135,153) 272,130 -- (5,863,023)
------------- ---------- --- -------------
Total $ 187,477,426 $6,102,752 $-- $ 193,580,178
============= ========== === =============
* Other financial instruments are derivative instruments which include equity
swap contracts and forward currency exchange contracts, which are valued at
the unrealized appreciation (depreciation) on the instrument.
26
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
SHARE VALUATION - The net asset value per share of each class of shares of the
Fund is calculated daily by dividing the total value of the 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 the Fund is equal to the net asset value per
share, except that, shares of each class are subject to a redemption fee of 2%
if redeemed within 90 days of the date of purchase. For the year ended May 31,
2009, proceeds from redemption fees were $283,341 in Class R and $4,742 in Class
I.
INVESTMENT INCOME - Interest income is accrued as earned. Dividend income and
expense are recorded on the ex-dividend date.
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 Fund. The amount of distributions
from net investment income and net realized gains 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 are primarily due to deferred
wash sale losses, deferred post October foreign currency loss and constructive
gain from sale of securities.
The tax character of dividends and distributions declared during the years ended
May 31, 2009 and May 31, 2008 was as follows:
Year Ordinary Long-Term Total
Ended Income Capital Gains Distributions
- ------- ----------- ------------- -------------
5/31/09 $ 8,398,398 $ -- $ 8,398,398
5/31/08 10,600,214 400,419 11,000,633
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 its proportionate shares of total net assets of
the 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 its proportionate share of
total net assets of the Fund.
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 Fund may sell securities short for economic hedging
purposes. For financial statement purposes, an amount equal to the settlement
amount is included in the Statement of Assets and Liabilities as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current value of the short position. Subsequent
fluctuations in the market prices of securities sold, but not yet purchased, may
require purchasing the securities at prices which may differ from the
27
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
market value reflected on the Statement of Assets and Liabilities. The Fund is
liable for any dividends payable on securities while those securities are in a
short position. As collateral for its short positions, the Fund is required
under the 1940 Act to maintain assets consisting of cash, cash equivalents or
liquid securities. The amount of the collateral is required to be adjusted daily
to reflect changes in the value of the securities sold short.
WRITTEN OPTION TRANSACTIONS - The Fund may write (sell) covered call options to
hedge portfolio investments and to reduce the risks associated with some of its
investments. Put options may also be written by the Fund as part of a merger
arbitrage strategy involving a pending corporate reorganization. When the Fund
writes (sells) an option, an amount equal to the premium received by the Fund is
included in the Statement of Assets and Liabilities as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current value of the option written. By writing
an option, the Fund may become obligated during the term of the option to
deliver or purchase the securities underlying the option at the exercise price
if the option is exercised. Option contracts are valued at the average of the
current bid and asked price reported on the day of valuation. When an option
expires on its stipulated expiration date or the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss if the cost of the
closing purchase transaction differs from the premium received when the option
was sold without regard to any unrealized gain or loss on the underlying
security, and the liability related to such option is eliminated. When an option
is exercised, the premium originally received decreases the cost basis of the
security (or increases the proceeds on a sale of the security).
EQUITY SWAP CONTRACTS - The Fund may invest in swaps for the purpose of managing
its exposure to interest rate, credit or market risk. Additionally, the Fund
enters into equity swap agreements for the purpose of attempting to obtain a
desired return on, or exposure to, certain equity securities or equity indices
in an expedited manner or at a lower cost to the Fund than if the Fund had
invested directly in such securities. An equity swap contract entitles the Fund
to receive from the counterparty any appreciation and dividends paid on an
individual security, while obligating the Fund to pay the counterparty any
depreciation on the security. Fluctuations in the value of an open contract are
recorded daily as a net unrealized gain or loss. The Fund will realize a gain or
loss upon termination or reset of the contract. Either party, under certain
conditions, may terminate the contract prior to the contract's expiration date.
Collateral, in the form of cash or securities, may be required to be held in
segregated accounts with the Fund's custodian and/or counterparty's broker.
Risks may exceed amounts recognized on the Statement of Assets and Liabilities.
These risks include changes in the returns of the underlying instruments,
failure of the counterparties to perform under the contracts' terms and the
possible lack of liquidity with respect to the swap agreements. As of May 31,
2009, the Fund had long equity swap contracts outstanding with a market value of
$750,593 and short equity swap contracts outstanding with a market value of
$1,298,970.
28
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
The Fund enters into forward foreign currency exchange contracts as a way of
managing foreign exchange rate risk. The Fund 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 Fund's foreign currency hedging transactions is
to reduce risk that the U.S. dollar value of the Fund's securities denominated
in foreign currency will decline in value due to changes in foreign currency
exchange rates. All foreign currency exchange contracts are "marked-to-market"
daily at the applicable translation rates resulting in unrealized gains or
losses. Risks may arise upon entering into these contracts from the potential
inability of counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to the U.S.
dollar.
FEDERAL INCOME TAX - It is the Fund's policy to comply with the special
provisions of Subchapter M of the Internal Revenue Code 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.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year at least 98% of its net investment income (earned during the
calendar year) and 98% of its net realized capital gains (earned during the
twelve months ended October 31) plus undistributed amounts from prior years.
The following information is computed on a tax basis for each item as of May 31,
2009:
Cost of portfolio investments (including equity
swap contracts, securities sold
short and written options) $197,324,312
============
Gross unrealized appreciation $ 40,163,498
Gross unrealized depreciation (38,592,986)
------------
Net unrealized appreciation $ 1,570,512
============
As of May 31, 2009, the components of Distributable Earnings on a tax basis were
as follows:
Undistributed ordinary income $ 8,443,277
Post-October capital losses (1,787,513)
Post-October currency losses (6,240,058)
Net unrealized appreciation 1,570,512
Net unrealized depreciation on translation of
assets and liabilities in foreign currencies (5,774,741)
Other temporary differences 5,744,941
-----------
Total Distributable Earnings $ 1,956,418
===========
29
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
The difference between the Federal income tax cost of portfolio investments and
the cost reported on the Statement of Assets and Liabilities is due to the tax
deferral of losses on wash sales, mark-to-market on open forwards, disallowed
losses on tax straddles, gains and losses from Passive Foreign Investment
Companies, income from Master Limited Partnerships and gains on the constructive
sale of securities.
Post-October capital losses and Post-October currency losses represent losses
realized on investment transactions from November 1, 2008 through May 31, 2009
that, in accordance with Federal income tax regulations, the Fund may elect to
defer and treat as having arisen in the following year.
For the year ended May 31, 2009, the Fund reclassified net investment gains of
$6,574,320 and $152,505 to accumulated net realized gain (loss) and paid-in
capital, respectively, on the Statement of Assets and Liabilities. Such
reclassification, the result of permanent differences between financial
statement and income tax reporting requirements are primarily attributable to
gains and losses on certain foreign currency related transactions, investment in
Passive Foreign Investment Companies, investments in Master Limited
Partnerships, reclassification of short sale related dividend expense to capital
loss and non-deductible excise tax, has no effect on the Fund's net asset or net
asset value per share.
On July 13, 2006, the FASB released FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). FIN 48 provides guidance for how
uncertain tax positions should be recognized, measured, presented and disclosed
in the financial statements. FIN 48 requires the evaluation of tax positions
taken or expected to be taken in the course of preparing the Fund's tax returns
to determine whether the tax positions are "more-likely-than-not" of being
sustained by the applicable tax authority. Tax positions not deemed to meet the
more-likely-than-not threshold would be recorded as a tax benefit or expense in
the current year. Effective November 30, 2007, the Fund adopted FIN 48. Based on
its analysis, management has reviewed all open tax years (2005-2008) and has
determined that the adoption of FIN 48 did not have a material impact to the
Fund's financial statements upon adoption. However, management's conclusions
regarding FIN 48 may be subject to review and adjustment at a later date based
on factors including, but not limited to, further implementation guidance
expected from the FASB, and ongoing analyses of and changes to tax laws,
regulations and interpretations thereof.
2. INVESTMENT TRANSACTIONS
During the year ended May 31, 2009, cost of purchases and proceeds from sales
and maturities of investment securities, other than short-term investments, U.S.
government securities, equity swap contracts, options and short positions,
amounted to $1,736,492,055 and $1,414,148,437, respectively.
30
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
3. LINE OF CREDIT
The Fund entered into an agreement which enables them to participate in a
$10,000,000 unsecured committed revolving line of credit with State Street Bank
and Trust Company (the "Custodian"). Borrowings will be made solely to
temporarily finance the purchase or sale of securities or to finance the
redemption of the shares of an investor of the Fund. Interest is charged to the
Fund based on its borrowings at a rate per annum equal to the Custodian's
overnight federal funds rate plus 0.75%. In addition, a commitment fee of 0.10%
per annum payable at the end of each calendar quarter, is accrued by the Fund
based on its average daily unused portion of the line of credit. Such fees are
included in custodian and bank service fees on the Statement of Operations.
As of May 31, 2009, the Fund did not have outstanding borrowings. For the year
ended May 31, 2009, the Fund had average borrowings of $6,570,364 over a period
of 55 days at a weighted average interest rate of 1.41%. Interest accrued on the
borrowings during the year ended May 31, 2009 was $10,784.
4. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by Water Island Capital, LLC (the "Adviser")
under the terms of an Investment Advisory Agreement. Under the Investment
Advisory Agreement, as amended and restated on October 1, 2007, the 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 Fund's average daily net
assets. Prior to October 1, 2007, the Fund paid the Adviser a fee, which was
computed and accrued daily and paid monthly, at an annual rate of 1.50% of the
Fund's average daily net assets.
Effective October 1, 2007, the Adviser has contractually agreed, at least until
August 31, 2012, to waive its advisory fee and/or reimburse the Fund's other
expenses to the extent that total operating expenses (exclusive of interest,
taxes, dividends on short positions, brokerage commissions and other costs
incurred in connection with the purchase or sale of portfolio securities) exceed
the annual rate of 1.88% of the Fund's average daily net assets attributable to
Class R shares and 1.63% of the Fund's average daily net assets attributable to
Class I shares. Prior to October 1, 2007, the Adviser had contractually agreed,
at least until August 31, 2012, to waive its advisory fee and/or reimburse the
Fund's other expenses to the extent that total operating expenses (exclusive of
interest, taxes, dividends on short positions, brokerage commissions and other
costs incurred in connection with the purchase or sale of portfolio securities)
exceeded the annual rate of 1.95% of the Fund's average daily net assets
attributable to Class R shares and 1.70% of the Fund's average daily net assets
attributable to Class I shares.
31
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
The Adviser is permitted to recapture fees waived or 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 years from the end of
the fiscal year during which such amount was waived or reimbursed. The Adviser
cannot recapture any expenses or fees it waived or reimbursed prior to October
1, 2007 under the prior Expense Waiver and Reimbursement Agreement. The Adviser
can recapture any expenses or fees it has waived or reimbursed after October 1,
2007 within a three-year period subject to the applicable annual rate of 1.88%
for Class R shares and 1.63% for Class I shares. As of May 31, 2009, there are
no future recapture amounts from the Fund fees waived and expenses reimbursed.
During the year ended May 31, 2009, the Adviser was reimbursed previously waived
fees in the amount of $8,157. As of May 31, 2009, there is $0 left to recapture.
Certain officers of the Trust are also officers of the Adviser. Effective
October 1, 2004, the Vice President of the Trust also serves as Chief Compliance
Officer ("CCO") of the Trust and of the Adviser. The Fund pays the Adviser 15%
of the CCO's salary for providing CCO services.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, SEI Investments Global Funds
Services ("SEIGFS") supplies administrative and regulatory services to the Fund,
supervises the preparation of tax returns, and coordinates the preparation of
reports to shareholders and filings with the Securities and Exchange Commission
and state securities authorities. For the performance of these administrative
services including fund accounting services, SEIGFS receives a monthly fee at an
annual rate of 0.10% of the Fund's average daily net assets up to $250 million;
0.095% of such assets on the next $250 million; and 0.08% of such assets in
excess of $500 million, subject to a minimum annual fee of $200,000 for the
period beginning September 1, 2008 and ending August 31, 2009. The minimum
annual fee increases to $225,000 for the period beginning September 1, 2009 and
ending August 31, 2011, pursuant to the current Administration Agreement between
SEIGFS and the Fund dated May 17, 2005, as amended July 25, 2008. Prior to
September 1, 2008, SEIGFS received a monthly fee at an annual rate of 0.10% of
the Fund's average daily net assets up to $500 million; and 0.08% of such assets
in excess of $500 million, subject to a minimum fee of $150,000 per year. For
the year ended May 31, 2009, SEIGFS was paid $224,805 under the administration
agreement. Certain officers of the Trust are also officers of SEIGFS. Such
officers are paid no fees by the Trust for serving as officers of the Trust.
TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT
Under the terms of a Transfer Agent and Shareholder Services Agreement between
the Trust and DST Systems, Inc. ("DST"), DST maintains the records of each
shareholder's account, answers shareholders' inquiries concerning their
accounts, processes purchases and redemptions of Fund shares, acts as dividend
and distribution disbursing agent and
32
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
performs other shareholder service functions. For these services, DST receives
from the Fund a monthly complex minimum fee, including two cusips, at an annual
rate of $50,000 per year. For each cusip thereafter, an additional fee is
applied at a minimum fee of $17,500 per cusip per year. For the year ended May
31, 2009, DST was paid $180,738 under the transfer agent and shareholder
services agreement.
DISTRIBUTION AGREEMENT
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act (the "Plan") for Class R shares, which permits Class R to pay for
expenses incurred in the distribution and promotion of Class R shares. Under the
Plan, Class R may pay compensation to any broker-dealer with whom the
distributor or the Fund, on behalf of Class R shares, has entered into a
contract to distribute Class R 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 customers 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% annually of the average daily net
assets allocable to Class R shares. During the year ended May 31, 2009, the Fund
paid Class R distribution expenses of $350,896 pursuant to the Plan.
Under the terms of a Distribution Agreement between the Trust and SEI
Investments Distribution, Co. (the "Distributor"), the Distributor serves as
principal underwriter and national distributor for the shares of the Fund. The
Fund's shares are sold on a no-load basis and, therefore, the Distributor
receives no sales commissions or sales loads for providing services to the Fund.
The Distributor is an affiliate of SEI Investments Global Funds Services.
5. 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
years shown:
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
2009 2008
---------- -----------
CLASS R
Shares sold 14,891,867 4,797,247
Shares issued in reinvestment of distributions 425,130 419,178
Shares redeemed (6,436,124) (2,279,530)
---------- ----------
Net increase in shares outstanding 8,880,873 2,936,895
Shares outstanding at beginning of year 8,761,989 5,825,094
---------- ----------
Shares outstanding at end of year 17,642,862 8,761,989
========== ==========
33
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
2009 2008
---------- ----------
CLASS I
Shares sold 5,669,231 2,665,511
Shares issued in reinvestment of distributions 246,467 361,043
Shares redeemed (3,602,609) (3,764,040)
---------- ----------
Net increase (decrease) in shares outstanding 2,313,089 (737,486)
Shares outstanding at beginning of year 6,317,846 7,055,332
---------- ----------
Shares outstanding at end of year 8,630,935 6,317,846
========== ==========
6. 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 following basis:
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 Fund does 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 securities transactions and 3) the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Fund's 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.
7. CONTINGENCIES AND COMMITMENTS
The Fund indemnifies the Trust's officers and trustees for certain liabilities
that might arise from their performance of their duties to the Fund.
Additionally, in the normal course of business the Fund enters into contracts
that contain a variety of representations and warranties and which provide
general indemnifications. The Fund's maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the
Fund that have not yet occurred. However, based on experience, the Fund expects
the risk of loss to be remote.
34
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
8. SECURITIES LENDING
In order to generate additional income, the Fund may, from time to time, lend
its portfolio securities to broker-dealers, banks or institutional borrowers of
securities. The Fund must receive 100% 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 Fund. During the time portfolio securities are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination by the Fund or the borrower at any
time. While the Fund does not have the right to vote securities on loan, it has
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 Fund bears the risk of delay in the
recovery of its portfolio securities and the risk of loss of rights in the
collateral. The Fund will only enter into loan arrangements with broker-dealers,
banks or other institutions which the Adviser has determined are creditworthy
under guidelines established by the Trustees. There were no securities on loan
as of May 31, 2009.
9. DERIVATIVE CONTRACTS
WRITTEN OPTIONS -- A summary of put and call option contracts written during the
year ended May 31, 2009 is as follows:
OPTION OPTION
CONTRACTS PREMIUMS
--------- ------------
Options outstanding at beginning of year 12,218 $ 1,063,309
Options written 376,008 35,084,456
Options canceled in a closing purchase transaction (38,897) (5,314,604)
Options exercised (78,458) (11,737,393)
Options expired (155,122) (12,748,442)
-------- ------------
Options outstanding at end of year 115,749 $ 6,347,326
======== ============
FORWARD CURRENCY EXCHANGE CONTRACTS -- As of May 31, 2009, the Fund had forward
currency exchange contracts outstanding as follows:
UNREALIZED
CURRENCY CURRENCY APPRECIATION
SETTLEMENT DATE TO DELIVER TO RECEIVE (DEPRECIATION)
- --------------- ---------- ---------- --------------
06/12/09 AUD 53,371,619 USD 37,262,336 $(5,415,088)
06/12/09 CAD 30,820,373 USD 24,871,843 (3,259,717)
06/12/09 CHF 5,725,600 USD 4,946,066 (424,064)
06/12/09 EUR 6,648,725 USD 8,681,594 (728,001)
06/12/09 GBP 5,221,000 USD 7,701,210 (716,988)
06/12/09 JPY 2,170,000 USD 23,189 451
06/12/09 NOK 13,406,792 USD 1,911,982 (218,842)
06/12/09 USD 10,489,448 AUD 15,150,000 1,624,912
06/12/09 USD 18,579,050 CAD 22,915,000 2,336,813
35
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
UNREALIZED
CURRENCY CURRENCY APPRECIATION
SETTLEMENT DATE TO DELIVER TO RECEIVE (DEPRECIATION)
- --------------- ---------- ---------- --------------
06/12/09 USD 4,965,441 CHF 5,725,600 404,689
06/12/09 USD 6,536,335 EUR 5,013,696 559,288
06/12/09 USD 291,080 GBP 200,000 31,395
06/12/09 USD 21,817 JPY 2,170,000 921
06/12/09 USD 1,370,281 NOK 9,000,000 60,145
-----------
$(5,744,086)
===========
AUD -- Australian Dollar
CAD -- Canadian Dollar
CHF -- Swiss Franc
EUR -- Euro
GBP -- British Pound
JPY -- Japanese Yen
NOK -- Norwegian Krone
USD -- United States Dollar
FAIR VALUE OF DERIVATIVE INSTRUMENTS -- The fair value of derivative Instruments
as of May 31, 2009, was as follows:
ASSET DERIVATIVES LIABILITY DERIVATIVES
------------------------------------- ----------------------------------------
YEAR ENDED MAY 31, 2009 YEAR ENDED MAY 31, 2009
DERIVATIVES NOT ACCOUNTED ------------------------------------- ----------------------------------------
FOR AS HEDGING INSTRUMENTS BALANCE SHEET BALANCE SHEET
UNDER STATEMENT 133: LOCATION FAIR VALUE LOCATION FAIR VALUE
- ------------------------------- ------------------------ ---------- ------------------------- ------------
Forward Currency Unrealized appreciation Unrealized depreciation
Exchange Contracts on forward currency on forward currency
exchange contracts $5,018,614 exchange contracts $10,762,700
Equity Swap Contracts Unrealized appreciation Unrealized depreciation
on equity swap contracts 272,130 on equity swap contracts 391,067
Equity Option Contracts Investments, at value 4,610,907 Written Options, at value 5,689,688
---------- ------------
TOTAL DERIVATIVES NOT ACCOUNTED
FOR AS HEDGING INSTRUMENTS
UNDER STATEMENT 133 $9,901,651 $16,843,455
========== ============
The effect of derivative instruments on the Statement of Operations for the year
ended May 31, 2009, was as follows:
AMOUNT OF REALIZED GAIN OR (LOSS) ON DERIVATIVES RECOGNIZED IN INCOME
DERIVATIVES NOT
ACCOUNTED FOR AS FORWARD
HEDGING INSTRUMENTS CURRENCY
UNDER STATEMENT 133 OPTIONS CONTRACTS SWAPS TOTAL
- ----------------------- ---------- ---------- ----------- -----------
Forward Currency
Exchange Contracts $ -- $4,515,636 $ -- $ 4,515,636
Equity Swap Contracts -- -- (5,245,013) (5,245,013)
Equity Option Contracts 7,660,668 -- -- 7,660,668
---------- ---------- ----------- -----------
Total $7,660,668 $4,515,636 $(5,245,013) $ 6,931,291
========== ========== =========== ===========
36
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
CHANGE IN UNREALIZED APPRECIATION OR (DEPRECIATION) ON DERIVATIVES RECOGNIZED IN
INCOME
DERIVATIVES NOT
ACCOUNTED FOR AS FORWARD
HEDGING INSTRUMENTS CURRENCY
UNDER STATEMENT 133 OPTIONS CONTRACTS SWAPS TOTAL
- ----------------------- ---------- ----------- ------- -----------
Forward Currency
Exchange Contracts $ -- $(5,217,366) $ -- $(5,217,366)
Equity Swap Contracts -- -- (1,094) (1,094)
Equity Option Contracts 1,034,112 -- -- 1,034,112
---------- ----------- ------- -----------
Total $1,034,112 $(5,217,366) $(1,094) $(4,184,348)
========== =========== ======= ===========
10. NEW ACCOUNTING PRONOUNCEMENTS
In October 2008, the FASB issued Staff Position 157-3, DETERMINING THE FAIR
VALUE OF A FINANCIAL ASSET IN A MARKET THAT IS NOT ACTIVE ("FSP 157-3"), which
clarifies the application of SFAS 157 in an inactive market and provides an
illustrative example to demonstrate how the fair value of a financial asset is
determined when the market for that financial asset is not active. The guidance
provided by FSP 157-3 did not have an impact on the Fund's approach to valuing
financial assets.
In April 2009, the FASB Staff issued Position No. 157-4 -- DETERMINING FAIR
VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE ASSET OR LIABILITY HAVE
SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS THAT ARE NOT ORDERLY ("FSP
157-4") was issued. FSP 157-4 clarifies the process for measuring the fair value
of financial instruments when the markets become inactive and quoted prices may
reflect distressed transactions. FSP 157-4 provides a non-exclusive list of
factors a reporting entity should consider when determining whether there has
been a significant decrease in the volume and level of activity for an asset or
liability when compared with normal market activity. Under FSP 157-4, if a
reporting entity concludes there has been a significant decrease in volume and
level of activity for the asset or liability (or similar assets or liabilities),
transactions or quoted prices may not be determinative of fair value. Further
analysis of the transactions or quoted prices is needed, and a significant
adjustment to the transactions or quoted prices may be necessary to estimate
fair value in accordance with FASB Statement No. 157 -- FAIR VALUE MEASUREMENT.
FSP 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009, and shall be applied prospectively. At this time, management is
evaluating the impact of FSP 157-4 on the Fund's financial statements.
In May 2009, the FASB issued SFAS No. 165, SUBSEQUENT EVENTS ("SFAS 165"). SFAS
165 provides authoritative accounting literature related to evaluating
subsequent events that was previously addressed only in the auditing literature,
and is largely similar to the current guidance in the auditing literature with
some exceptions that are not
37
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2009
intended to result in significant changes in practice. SFAS 165 defines
subsequent events and also requires the disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date. SFAS 165 is
effective on a prospective basis for interim or annual financial periods ending
after June 15, 2009. We plan to adopt SFAS 165 in the third quarter of Fiscal
2009 and do not expect it to have a material impact on our financial statements.
38
THE ARBITRAGE FUND
Report of Independent Registered Public Accounting Firm
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
THE ARBITRAGE FUND
We have audited the accompanying statement of assets and liabilities of The
Arbitrage Fund (the "Fund"), including the schedules of investments as of May
31, 2009, and the related statements of operations and cash flows for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Trust
is not required to have, nor were we engaged to perform an audit of the Trust's
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Trust's internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of May 31, 2009 by correspondence with the custodian and brokers or by
other appropriate auditing procedures where replies from brokers were not
received. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Arbitrage Fund as of May 31, 2009, the results of its operations and cash flows
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
TAIT, WELLER & BAKER LLP
PHILADELPHIA, PENNSYLVANIA
JULY 28, 2009
39
THE ARBITRAGE FUND
Disclosure of Fund Expenses (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, 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 costs in two ways.
- - ACTUAL FUND RETURN. This 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 year, but that the 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.
40
THE ARBITRAGE FUND
Disclosure of Fund Expenses (Unaudited) (Continued)
BEGINNING ENDING ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE EXPENSE EXPENSES PAID
DECEMBER 1, 2008 MAY 31, 2009 RATIOS+ DURING PERIOD*
---------------- ------------- ---------- --------------
THE ARBITRAGE FUND - CLASS R:
Based on Actual Fund Return $1,000.00 $1,119.80 3.85% $20.35
Based on Hypothetical 5% Return
(before expenses) $1,000.00 $1,005.73 3.85% $19.25
THE ARBITRAGE FUND - CLASS I:
Based on Actual Fund Return $1,000.00 $1,119.70 3.62% $19.13
Based on Hypothetical 5% Return
(before expenses) $1,000.00 $1,006.88 3.62% $18.11
+ THE ANNUALIZED EXPENSE RATIOS INCLUDE DIVIDEND, INTEREST, AND INTEREST
REBATE EXPENSE INCURRED DURING THE SIX-MONTH PERIOD.
* EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIOS FOR THE PERIOD,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
182/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
BEGINNING ENDING ANNUALIZED
ACCOUNT VALUE ACCOUNT VALUE EXPENSE EXPENSES PAID
DECEMBER 1, 2008 MAY 31, 2009 RATIOS+ DURING PERIOD*
---------------- ------------- ---------- --------------
THE ARBITRAGE FUND - CLASS R:
Based on Actual Fund Return $1,000.00 $1,119.80 2.00% $10.57
Based on Hypothetical 5% Return
(before expenses) $1,000.00 $1,014.96 2.00% $10.05
THE ARBITRAGE FUND - CLASS I:
Based on Actual Fund Return $1,000.00 $1,119.70 1.77% $9.35
Based on Hypothetical 5% Return
(before expenses) $1,000.00 $1,016.11 1.77% $8.90
+ THE ANNUALIZED EXPENSE RATIOS EXCLUDE DIVIDEND, INTEREST, AND INTEREST
REBATE EXPENSE INCURRED DURING THE SIX-MONTH PERIOD.
* EXPENSES ARE EQUAL TO THE ANNUALIZED EXPENSE RATIOS FOR THE PERIOD,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
182/365 (TO REFLECT THE ONE-HALF YEAR PERIOD).
41
THE ARBITRAGE FUND
Portfolio Information
May 31, 2009 (Unaudited)
SECTOR WEIGHTING (as a percentage of total investments)
The following chart shows the Fund's sector weightings as of the report date.
(PIE CHART)
Information Technology - 24.65%
Energy - 16.29%
Health Care - 14.65%
Consumer Staples - 9.51%
Financials - 9.20%
Money Market Fund - 7.84%
Telecommunication Services - 6.88%
Consumer Discretionary - 5.59%
Materials - 3.41%
Option Contracts - 1.33%
Industrials - 0.65%
42
THE ARBITRAGE FUND
Other Information (Unaudited)
A description of the policies and procedures that the Fund uses to vote proxies
relating to portfolio securities 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 Fund voted
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 SEC's website at http://www.sec.gov.
The Trust files a complete listing of portfolio holdings for the Fund 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
Fund's 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.
43
THE ARBITRAGE FUND
Trustees' Renewal of Advisory Agreement (Unaudited)
On April 21, 2009, the Board of Trustees (the "Board") of The Arbitrage Fund
(the "Fund"), including a majority of its independent Trustees, approved the
continuation of the Fund's investment advisory agreement with Water island
Capital, LLC, the Fund's investment adviser (hereafter referred to as the
"Adviser"). The Board determined that continuation of the investment advisory
agreement was in the best interests of the Fund and its shareholders.
The Board based its decision upon its most recent review of the Adviser's
investment personnel, portfolio management process, and performance. The Board
discussed the factors below, among others. However, no single factor determined
whether the Board approved the continuation of the investment advisory
agreement. Rather, it was the totality of the factors that led to the decision.
NATURE, EXTENT, AND QUALITY OF SERVICES
The Board considered the experience of the personnel managing the Fund's assets
as well as the quality of the Fund's investment management over both short- and
long-term periods. The Board concluded the Adviser has provided high quality
consistent service to the Fund and its shareholders.
COST
The Board considered the Fund's overall expense ratio, comparing it to other
similarly managed mutual funds. In its consideration of the Fund's overall
expense ratio, the Board also considered the Adviser's long term commitment to
cap operating expenses reflected first in its decision to waive a portion of its
advisory fee, and then in its decision to permanently lower its advisory fee.
The Board during its review of costs considered the Fund's advisory fee,
comparing the fee to other funds offering similar investment strategies.
The Board recognized that the Fund's overall expense ratio is somewhat higher
than the average of comparably managed funds but concluded shareholders are
receiving a quality investment option for a reasonable price. The Board also
concluded that, although the advisory fees payable to the Adviser are somewhat
higher than the average of fees for other comparably managed funds, the fees are
reasonable given the quality of services provided by the Adviser and the
complexity of investment strategies implemented by the Adviser.
PROFITABILITY OF ADVISER
The Board considered the Adviser's profitability with regards to its management
of the Fund, concluding that the Adviser's profitability was not excessive and
therefore was a secondary factor in connection with the evaluation of advisory
fees paid by the Fund.
The Board considered the Fund's short- and long-term performance, including any
periods of outperformance or underperformance of relevant benchmarks and peer
groups. The Board concluded that the Fund's performance warranted continuation
of the investment advisory agreement.
44
THE ARBITRAGE FUND
Trustees' Renewal of Advisory Agreement (Unaudited) (Continued)
ECONOMIES OF SCALE AND ANCILLARY BENEFITS
The Board concluded, given the size of the Fund's assets at the present time, it
would not be relevant to consider the extent to which economies of scale would
be realized as the Fund grows, and whether fee levels reflect potential future
economies of scale.
The Board also considered the "ancillary benefits" to the Adviser, viewing these
as secondary factors in connection with the evaluation of the reasonableness of
the advisory fees paid by the Fund. The Board did consider the level of soft
dollar activity, concluding that research derived from these trades was useful
to the Fund and its shareholders.
45
THE ARBITRAGE FUND
Board of Trustees and Officers (Unaudited)
Overall responsibility for management of the Fund rests with the Board of
Trustees. The Trustees serve during the lifetime of the Trust and until its
termination, or until death, resignation, retirement or removal. The Trustees,
in turn, elect the officers of the Fund to actively supervise its day-to-day
operations. The officers have been elected for an annual term. The following are
the Trustees and executive officers of the Fund:
TRUSTEE/ POSITION HELD LENGTH OF
EXECUTIVE OFFICER ADDRESS AGE WITH THE TRUST TIME SERVED
- ----------------- ------------------------------- --- ---------------------------- -------------------
*John S. Orrico, CFA 41 Madison Avenue, 28th Floor 49 President, Secretary, Since May 2000
New York, NY 10010 Treasurer and Trustee
*Joel C. Ackerman 295 Central Park West 64 Trustee Since May 2000
New York, NY 10024
John C. Alvarado Power Capital Partners LLC 49 Trustee Since December 2003
575 Madison Avenue, 10th Floor
New York, NY 10022
Burtt R. Ehrlich One Landmark Square, 22nd Floor 70 Trustee Since March 2005
Stanford, CT 06901
Jay N. Goldberg Hudson Venture Partners 68 Trustee Since May 2000
535 Fifth Avenue, 14th Floor
New York, NY 10017
Matthew Hemberger 41 Madison Avenue, 28th Floor 50 Vice President, Chief Since May 2000
New York, NY 10010 Compliance Officer and
Anti-Money Laundering
Compliance Officer
Eric Kleinschmidt One Freedom Valley Drive 41 Chief Financial Officer Since July 2005
Oaks, PA 19456
Carolyn Mead One Freedom Valley Drive 52 Assistant Vice President and Since November 2008
Oaks, PA 19456 Assistant Secretary
Bernadette Sparling One Freedom Valley Drive 32 Assistant Vice President and Since November 2008
Oaks, PA 19456 Assistant Secretary
Joseph M. Gallo One Freedom Valley Drive 36 Assistant Vice President and Since October 2007
Oaks, PA 19456 Assistant Secretary
* Messrs. Orrico and Ackerman are "interested persons" of the Trust within
the meaning of Section 2(a)(19) of the Investment Company Act of 1940.
46
THE ARBITRAGE FUND
Board of Trustees and Officers (Unaudited) (Continued)
Each Trustee oversees one portfolio of the Trust. The principal occupations of
the Trustees and executive officers of the Fund during the past five years and
public directorships held by the Trustees are set forth below:
John S. Orrico is General Partner of the Adviser. Prior to January 2000, he was
Portfolio Manager to private trusts and entities at Lindemann Capital Partners,
L.P. and Gruss and Co. (financial management firms).
Joel C. Ackerman is currently a consultant to the Fund's Adviser. During 2003,
he was a Partner with Crossroads Investments LP and a Partner with LRL Capital
(hedge fund). Prior to September 2002, he was a Partner of Ardsley Partners
(hedge fund).
John C. Alvarado is a Managing Member of Power Capital Partners, LLC which is a
financial advisory and consulting firm. He is currently Chief Financial Officer
of Wax Inc. (men's retail apparel), a Managing Director of Energy Finance
Merchants, LLC, and Managing Member of Gordon Alvarado LLC. From 1995 to 2000,
he was senior Vice President, Co-Founder and Partner of Stratum Group LP, which
is a private equity investment firm.
Burtt R. Ehrlich has served as director of Armor Holdings, Inc. since January
1996, director of Clarus Corp. since June 2002, and as a member of the Board of
Directors of Langer, Inc. since February 2001. Mr. Ehrlich served as Chairman
and Chief Operating Officer of Ehrlich Bober Financial Corp. (the predecessor of
Benson Eyecare Corporation) from December 1986 until October 1992, and as a
director of Benson Eyecare Corporation from October 1992 until November 1995.
Jay N. Goldberg is General Partner of Hudson Ventures (a venture capital
company).
Matthew Hemberger is Chief Compliance Officer of the Adviser, Chief Compliance
Officer to the Trust, and Anti-Money Laundering Compliance Officer to the Trust.
Prior to March 2001, he was an Analyst, Assistant Portfolio Manager, and CFO at
Lindemann Capital Partners, L.P.
Eric Kleinschmidt is Chief Financial Officer to the Trust. He has been employed
by SEI Investments since 1995 and is Director of SEI Investments Fund Accounting
since 2004, after serving as Manager from 1999 to 2004.
47
THE ARBITRAGE FUND
Board of Trustees and Officers (Unaudited) (Continued)
Joseph M. Gallo is Assistant Vice President and Assistant Secretary to the
Trust. He is also Corporate Counsel to the Administrator. Prior to joining SEI,
he was Associate Counsel of ICMA Retirement Corporation from 2004 to 2007. From
2002 to 2004, he was a Federal Investigator for the U.S. Department of Labor.
Carolyn Mead is Assistant Vice President and Assistant Secretary to the Trust.
She is also Corporate Counsel to the Administrator. Prior to joining SEI,
Carolyn served as Associate Counsel at Stradley, Ronon, Stevens & Young. Carolyn
also was Associate Counsel at ING Variable Annuities from 1999 to 2002. From
1994 to 1999, she was a Senior Compliance Administrator at PFPC, Inc.
Bernadette Sparling is Assistant Vice President and Assistant Secretary to the
Trust. She is also Corporate Counsel to the Administrator and Team Leader of the
unit that supports Investment Management Services Department of SEI. Prior to
joining SEI, Bernadette was Associate Counsel at Blank Rome LLP from 2001 to
2005.
Additional information about members of the Board of Trustees and Officers is
available in the Statement of Additional Information (SAI). To obtain a free
copy of the SAI, please call 1-800-295-4485.
48
THE ARBITRAGE FUND
Notice to Shareholders (Unaudited)
For shareholders that do not have a May 31, 2009 tax year end, this notice is
for informational purposes only. For shareholders with a May 31, 2009 tax year
end, please consult your tax advisor as to the pertinence of this notice. For
the fiscal year ended May 31, 2009, the Fund is designating the following items
with regard to distributions paid during the year.
LONG TERM ORDINARY QUALIFYING QUALIFYING QUALIFYING
CAPITAL GAIN INCOME TOTAL QUALIFYING DIVIDEND INTEREST SHORT-TERM
DISTRIBUTIONS DISTRIBUTIONS DISTRIBUTIONS DIVIDENDS(1) INCOME(2) INCOME(3) CAPITAL GAIN(4)
- ------------- ------------- ------------- ------------ ---------- ---------- ---------------
0.00% 100.00% 100.00% 1.89% 3.49% 0.00% 100.00%
(1) QUALIFYING DIVIDENDS REPRESENT DIVIDENDS WHICH QUALIFY FOR THE CORPORATE
DIVIDENDS RECEIVED DEDUCTION AND ARE REFLECTED AS A PERCENTAGE OF "ORDINARY
INCOME DISTRIBUTIONS" (THE TOTAL OF SHORT-TERM CAPITAL GAIN AND NET
INVESTMENT INCOME DISTRIBUTIONS).
(2) THE PERCENTAGE IN THIS COLUMN REPRESENTS THE AMOUNT OF "QUALIFYING DIVIDEND
INCOME" AS CREATED BY THE JOBS AND GROWTH TAX RELIEF RECONCILIATION ACT OF
2003 AND IS REFLECTED AS A PERCENTAGE OF "ORDINARY INCOME DISTRIBUTIONS"
(THE TOTAL OF SHORT-TERM CAPITAL GAIN AND NET INVESTMENT INCOME
DISTRIBUTIONS). IT IS THE INTENTION OF THE AFOREMENTIONED FUND TO DESIGNATE
THE MAXIMUM AMOUNT PERMITTED BY LAW.
(3) THE PERCENTAGE IN THIS COLUMN REPRESENTS THE AMOUNT OF "QUALIFYING INTEREST
INCOME" AS CREATED BY THE AMERICAN JOBS CREATION ACT OF 2004 AND IS
REFLECTED AS A PERCENTAGE OF NET INVESTMENT INCOME DISTRIBUTIONS THAT IS
EXEMPT FROM U.S. WITHHOLDING TAX WHEN PAID TO FOREIGN INVESTORS.
(4) THE PERCENTAGE IN THIS COLUMN REPRESENTS THE AMOUNT OF "QUALIFYING
SHORT-TERM CAPITAL GAIN" AS CREATED BY THE AMERICAN JOBS CREATION ACT OF
2004 AND IS REFLECTED AS A PERCENTAGE OF SHORT-TERM CAPITAL GAIN
DISTRIBUTIONS THAT IS EXEMPT FROM U.S. WITHHOLDING TAX WHEN PAID TO FOREIGN
INVESTORS.
THE INFORMATION REPORTED HEREIN MAY DIFFER FROM THE INFORMATION AND
DISTRIBUTIONS TAXABLE TO THE SHAREHOLDERS FOR THE CALENDAR YEAR ENDING DECEMBER
31, 2009. COMPLETE INFORMATION WILL BE COMPUTED AND REPORTED IN CONJUNCTION WITH
YOUR FORM 1099-DIV.
49
THIS PAGE INTENTIONALLY LEFT BLANK.
(THE ARBITRAGE FUND LOGO)
800-295-4485
www.thearbfund.com
ADVISER WATER ISLAND CAPITAL, LLC
41 Madison Avenue
28th Floor
New York, NY 10010
DISTRIBUTOR SEI INVESTMENTS DISTRIBUTION CO.
One Freedom Valley Drive
Oaks, PA 19456
TRANSFER AGENT DST SYSTEMS, INC.
P.O. Box 219842
Kansas City, MO 64121-9842
CUSTODIAN STATE STREET BANK AND TRUST COMPANY
225 Liberty Street
New York, NY 10281
ARB (7/09)
ITEM 2. CODE OF ETHICS.
The Registrant has adopted a code of ethics that applies to the Registrant's
Principal Executive and Senior Financial Officers. The Registrant has not made
any amendments to its code of ethics during the covered period. The Registrant
has not granted any waivers from any provisions of the code of ethics during the
covered period.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant's board of trustees has determined that the Registrant has
at least one audit committee financial expert serving on the audit committee.
(a)(2) The audit committee financial expert is John C. Alvarado, who is
independent as defined in Form N-CSR Item 3(a)(2).
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Fees billed by Tait, Weller & Baker LLP Related to the Trust
Tait, Weller & Baker LLP billed the Trust aggregate fees for services rendered
to the Trust for the last two fiscal years as follows:
- ------------------ ----------------------------------------------------- -----------------------------------------------------
2009 2008
- ------------------ ----------------------------------------------------- -----------------------------------------------------
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
All fees and All fees and All other fees All fees and All fees and All other fees
services to the services to and services to services to the services to and services to
Trust that were service service Trust that were service service
pre-approved affiliates that affiliates that pre-approved affiliates that affiliates that
were did not require were did not require
pre-approved pre-approval pre-approved pre-approval
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(a) Audit $21,500 $0 $0 $20,500 $0 $0
Fees(1)
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(b) Audit-Related $0 $0 $0 $0 $0 $0
Fees
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(c) Tax Fees $0 $0 $0 $0 $0 $0
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
(d) All $0 $0 $0 $0 $0 $0
Other
Fees
- ------- ---------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Notes:
(1) Audit fees include amounts related to the audit of the Registrant's
annual financial statements and services normally provided by the
accountant in connection with statutory and regulatory filings.
(e)(1) Registrant's full audit committee is responsible for any required
pre-approval of audit or non-audit services, and pre-approves audit or
non-audit services pursuant to policies and procedures as described in
paragraph (c)(7) of Rule 2-01 of Regulation S-X.
(e)(2) Percentage of fees billed applicable to non-audit services pursuant to
waiver of pre-approval requirement were as follows:
---------------------------- ----------------- ----------------
2009 2008
---------------------------- ----------------- ----------------
---------------------------- ----------------- ----------------
Audit-Related Fees 0.00% 0.00%
---------------------------- ----------------- ----------------
---------------------------- ----------------- ----------------
Tax Fees 0.00% 0.00%
---------------------------- ----------------- ----------------
---------------------------- ----------------- ----------------
All Other Fees 0.00% 0.00%
---------------------------- ----------------- ----------------
(f) Not applicable.
(g) The aggregate non-audit fees and services billed by Tait, Weller &
Baker LLP for the last two fiscal years were $0 and $0 for 2009 and
2008, respectively.
(h) During the past fiscal year, all non-audit services provided by
Registrant's principal accountant to either Registrant's investment
adviser or to any entity controlling, controlled by or under common
control with Registrant's investment adviser that provides ongoing
services to Registrant were pre-approved by the audit committee of
Registrant's Board of Trustees. Included in the audit committee's
pre-approval was the review and consideration as to whether the
provision of these non-audit services is compatible with maintaining
the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to open-end management investment companies.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end management investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable to open-end management investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT COMPANY AND
AFFILIATED PURCHASERS.
Not applicable to open-end management investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The certifying officers, whose certifications are included herewith, have
evaluated the Registrant's disclosure controls and procedures within 90 days of
the filing date of this report. In their opinion, based on their evaluation, the
Registrant's disclosure controls and procedures are adequately designed, and are
operating effectively to ensure, that information required to be disclosed by
the Registrant in the reports it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms.
(b) There were no significant changes in the Registrant's internal control over
financial reporting that occurred during the Registrant's last fiscal half-year
that have materially affected, or are reasonably likely to materially affect,
the Registrant's internal control over financial reporting.
ITEMS 12. EXHIBITS.
(a)(1) Code of Ethics attached hereto.
(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 filed
herewith.
(b) Officer certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940, as amended (17 CFR 270.30a-2(b)) also accompany this filing
as an Exhibit.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) The Arbitrage Funds
By (Signature and Title)* /s/ John S. Orrico
John S. Orrico
President and Treasurer
Date: October 5, 2009
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ John S. Orrico
John S. Orrico
President and Treasurer
Date: October 5, 2009
By (Signature and Title)* /s/ Eric Kleinschmidt
Eric Kleinschmidt
Chief Financial Officer
Date: October 5, 2009
* Print the name and title of each signing officer under his or her signature.
THE ARBITRAGE FUNDS
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND
SENIOR FINANCIAL OFFICERS
I. COVERED OFFICERS/PURPOSE OF THE CODE
The code of ethics (this "Code") for The Arbitrage Funds (the
"Company") applies to the Company's Principal Executive Officer, Principal
Financial Officer and Principal Accounting Officer(s) (the "Covered Officers"
each of whom are set forth in Exhibit A) for the purpose of promoting:
o honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional
relationships;
o full, fair, accurate, timely and understandable disclosure in reports
and documents that a registrant files with, or submits to, the
Securities and Exchange Commission ("SEC") and in other public
communications made by the Company;
o compliance with applicable laws and governmental rules and regulations;
o the prompt internal reporting of violations of the Code to an
appropriate person or persons identified in the Code; and
o accountability for adherence to the Code.
Each Covered Officer should adhere to a high standard of business
ethics and should be sensitive to situations that may give rise to actual as
well as apparent conflicts of interest.
II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS
OF INTEREST
OVERVIEW. A "conflict of interest" occurs when a Covered Officer's
private interest interferes with the interests of, or his service to, the
Company. For example, a conflict of interest would arise if a Covered Officer,
or a member of his family, receives improper personal benefits as a result of
his position with the Company.
Certain conflicts of interest arise out of the relationships between
Covered Officers and the Company and already are subject to conflict of interest
provisions in the Investment Company Act of 1940 ("Investment Company Act") and
the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example,
Covered Officers may not individually engage in certain transactions (such as
the purchase or sale of securities or other property) with the Company because
of their status as "affiliated persons" of the Company. The Company's and the
investment adviser's compliance programs and procedures are designed to prevent,
or identify and correct, violations of these provisions.
This Code does not, and is not intended to, repeat or replace these programs and
procedures, and such conflicts fall outside of the parameters of this Code.
Although typically not presenting an opportunity for improper personal
benefit, conflicts arise from, or as a result of, the contractual relationship
between the Company and the investment adviser/administrator of which the
Covered Officers are also officers or employees. As a result, this Code
recognizes that the Covered Officers will, in the normal course of their duties
(whether formally for the Company or for the adviser/administrator, or for
both), be involved in establishing policies and implementing decisions that will
have different effects on the adviser/administrator and the Company. The
participation of the Covered Officers in such activities is inherent in the
contractual relationship between the Company and the adviser/administrator and
is consistent with the performance by the Covered Officers of their duties as
officers of the Company. Thus, if performed in conformity with the provisions of
the Investment Company Act and the Investment Advisers Act, such activities will
be deemed to have been handled ethically. In addition, it is recognized by the
Company's Board of Trustees ("Board") that the Covered Officers may also be
officers or employees of one or more investment companies covered by other
codes.
Other conflicts of interest are covered by the Code, even if such
conflicts of interest are not subject to provisions in the Investment Company
Act and the Investment Advisers Act. The following list provides examples of
conflicts of interest under the Code, but Covered Officers should keep in mind
that these examples are not exhaustive. The overarching principle is that the
personal interest of a Covered Officer should not be placed improperly before
the interest of the Company.
Each Covered Officer must:
o not use his personal influence or personal relationships improperly to
influence investment decisions or financial reporting by the Company
whereby the Covered Officer would benefit personally to the detriment
of the Company;
o not cause the Company to take action, or fail to take action, for the
individual personal benefit of the Covered Officer rather than the
benefit of the Company;
o not use material non-public knowledge of portfolio transactions made or
contemplated for the Company to trade personally or cause others to
trade personally in contemplation of the market effect of such
transactions;
o report at least annually any affiliations or other relationships
related to conflicts of interest that the Company's Trustees and
Officers Questionnaire covers.
There are some conflict of interest situations that should always be
discussed with Counsel for the Company if material. Examples of these include:
o service as a director on the board of any public company;
o the receipt of any non-nominal gifts;
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o the receipt of any entertainment from any company with which the
Company has current or prospective business dealings unless such
entertainment is business-related, reasonable in cost, appropriate as
to time and place, and not so frequent as to raise any questions of
impropriety;
o any ownership interest in, or any consulting or employment relationship
with, any of the Company's service providers, other than its investment
adviser, principal underwriter, administrator or any affiliated person
thereof;
o a direct or indirect financial interest in commissions, transaction
charges or spreads paid by the Company for effecting portfolio
transactions or for selling or redeeming shares other than an interest
arising from the Covered Officer's employment, such as compensation or
equity ownership.
III. DISCLOSURE AND COMPLIANCE
o each Covered Officer should familiarize himself with the disclosure
requirements generally applicable to the Company;
o each Covered Officer should not knowingly misrepresent, or cause others
to misrepresent, facts about the Company to others, whether within or
outside the Company, including to the Company's directors and auditors,
and to governmental regulators and self-regulatory organizations;
o each Covered Officer should, to the extent appropriate within his area
of responsibility, consult with other officers and employees of the
Company and the adviser/administrator with the goal of promoting full,
fair, accurate, timely and understandable disclosure in the reports and
documents the Company files with, or submits to, the SEC and in other
public communications made by the Company; and
o it is the responsibility of each Covered Officer to promote compliance
with the standards and restrictions imposed by applicable laws, rules
and regulations.
IV. REPORTING AND ACCOUNTABILITY
Each Covered Officer must:
o upon adoption of the Code (or thereafter as applicable, upon becoming a
Covered Officer), affirm in writing to the Board that he has received,
read, and understands the Code;
o annually thereafter affirm to the Board that he has complied with the
requirements of the Code;
o not retaliate against any other Covered Officer or any employee of the
Company or their affiliated persons for reports of potential violations
that are made in good faith; and
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o notify Counsel for the Company promptly if he knows of any violation of
this Code. Failure to do so is itself a violation of this Code.
Counsel for the Company is responsible for applying this Code to specific
situations in which questions are presented under it and has the authority to
interpret this Code in any particular situation. However, any approvals or
waivers sought by a Covered Officer will be considered by the Audit Committee
(the "Committee").
The Company will follow these procedures in investigating and enforcing
this Code:
o Counsel for the Company will take all appropriate action to investigate
any potential violations reported to him;
o if, after such investigation, Counsel believes that no violation has
occurred, Counsel is not required to take any further action;
o any matter that Counsel believes is a violation will be reported to the
Committee;
o if the Committee concurs that a violation has occurred, it will inform
and make a recommendation to the Board, which will consider appropriate
action, which may include review of, and appropriate modifications to,
applicable policies and procedures; notification to appropriate
personnel of the investment adviser/administrator or its board; or a
recommendation to dismiss the Covered Officer;
o the Board will be responsible for granting waivers, as appropriate; and
o any changes to or waivers of this Code will, to the extent required, be
disclosed as provided by SEC rules.
V. OTHER POLICIES AND PROCEDURES
This Code shall be the sole code of ethics adopted by the Company for
purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms
applicable to registered investment companies thereunder. Insofar as other
policies or procedures of the Company, the Company's adviser, principal
underwriter, or other service providers govern or purport to govern the behavior
or activities of the Covered Officers who are subject to this Code, they are
superseded by this Code to the extent that they overlap or conflict with the
provisions of this Code. The Company's and its investment adviser's and
principal underwriter's codes of ethics under Rule 17j-1 under the Investment
Company Act are separate requirements applying to the Covered Officers and
others, and are not part of this Code.
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VI. AMENDMENTS
Any amendments to this Code, other than amendments to Exhibit A, must
be approved or ratified by a majority vote of the Board, including a majority of
independent trustees.
VII. CONFIDENTIALITY
All reports and records prepared or maintained pursuant to this Code
will be considered confidential and shall be maintained and protected
accordingly. Except as otherwise required by law or this Code, such matters
shall not be disclosed to anyone other than the Board and Counsel for the
Company.
VIII. INTERNAL USE
The Code is intended solely for the internal use by the Company and
does not constitute an admission, by or on behalf of the Company, as to any
fact, circumstance, or legal conclusion.
Date: July 29, 2003
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EXHIBIT A
Persons Covered by this Code of Ethics
John S. Orrico
Eric Kleinschmidt
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CODE OF ETHICS
FOR PRINCIPAL EXECUTIVE
AND
SENIOR FINANCIAL OFFICER
CERTIFICATE OF COMPLIANCE
As a Covered Officer as defined in the Code of Ethics For Principal
Executive and Senior Financial Officers of The Arbitrage Funds (the "Code"), I
hereby certify that I have received and have read and fully understand the Code,
and I recognize that I am subject to the Code. I further certify that since any
prior certification of the Code, I have complied with the policies and
procedures as in effect during that time, and agree going forward to comply with
the requirements of the Code.
____________________________________________
Signature
____________________________________________
Title
____________________________________________
Name (Please Print)
____________________________________________
Date
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