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Expires: Nov. 30, 2005
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hours per response: 5.0
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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 811-098150
--------------------------------------------
THE ARBITRAGE FUNDS
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
650 Fifth Avenue, 6th Floor New York, New York 10019
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
John S. Orrico
Water Island Capital, LLC 650 Fifth Avenue, 6th Floor New York, New York 10019
- --------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 259-2655
Date of fiscal year end: May 31, 2003
-------------------------
Date of reporting period: May 31, 2003
-------------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
THE ARBITRAGE FUND
A series of The Arbitrage Funds
650 Fifth Avenue
New York, New York 10019
ANNUAL REPORT
MAY 31, 2003
INVESTMENT ADVISER ADMINISTRATOR
WATER ISLAND CAPITAL, LLC ULTIMUS FUND SOLUTIONS, LLC
650 Fifth Avenue P.O. Box 46707
6th Floor Cincinnati, Ohio 45246-0707
New York, New York 10019 1.800.295.4485
[GRAPHIC OMITTED]
THE ARBITRAGE FUND
WATER ISLAND CAPITAL, LLC
650 FIFTH AVENUE, FIFTH AVENUE
NEW YORK, NEW YORK 10019
_______
TEL: 212.259.2655 FAX: 212.259.2698
July 20, 2003
Dear Shareholder,
I am pleased to report to you that the Arbitrage Fund continued to perform well
during the fiscal year ended May 31, 2003. For the year, the Fund returned
+10.41%. By contrast the S&P 500 Index returned -8.06%. The Fund's focus on
merger arbitrage, along with a strong hedging discipline, served its
shareholders well during another turbulent year in the equity markets. Merger
activity during the past year provided the Fund with ample opportunities for
investment. Although the tough economic environment led to increased levels of
risk associated with successful closure for those deals in which the Fund
invested, our disciplined approach resulted in minimal disruptions to investment
results.
As 2003 began, we were cautiously optimistic that an improving economy would
lead to increased levels of acquisition activity among publicly traded
companies. While many factors have contributed to this year's slow start, the
current environment for merger activity remains quite favorable. In fact, we
have begun to witness an uptick in announced dealmaking over the last couple of
months, as companies across a diverse range of industries look towards
consolidation to improve their competitive positions. While we expect corporate
activity to reflect the overall improving state of the economy, with its fits
and starts, we do not see a return to the accelerated activity of a few years
ago. With interest rates at record low levels, accompanied by a gradual return
in investor confidence, our outlook calls for continued improvement in the level
of corporate dealmaking over the course of this year and into 2004. We expect
that average deal size will continue to mirror the deal flow of the past few
years, and remain at the lower end of the market cap spectrum. The bulk of
consolidation activity continues to remain centered around the second and third
tier players within a given industry, as they look towards consolidation as a
means to scale up competitively against their larger peers. Accompanied by
continued activity on the part of those industry players deemed too small to
survive on their own, the bulk of the strategic acquisition activity has been,
and will continue to be, small in dollar terms, relative to years' past.
As the Fund assets have grown, so have the resources dedicated to delivering
results to its shareholders. The team of professionals at Water Island Capital
LLC, the Fund's advisor, is dedicated to managing assets with a strong risk
discipline. Over the past 12 months, Fund assets have grown more than ten-fold,
to approximately $170 million today. We are pleased with this level of growth
and thank our shareholders for their support. We believe that the Arbitrage Fund
has considerable room for further growth in assets without becoming "too big"
for the merger arbitrage strategy, a fate that can befall larger funds engaged
in this strategy. It remains our goal to manage the Fund's assets efficiently,
remain fully invested when market conditions permit, and generate positive
returns within the context of capital preservation.
We want to acknowledge and thank all those whose hard work and dedicated service
have contributed towards the Fund's success this past year including the Fund's
trustees and its administrator, Ultimus Fund Solutions.
Yours truly,
/s/ John S. Orrico
John S. Orrico, CFA
1
COMPARISON OF THE CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE ARBITRAGE FUND VERSUS THE S&P 500 INDEX
[GRAPHIC OMITTED]
THE ARBITRAGE FUND S&P 500 INDEX
------------------ -------------
09/17/00 10,000 09/17/00 10,000
09/30/00 0.10% 10,010 09/30/00 -1.97% 9,803
12/31/00 0.88% 10,098 12/31/00 -7.82% 9,036
03/31/01 4.67% 10,570 03/31/01 -11.86% 7,965
06/30/01 2.47% 10,831 06/30/01 5.85% 8,431
09/30/01 -3.06% 10,500 09/30/01 -14.68% 7,194
12/31/01 4.78% 11,002 12/31/01 10.69% 7,962
03/31/02 6.12% 11,675 03/31/02 0.27% 7,984
06/30/02 -0.80% 11,582 06/30/02 -13.40% 6,915
9/30/2002 -0.09% 11,572 9/30/2002 -17.28% 5,720
12/31/2002 3.89% 12,022 12/31/2002 8.44% 6,203
3/31/2003 2.01% 12,263 3/31/2003 -3.15% 6,007
5/31/2003 4.36% 12,798 5/31/2003 13.94% 6,845
- -----------------------------------------
THE ARBITRAGE FUND
AVERAGE ANNUAL TOTAL RETURNS(a)
(for periods ended May 31, 2003)
1 Year 10.41%
Since Inception(b) 9.56%
- -----------------------------------------
Past performance is not predictive of future performance.
(a) The returns shown do not reflect the deducation of taxes a shareholder
would pay on Fund distributions or the redemption of Fund shares.
(b) Initial public offering of shares was September 17, 2000.
2
THE ARBITRAGE FUND
Statement of Assets and Liabilities
May 31, 2003
================================================================================
ASSETS
Investments in securities:
At acquisition cost $ 119,157,830
===========
At value (Note 1) $ 133,439,249
Deposits with brokers for securities
sold short (Note 1) 42,133,554
Dividends receivable 20,158
Receivable for investment securities sold 4,391,246
Receivable for capital shares sold 1,569,985
Other assets 22,312
-----------
Total Assets 181,576,504
-----------
LIABILITIES
Written options, at value (Notes 1 and 4)
(premiums received $915,294) 1,652,020
Securities sold short (Note 1) (proceeds $ 36,009,683) 45,093,732
Payable for investment securities purchased 4,282,788
Payable for capital shares redeemed 504,516
Payable to Adviser (Note 3) 103,261
Payable to Administrator (Note 3) 20,200
Dividends payable on securities sold short (Note 1) 1,250
Other accrued expenses 39,528
-----------
Total Liabilities 51,697,295
-----------
NET ASSETS $ 129,879,209
===========
Net assets consist of:
Paid-in capital $ 123,713,909
Accumulated net realized gains from security transactions
and option contracts 1,704,656
Net unrealized appreciation (depreciation) on:
Investments 14,281,419
Short positions (9,084,049)
Written options (736,726)
-----------
Net Assets $ 129,879,209
===========
Shares of beneficial interest outstanding (unlimited number
of shares authorized, no par value) 10,644,961
===========
Net asset value, offering price and redemption price
per share (Note 1) $ 12.20
===========
See accompanying notes to financial statements.
3
THE ARBITRAGE FUND
Statement of Operations
For the Year Ended May 31, 2003
================================================================================
INVESTMENT INCOME
Dividends $ 527,363
Interest 129,752
----------
Total Income 657,115
----------
EXPENSES
Investment advisory fees (Note 3) 685,139
Dividend expense 212,044
Distribution expense (Note 3) 115,164
Custodian and bank service fees 82,000
Administration fees (Note 3) 66,284
Fund accounting fees(Note 3) 51,864
Trustees' fees 31,000
Insurance expense 27,626
Registration and filing fees 26,125
Professional fees 22,008
Transfer agent and shareholder services
fees (Note 3) 18,000
Postage and supplies 13,234
Printing of shareholder reports 10,027
Other expenses 8,625
----------
Total Expenses 1,369,140
Less fees waived and expenses reimbursed by
the Adviser (Note 3) (266,412)
----------
Net Expenses 1,102,728
----------
NET INVESTMENT LOSS (445,613)
----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains from security transactions 760,047
Net realized gains from option contracts 1,887,142
Net change in unrealized appreciation/depreciation
on investments 14,349,594
Net change in unrealized appreciation/depreciation
on short positions (9,153,293)
Net change in unrealized appreciation/depreciation
on written option contracts (761,696)
----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 7,081,794
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 6,636,181
==========
See accompanying notes to financial statements.
4
THE ARBITRAGE FUND
Statements of Changes in Net Assets
===============================================================================================
YEAR YEAR
ENDED ENDED
MAY 31, MAY 31,
2003 2002
- -----------------------------------------------------------------------------------------------
FROM OPERATIONS
Net investment loss $ (445,613) $ (44,426)
Net realized gains (losses) from:
Security transactions 760,047 (330,820)
Option contracts 1,887,142 408,945
Net change in unrealized appreciation/depreciation on:
Investments 14,349,594 (85,104)
Short positions (9,153,293) 72,134
Written option contracts (761,696) 25,070
----------- ----------
Net increase in net assets resulting from operations 6,636,181 45,799
----------- ----------
DISTRIBUTIONS TO SHAREHOLDERS
From capital gains (520,638) (66,750)
----------- ----------
FROM CAPITAL SHARE TRANSACTIONS
Proceeds from shares sold 135,245,212 10,273,316
Shares issued in reinvestment of distributions 489,049 65,345
Payments for shares redeemed (23,284,533) (635,146)
----------- ----------
Net increase in net assets from capital share transactions 112,449,728 9,703,515
----------- ----------
TOTAL INCREASE IN NET ASSETS 118,565,271 9,682,564
NET ASSETS
Beginning of year 11,313,938 1,631,374
----------- ----------
End of year $ 129,879,209 $ 11,313,938
=========== ==========
CAPITAL SHARE ACTIVITY
Sold 11,593,800 922,467
Issued in reinvestment of distributions 42,674 6,136
Redeemed (2,002,360) (57,702)
----------- ----------
Net increase in shares outstanding 9,634,114 870,901
Shares outstanding at beginning of year 1,010,847 139,946
----------- ----------
Shares outstanding at end of year 10,644,961 1,010,847
=========== ==========
See accompanying notes to financial statements.
5
THE ARBITRAGE FUND
Financial Highlights
============================================================================================
SELECTED PER SHARE DATA AND RATIOS FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
YEAR YEAR PERIOD
ENDED ENDED ENDED
MAY 31, MAY 31, MAY 31,
2003 2002 2001 (a)
- --------------------------------------------------------------------------------------------
Net asset value at beginning of period $ 11.19 $ 11.66 $ 10.00
-------- -------- --------
Income (loss) from investment operations:
Net investment income (loss) (0.04) (0.04) 0.22
Net realized and unrealized gains (losses)
on investments 1.20 (0.08) 1.46
-------- -------- --------
Total from investment operations 1.16 (0.12) 1.68
-------- -------- --------
Less distributions:
From net investment income -- -- (0.02)
From capital gains (0.15) (0.35) --
-------- -------- --------
Total distributions (0.15) (0.35) (0.02)
-------- -------- --------
Net asset value at end of period $ 12.20 $ 11.19 $ 11.66
======== ======== ========
Total return 10.41% (0.86%) 16.93%(b)
======== ======== ========
Net assets at end of period (000's) $ 129,879 $ 11,314 $ 1,631
======== ======== ========
Ratio of expenses to average net assets:
Before advisory fees waived, expenses reimbursed
and dividends on securities sold short 3.00% 6.19% 51.30%(c)
Before dividends on securities sold short 2.54% 5.94%
After advisory fees waived, expenses reimbursed
and dividends on securities sold short (d) 1.95% 1.94% 1.95%(c)
Ratio of net investment loss to average net assets:
Before advisory fees waived and expenses reimbursed (1.56%) (5.19%) (50.05%)(c)
After advisory fees waived and expenses reimbursed (0.97%) (1.18%) (0.70%)(c)
Portfolio turnover rate 511% 2,480% 2,952%
(a) Represents the period from the commencement of operations (September 17,
2000) through May 31, 2001.
(b) Not annualized.
(c) Annualized.
(d) Excludes dividend expense of 0.46% and 0.25% of average net assets for the
years ended May 31, 2003 and 2002, respectively.
See accompanying notes to financial statements.
6
THE ARBITRAGE FUND
Portfolio of Investments
May 31, 2003
================================================================================
SHARES COMMON STOCKS -- 90.40% VALUE
- --------------------------------------------------------------------------------
AGRICULTURE -- 1.75%
207,700 Sylvan, Inc.(a)..................................... $ 2,274,938
-----------
APPAREL -- 2.29%
321,000 Salant Corp.(a)..................................... 2,975,670
-----------
AUTO MANUFACTURERS -- 1.75%
152,033 A.S.V., Inc.(a)..................................... 2,266,812
-----------
BANKS -- 9.49%
7,900 Commonwealth Bank(a)................................ 237,948
36,000 CSB Financial Corp.(a).............................. 1,000,800
68,400 F&M Bancorp......................................... 3,424,788
12,600 First Community Bancshares, Inc..................... 262,710
93,600 First Virginia Banks, Inc........................... 4,024,800
39,975 Pacific Northwest Bancorp........................... 1,394,728
36,800 Premier Bancorp, Inc................................ 1,041,440
50,000 Sun Country Bank(a)................................. 613,750
1,843 TriCo Bancshares.................................... 45,983
4,000 Upbancorp, Inc...................................... 272,200
-----------
12,319,147
-----------
BASIC MATERIALS -- 1.20%
100,000 DuPont Canada, Inc. - Class A....................... 1,558,000
-----------
BIOTECHNOLOGY -- 2.65%
218,000 Diacrin, Inc. (a)................................... 861,100
134,700 Enzon Pharmaceuticals, Inc. (a)..................... 2,008,377
278,468 Ostex International, Inc. (a)....................... 573,644
-----------
3,443,121
-----------
COMMERCIAL SERVICES -- 9.09%
325,000 Concord EFS, Inc.(a)................................ 4,914,000
106,300 Dwyer Group, Inc. (The)(a).......................... 693,076
14,000 Quebecor World, Inc................................. 250,040
95,000 Quintiles Transnational Corp.(a).................... 1,344,250
316,800 Whitman Education Group, Inc.(a).................... 4,606,272
-----------
11,807,638
-----------
COMPUTERS -- 1.19%
50,000 Fidelity National Information Solutions, Inc.(a) 1,314,500
200,000 Tanning Technology Corp.(a)......................... 226,000
-----------
1,540,500
-----------
COSMETICS -- 1.01%
97,900 Parlux Fragrances, Inc. (a)......................... 365,167
80,000 Salix Pharmaceuticals, Ltd.(a)...................... 948,800
-----------
1,313,967
-----------
7
THE ARBITRAGE FUND
Portfolio of Investments (Continued)
May 31, 2003
================================================================================
SHARES COMMON STOCKS -- 90.40% (Continued) VALUE
- --------------------------------------------------------------------------------
ENERGY -- 7.02%
126,494 3TEC Energy Corp.(a)................................ $ 2,169,372
70,000 Baytex Energy Ltd.(a)............................... 563,500
164,200 Holly Corp. ........................................ 4,781,504
15,000 Rio Alto Resources International, Inc.(a)........... 10,200
77,900 TMBR/Sharp Drilling, Inc.(a)........................ 1,590,718
----------
9,115,294
----------
ENTERTAINMENT -- 0.42%
38,500 Thousand Trails, Inc.(a)............................ 546,700
----------
HEALTHCARE SERVICES AND PRODUCTS -- 0.85%
165,462 Bruker AXS, Inc. (a)................................ 430,201
65,000 Colorado MEDtech, Inc.(a)........................... 303,550
75,000 Ramsay Youth Services, Inc.(a)...................... 369,750
----------
1,103,501
----------
INDUSTRIAL -- 2.21%
1,000 Domco Tarkett, Inc. (a) ............................ 5,750
35,400 Interlott Technologies, Inc. (a) ................... 315,060
386,400 Packaged Ice, Inc. (a) ............................. 1,306,032
51,500 Stackpole Ltd. (a) ................................. 1,240,635
----------
2,867,477
----------
INSURANCE -- 2.64%
100,000 Canada Life Financial Corp. ........................ 3,289,000
575,000 Gainsco, Inc. (a) .................................. 138,000
----------
3,427,000
----------
INTERNET SERVICES-- 7.79%
55,100 Cysive, Inc. (a) ................................... 177,422
87,500 Expedia, Inc. (a) .................................. 6,426,875
127,500 ITXC Corp. (a) ..................................... 261,375
103,087 LendingTree, Inc. (a) .............................. 2,417,390
124,100 Terra Networks S.A. - ADR (a) ...................... 794,240
100,000 WorldGate Communications, Inc. (a) ................. 35,000
----------
10,112,302
----------
LEISURE -- 5.79%
69,500 Hotels.com - Class A (a) ........................... 6,312,685
188,000 Varsity Brands, Inc. (a) ........................... 1,213,540
----------
7,526,225
----------
MEDIA -- 3.60%
120,000 General Motors Corp. - Class H (a) ................. 1,464,000
128,200 Hispanic Broadcasting Corp. (a) .................... 3,216,538
----------
4,680,538
----------
PHARMACEUTICALS -- 0.00%
30,400 NCS Healthcare, Inc. - escrowed shares (a) ......... --
----------
8
THE ARBITRAGE FUND
Portfolio of Investments (Continued)
May 31, 2003
================================================================================
SHARES COMMON STOCKS -- 90.40% (Continued) VALUE
- --------------------------------------------------------------------------------
REAL ESTATE -- 3.02%
354,600 Insignia Financial Group, Inc. (a) ................. $ 3,921,876
----------
RETAIL -- 2.34%
68,500 Lillian Vernon Corp. (a) ........................... 490,460
187,600 RDO Equipment Co. - Class A (a) .................... 1,118,096
475,000 Summit America Television, Inc. (a) ................ 1,429,750
----------
3,038,306
----------
SAVINGS AND LOANS -- 8.01%
30,000 Algiers Bancorp, Inc. (a) .......................... 444,000
15,000 Bedford Bancshares, Inc. ........................... 342,450
19,700 Fidelity Bancorp, Inc. ............................. 644,781
75,000 First Bell Bancorp, Inc. ........................... 1,968,000
35,000 Monterey Bay Bancorp, Inc. (a) ..................... 910,000
43,300 Oregon Trail Financial Corp. ....................... 1,028,375
50,000 Port Financial Corp. ............................... 2,683,000
55,000 Security Financial Bancorp, Inc. (a) ............... 1,311,200
17,000 St. Francis Capital Corp. .......................... 487,730
25,000 Superior Financial Corp. ........................... 587,500
----------
10,407,036
----------
SEMICONDUCTORS -- 6.50%
340,000 Conexant Systems, Inc. (a) ......................... 1,312,400
168,900 Genesis Microchip, Inc. (a) ........................ 3,217,545
604,670 Oak Technology, Inc. (a) ........................... 3,912,215
----------
8,442,160
----------
SOFTWARE -- 5.00%
400,000 Descartes Systems Group, Inc. (The) (a) ............ 924,000
160,000 Precise Software Solutions Ltd. (a) ................ 3,006,400
71,910 Printcafe Software, Inc. (a) ....................... 181,932
173,700 SkillSoft PLC (a) .................................. 724,329
232,218 SpeechWorks International, Inc. (a) ................ 1,147,157
160,100 Synavant, Inc. (a) ................................. 512,320
----------
6,496,138
----------
TELECOMMUNICATIONS -- 4.39%
173,200 Allen Telecom, Inc. (a) ............................ 3,056,980
253,300 MCK Communications, Inc. (a) ....................... 552,194
446,054 Netro Corp. (a) .................................... 1,311,399
135,000 Time Warner Telecom, Inc. - Class A (a) ............ 783,000
----------
5,703,573
----------
UTILITIES -- 0.40%
150,000 Mirant Corp. (a) ................................... 519,000
----------
TOTAL COMMON STOCKS (Cost $103,111,366) ............ $117,406,919
------------
9
THE ARBITRAGE FUND
Portfolio of Investments (Continued)
May 31, 2003
================================================================================
SHARES REAL ESTATE INVESTMENT TRUSTS-- 3.93% VALUE
- --------------------------------------------------------------------------------
100,000 RFS Hotel Investors, Inc. .......................... $ 1,227,000
200,000 Taubman Centers, Inc. .............................. 3,880,000
------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $5,022,005) $ 5,107,000
------------
================================================================================
SHARES ESCROWED RIGHTS -- 0.00% VALUE
- --------------------------------------------------------------------------------
35,300 Hoenig Group, Inc. - contingent payment
rights (Cost $0)................................... $ --
----------
================================================================================
CONTRACTS PUT OPTION CONTRACTS-- 0.23% VALUE
- --------------------------------------------------------------------------------
Concord EFS, Inc.,
2,850 9/20/03 at $10 ....................................$ 99,750
1,165 9/20/03 at $12.50 ................................. 84,462
Dreyer's Grand Ice Cream, Inc.,
100 6/21/03 at $60 .................................... 6,000
100 6/21/03 at $65 .................................... 7,750
Taubman Centers, Inc.,
1,250 9/20/03 at $17.50 ................................. 96,875
------------
TOTAL PUT OPTION CONTRACTS (Cost $393,966) .........$ 294,837
------------
================================================================================
PAR
VALUE SHORT TERM MONEY MARKET SECURITIES-- 8.18% VALUE
- --------------------------------------------------------------------------------
$10,630,493 Bear Stearns Cash Repo, 1.25%, due 06/02/03
(Cost $10,630,493).................................$ 10,630,493
-----------
TOTAL INVESTMENTS AT VALUE-- 102.74%
(Cost $119,157,830)................................$ 133,439,249
LIABILITIES IN EXCESS OF OTHER ASSETS-- (2.74%)..... ( 3,560,040)
-----------
NET ASSETS-- 100%...................................$ 129,879,209
===========
(a) Non-income producing security.
See accompanying notes to financial statements.
10
THE ARBITRAGE FUND
Schedule of Securities Sold Short
May 31, 2003
================================================================================
SHARES COMMON STOCKS -- 34.72% VALUE
- --------------------------------------------------------------------------------
APPAREL -- 0.56%
38,153 Perry Ellis International, Inc. .................... $ 721,473
------------
BANKS -- 5.34%
89,000 BB&T Corp. ......................................... 3,042,910
10,450 FNB Corp. .......................................... 276,925
51,695 Fulton Financial Corp. ............................. 1,064,400
13,700 Lakeland Bancorp, Inc. ............................. 219,337
57,500 Mercantile Bankshares Corp. ........................ 2,329,900
------------
6,933,472
------------
BIOTECHNOLOGY -- 0.83%
333,494 GenVec, Inc. ....................................... 1,083,855
------------
COMMERCIAL SERVICES -- 1.56%
33,000 Career Education Corp. ............................. 2,026,530
------------
COMPUTERS -- 0.85%
40,000 Veritas Software Corp. ............................. 1,110,000
------------
HEALTHCARE PRODUCTS -- 0.62%
125,855 Bruker Daltonics, Inc. ............................. 534,884
15,800 Inverness Medical Innovations, Inc. ................ 273,340
------------
808,224
------------
INSURANCE -- 0.78%
35,000 Great-West Lifeco, Inc. ............................ 1,015,350
------------
INTERNET SERVICES -- 11.83%
393,609 USA Interactive .................................... 15,134,266
172,500 Verso Technologies, Inc. ........................... 224,250
------------
15,358,516
------------
MEDIA -- 2.49%
108,400 Univision Communications, Inc. - Class A ........... 3,235,740
------------
OIL AND GAS -- 1.37%
40,000 Frontier Oil Corp. ................................. 679,200
107,520 Plains Exploration and Production Co. .............. 1,099,930
------------
1,779,130
------------
PHARMACEUTICALS -- 0.53%
32,000 NPS Pharmaceuticals, Inc. .......................... 689,920
------------
11
THE ARBITRAGE FUND
Schedule of Securities Sold Short (Continued)
May 31, 2003
================================================================================
SHARES COMMON STOCKS -- 34.72% (Continued) VALUE
- --------------------------------------------------------------------------------
SAVINGS AND LOANS -- 1.22%
17,000 FirstBank NW Corp. ................................. $ 436,135
30,900 MAF Bancorp, Inc. .................................. 1,141,446
------------
1,577,581
------------
SEMICONDUCTORS -- 2.07%
286,773 Pixelworks, Inc. ................................... 2,374,480
15,000 Zoran Corp. ........................................ 307,050
------------
2,681,530
------------
SOFTWARE -- 2.77%
77,500 First Data Corp. ................................... 3,210,050
67,816 ScanSoft, Inc. ..................................... 393,265
------------
3,603,315
------------
TELECOMMUNICATIONS -- 1.90%
248,400 Andrew Corp. ....................................... 2,469,096
------------
TOTAL SECURITIES SOLD SHORT (Proceeds $36,009,683).. $45,093,732
===========
See accompanying notes to financial statements.
12
THE ARBITRAGE FUND
Schedule of Open Options Written
May 31, 2003
================================================================================
OPTION VALUE OF
CONTRACTS WRITTEN CALL OPTIONS OPTIONS
- --------------------------------------------------------------------------------
Allen Telecom, Inc.,
85 7/19/03 at $17.5 ................................... $ 8,712
Andrew Corp.,
450 6/21/03 at $7.5 .................................... 108,000
BB&T Corp.,
200 6/21/03 at $32.5 ................................... 38,000
Career Education Corp.,
150 6/21/03 at $60 ..................................... 40,125
Concord EFS, Inc.,
1,265 9/20/03 at $15 ..................................... 186,588
Enzon Pharmaceuticals, Inc.,
50 6/21/03 at $15 ..................................... 3,750
Fidelity National Financial, Inc.,
50 6/21/03 at $30 ..................................... 7,375
300 7/19/03 at $30 ..................................... 53,250
General Motors Corp. - Class H,
500 6/21/03 at $12.5 ................................... 7,500
Genesis Microchip, Inc.,
300 6/21/03 at $17.5 ................................... 58,500
GTECH Holdings Corp.,
15 6/21/03 at $37.5 ................................... 413
Mercantile Bankshares Corp.,
70 7/19/03 at $40 ..................................... 9,275
NPS Pharmaceuticals, Inc.,
420 6/21/03 at $20 ..................................... 92,400
200 6/21/03 at $22.5 ................................... 15,000
Patterson-UTI Energy, Inc.,
154 6/21/03 at $35 ..................................... 32,340
100 6/21/03 at $37.5 ................................... 6,500
192 7/19/03 at $35 ..................................... 50,880
100 7/19/03 at $37.5 ................................... 12,000
Pixelworks, Inc.,
206 6/21/03 at $7.5 .................................... 18,025
100 7/19/03 at $7.5 .................................... 11,250
ScanSoft, Inc.,
400 6/21/03 at $5 ...................................... 33,000
52 7/19/03 at $5 ...................................... 4,550
Taubman Centers, Inc.,
1,000 6/21/03 at $20 ..................................... 12,500
USA Interactive,
100 6/21/03 at $30 ..................................... 83,500
100 6/21/03 at $32.5 ................................... 59,500
100 6/21/03 at $35 ..................................... 37,500
13
THE ARBITRAGE FUND
Schedule of Open Options Written
May 31, 2003
================================================================================
OPTION VALUE OF
CONTRACTS WRITTEN CALL OPTIONS (Continued) OPTIONS
- --------------------------------------------------------------------------------
Zoran Corp.,
650 6/21/03 at $15 .................................... $ 357,500
650 6/21/03 at $17.5 .................................. 201,500
----------
TOTAL WRITTEN CALL OPTIONS ......................... $ 1,549,433
----------
================================================================================
OPTION VALUE OF
CONTRACTS WRITTEN PUT OPTIONS OPTIONS
- --------------------------------------------------------------------------------
Career Education Corp.,
100 6/21/03 at $55 .................................... $ 3,250
130 6/21/03 at $60 .................................... 16,900
Concord EFS, Inc.,
1,915 6/21/03 at $12.5 .................................. 23,937
1,000 6/21/03 at $15 .................................... 45,000
General Motors Corp. - Class H,
300 6/21/03 at $12.5 .................................. 13,500
----------
TOTAL WRITTEN PUT OPTIONS .......................... $ 102,587
----------
TOTAL OPEN OPTIONS WRITTEN (Premiums
Received $915,294)................................. $ 1,652,020
==========
See accompanying notes to financial statements.
14
THE ARBITRAGE FUND
Notes to the Financial Statements
May 31, 2003
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Arbitrage Funds (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 non-diversified series. The Fund commenced
operations on September 17, 2000.
The investment objective of the Fund is to achieve capital growth by engaging in
merger arbitrage.
The following is a summary of the Fund's significant accounting policies:
SECURITIES VALUATION - The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange ("NYSE")
(normally 4:00 p.m., Eastern time). Common stocks and other equity-type
securities 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. Securities traded in the
over-the-counter market, and which are not quoted by NASDAQ, 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.
REPURCHASE AGREEMENTS - The Fund may enter into repurchase agreements with
certain banks or non-bank dealers. The Adviser will monitor, on an ongoing
basis, the value of the underlying securities to ensure that the value always
equals or exceeds the repurchase price plus accrued interest.
SHARE VALUATION - The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
of the Fund is equal to the net asset value per share.
INVESTMENT INCOME - Interest income is accrued as earned. Dividend income is
recorded on the ex-dividend date.
15
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2003
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 losses deferred due to
wash sales.
The tax character of distributions paid during the years ended May 31, 2003 and
2002 was ordinary income.
SECURITY TRANSACTIONS - Security transactions are accounted for on trade date.
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 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.
OPTION TRANSACTIONS - The Fund writes (sells) covered call options to hedge
portfolio investments. Put options can also be written by the Fund as part of a
merger arbitrage strategy involving a pending corporate reorganization. When the
Fund writes (sells) an option, an amount equal to the premium received by the
Fund is included in the Statement of Assets and Liabilities as an asset and an
equivalent liability. The amount of the liability is subsequently
marked-to-market to reflect the current value of the option written. By writing
an option, the Fund may become obligated during the term of the option to
deliver or purchase the securities underlying the option at the exercise price
if the option is exercised. Option contracts are valued at the 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).
16
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2003
================================================================================
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 income and expenses during the reporting period. Actual
results could differ from those estimates.
FEDERAL INCOME TAX - It is the Fund's policy to comply with the special
provisions 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, the 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,
2003:
- --------------------------------------------------------------------------------
Cost of portfolio investments (including securities
sold short and written options) $ 82,666,525
==========
Gross unrealized appreciation $ 14,470,339
Gross unrealized depreciation (10,443,367)
----------
Net unrealized appreciation $ 4,026,972
Undistributed short-term capital gains 2,138,328
----------
Total distributable earnings $ 6,165,300
==========
- --------------------------------------------------------------------------------
The difference between the federal income tax cost of portfolio investments and
the financial statement cost is due to the tax deferral of losses on wash sales.
The Fund accounts and reports for distributions to shareholders in accordance
with the American Institute of Certified Public Accountant's Statement of
Position 93-2: Determination, Disclosure, and Financial Statement Presentation
of Income, Capital and Return of Capital Distributions by Investment Companies.
For the year ended May 31, 2003, the Fund reclassified net investment losses of
$445,613 against undistributed gains on the Statement of Assets and Liabilities.
Such reclassification, the result of permanent differences between financial
statement and income tax reporting requirements, has no effect of the Fund's net
assets or net asset value per share.
2. INVESTMENT TRANSACTIONS
During the year ended May 31, 2003, cost of purchases and proceeds from sales
and maturities of investment securities, other than short-term investments,
options and short positions, amounted to $322,859,722 and $226,387,121,
respectively.
17
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2003
================================================================================
3. 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, the Fund pays the Adviser a fee, which is computed and
accrued daily and paid monthly, at the annual rate of 1.50% of the Fund's
average daily net assets.
Until August 31, 2012, the Adviser has contractually agreed 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 1.95% of the net
assets of the Fund. Accordingly, for the year ended May 31, 2003, the Adviser
waived $206,078 of its advisory fee and reimbursed the Fund for other expenses
in the amount of $60,334.
Any waiver or reimbursement is subject to later adjustment to allow the Adviser
to recoup fees waived or expenses reimbursed to the extent actual fees and
expenses for a period are less than the expense limitation cap of 1.95%,
provided, however, that the Adviser shall only be entitled to recoup such
amounts for a period of three years from the end of the fiscal year during which
such amount was waived or reimbursed. As of May 31, 2003, the Adviser may in the
future recoup from the Fund fees waived and expenses reimbursed totaling
$536,937, of which $266,412 expires May 31, 2006, $151,171 expires May 31, 2005
and $119,354 expires May 31, 2004.
The President of the Trust is an officer of the Adviser.
ADMINISTRATION AGREEMENT
Under the terms of an Administration Agreement, Ultimus Fund Solutions, LLC
("Ultimus") supplies executive, administrative and regulatory services to the
Fund, supervises the preparation of tax returns, and coordinates the preparation
of reports to shareholders and reports to and filings with the Securities and
Exchange Commission and state securities authorities. For the performance of
these administrative services, Ultimus receives a monthly fee at an annual rate
of .15% of the Fund's average daily net assets up to $50 million; .125% of such
assets from $50 million to $100 million; .10% of such assets from $100 million
to $250 million; .075% of such assets from $250 to $500 million; and .05% of
such assets in excess of $500 million, subject to a minimum fee of $2,000 per
month. Accordingly, during the year ended May 31, 2003, Ultimus was paid $66,284
for administrative services. Certain officers of the Trust are also officers of
Ultimus.
18
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2003
================================================================================
3. TRANSACTIONS WITH AFFILIATES (Continued)
TRANSFER AGENT AND SHAREHOLDER SERVICES AGREEMENT
Under the terms of a Transfer Agent and Shareholder Services Agreement between
the Trust and Ultimus, Ultimus 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 performs other shareholder service functions. For these
services, Ultimus receives from the Fund a monthly fee at an annual rate of $20
per account, subject to a minimum fee of $1,500 per month. Accordingly, during
the year ended May 31, 2003, Ultimus was paid $18,000 for transfer agent
services. In addition, the Fund pays out-of-pocket expenses including, but not
limited to, postage and supplies.
FUND ACCOUNTING AGREEMENT
Under the terms of a Fund Accounting Agreement between the Trust and Ultimus,
Ultimus calculates the daily net asset value per share and maintains the
financial books and records of the Fund. For these services, Ultimus receives
from the Fund a monthly fee of $2,500, plus an asset based fee equal to 0.01% of
the Fund's average daily net assets up to $500 million and 0.005% of such assets
in excess of $500 million. Additionally, on a monthly basis, Ultimus receives $5
per trade for trades in excess of two hundred. Accordingly, during the year
ended May 31, 2003, Ultimus was paid $51,864 for accounting services. In
addition, the Fund reimburses certain out-of-pocket expenses incurred by Ultimus
in obtaining valuations of the Fund's portfolio securities.
DISTRIBUTION AGREEMENT
Under the terms of a Distribution Agreement between the Trust and Ultimus Fund
Distributors, LLC (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.
DISTRIBUTION PLAN
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act (the "Plan"), which permits the Fund to pay for expenses incurred in
the distribution and promotion of the Fund's shares. Under the Plan, the Fund
may pay compensation to any broker-dealer with whom the Distributor or the Fund
has entered into a contract to distribute Fund 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 of the Fund. During the year ended May 31, 2003, the
Fund incurred expenses of $115,164 pursuant to the Plan.
19
THE ARBITRAGE FUND
Notes to the Financial Statements (Continued)
May 31, 2003
================================================================================
4. OPTIONS CONTRACTS
A summary of option contracts written during the year ended May 31, 2003 is as
follows:
- --------------------------------------------------------------------------------
OPTION OPTION
CONTRACTS PREMIUMS
- --------------------------------------------------------------------------------
Options outstanding at beginning of year ......... 779 $ 76,055
Options written .................................. 69,555 7,931,130
Options closed ................................... (7,702) (936,114)
Options exercised ................................ (28,718) (3,945,441)
Options expired .................................. (22,510) (2,210,336)
---------- ----------
Options outstanding at end of year ............... 11,404 $ 915,294
========== ==========
- --------------------------------------------------------------------------------
20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
The Arbitrage Funds
New York, New York
We have audited the accompanying statement of assets and liabilities of The
Arbitrage Fund (a series of The Arbitrage Funds), including the portfolio of
investments, as of May 31, 2003, and the related statement of operations 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 two
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. The financial highlights for the period September 17, 2000
(commencement of operations) through May 31, 2001 have been audited by other
auditors, whose report dated July 10, 2001 expressed an unqualified opinion on
such financial highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of May 31, 2003 by correspondence with the custodian and
brokers. Where brokers have not replied to our confirmation request we carried
out other appropriate procedures. 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, 2003, the results of its operations 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 two years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 15, 2003
21
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:
POSITION HELD LENGTH OF
TRUSTEE ADDRESS AGE WITH THE TRUST TIME SERVED
- ---------------------------------------------------------------------------------------------------
*John S. Orrico, CFA 650 Fifth Avenue 43 President, Secretary, Since May 2000
New York, NY 10019 Treasurer and Trustee
Joel C. Ackerman 747 Third Avenue 58 Trustee Since May 2000
New York, NY 10017
Jay N. Goldberg 660 Madison Avenue 62 Trustee Since May 2000
New York, NY 10021
Michael Neumark 380 Madison Avenue 60 Trustee Since May 2000
New York, NY 10017
* Mr. Orrico is an "interested person" of the Trust within the meaning of
Section 2(a)(19) of the Investment Company Act of 1940.
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. (a financial management firm).
Joel C. Ackerman is a Partner of LRL Capital (a hedge fund). Prior to September
2002, he was a Partner of Ardsley Partners (a hedge fund).
Jay N. Goldberg is General Partner of Hudson Ventures (a venture capital
company).
Michael Neumark is Senior Vice President of I.T.G., Inc. (an institutional
electronic brokerage firm).
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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available upon request by
calling toll-free 1-800-295-4485, or on the Securities and Exchange Commission's
website at http://sec.gov.
22
[GRAPHIC OMITTED]
THE ARBITRAGE FUND
A SERIES OF THE ARBITRAGE FUNDS
ADVISER WATER ISLAND CAPITAL, LLC
650 Fifth Avenue, 6th Floor
New York, NY 10019
DISTRIBUTOR ULTIMUS FUND DISTRIBUTORS, LLC
135 Merchant Street, Suite 230
Cincinnati, OH 45246
TRANSFER AGENT ULTIMUS FUND SOLUTIONS, LLC
135 Merchant Street, Suite 230
Cincinnati, OH 45246
CUSTODIAN CUSTODIAL TRUST COMPANY
101 Carnegie Center
Princeton, NJ 08540
ITEM 2. CODE OF ETHICS.
Not required
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not required
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not required
ITEMS 5-6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not required
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial officer
has concluded that the registrant's disclosure controls and procedures (as
defined in Rule 301-2(c) under the Investment Company Act of 1940) are effective
based on his evaluation of these controls and procedures as of a date within 90
days of the filing date of this report.
(b) There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
ITEM 10. EXHIBITS.
File the exhibits listed below as part of this Form. Letter or number the
exhibits in the sequence indicated.
(a) Any code of ethics, or amendment thereto, that is the subject of the
disclosure required by Item 2, to the extent that the registrant intends to
satisfy the Item 2 requirements through filing of an exhibit: Not applicable
(b) A separate certification for each principal executive officer and principal
financial officer of the registrant as required by Rule 30a-2 under the Act (17
CFR 270.30a-2): Attached hereto
Exhibit 99.CERT Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
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 August 4, 2003
-----------------------------------
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 August 4, 2003
-----------------------------------
* Print the name and title of each signing officer under his or her signature.