|
|
|
|
|
The Arbitrage Credit Opportunities Fund
|
|
|
|
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
November 30, 2013
(Unaudited)
|
|
|
Period Ended
May 31, 2013
(a)
|
|
|
|
|
|
|
|
|
|
FROM OPERATIONS:
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
167,654
|
|
|
$
|
82,256
|
|
|
Net realized gains (losses) from:
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
29,640
|
|
|
|
(1,047)
|
|
|
Securities sold short
|
|
|
–
|
|
|
|
(10,086)
|
|
|
Written option contracts
|
|
|
–
|
|
|
|
91
|
|
|
Foreign currency transactions
|
|
|
1,854
|
|
|
|
1,414
|
|
|
Net change in unrealized appreciation on:
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
85,051
|
|
|
|
42,388
|
|
|
Securities sold short
|
|
|
(15,264)
|
|
|
|
1,384
|
|
|
Foreign currency transactions
|
|
|
4,173
|
|
|
|
2,873
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from operations
|
|
|
273,108
|
|
|
|
119,273
|
|
|
|
|
|
|
|
|
FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
|
|
|
|
|
|
|
|
|
|
NET INVESTMENT INCOME
|
|
|
|
|
|
|
|
|
|
Distributions from net investment income, Class R
|
|
|
(51,576)
|
|
|
|
(7,862)
|
|
|
Distributions from net investment income, Class I
|
|
|
(111,575)
|
|
|
|
(28,735)
|
|
|
Distributions from net investment income, Class C
|
|
|
(635)
|
|
|
|
(77)
|
|
|
Distributions from net investment income, Class A
|
|
|
(278)
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Decrease in net assets from distributions to shareholders
|
|
|
(164,064)
|
|
|
|
(36,674)
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
64
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Credit Opportunities Fund
|
|
|
|
Statements of Changes in Net Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
November 30, 2013
(Unaudited)
|
|
|
Period Ended
May 31, 2013
(a)
|
|
|
|
|
|
|
|
|
|
FROM CAPITAL SHARE TRANSACTIONS (NOTE 6):
|
|
|
|
|
|
|
|
|
|
CLASS R
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold
|
|
|
1,535,456
|
|
|
|
1,704,124
|
|
|
Shares issued in reinvestment of distributions
|
|
|
51,575
|
|
|
|
7,862
|
|
|
Proceeds from redemption fees collected (Note 2)
|
|
|
711
|
|
|
|
20
|
|
|
Payments for shares redeemed
|
|
|
(138,386)
|
|
|
|
(70,525)
|
|
|
|
|
|
|
|
|
Net increase in net assets from Class R share transactions
|
|
|
1,449,356
|
|
|
|
1,641,481
|
|
|
|
|
|
|
|
|
CLASS I
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold
|
|
|
6,410,350
|
|
|
|
3,391,866
|
|
|
Shares issued in reinvestment of distributions
|
|
|
111,573
|
|
|
|
16,969
|
|
|
Proceeds from redemption fees collected (Note 2)
|
|
|
301
|
|
|
|
–
|
|
|
Payments for shares redeemed
|
|
|
(398,691)
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Net increase in net assets from Class I share transactions
|
|
|
6,123,533
|
|
|
|
3,408,835
|
|
|
|
|
|
|
|
|
CLASS C
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold
|
|
|
65,001
|
|
|
|
25,145
|
|
|
Shares issued in reinvestment of distributions
|
|
|
633
|
|
|
|
77
|
|
|
|
|
|
|
|
|
Net increase in net assets from Class C share transactions
|
|
|
65,634
|
|
|
|
25,222
|
|
|
|
|
|
|
|
|
CLASS A
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold
|
|
|
25,106
|
|
|
|
–
|
|
|
Shares issued in reinvestment of distributions
|
|
|
277
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Net increase in net assets from Class A share transactions
|
|
|
25,383
|
|
|
|
–
|
|
|
|
|
|
|
|
|
TOTAL INCREASE IN NET ASSETS
|
|
|
7,772,950
|
|
|
|
5,158,137
|
|
|
|
|
|
|
|
|
NET ASSETS:
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
5,158,137
|
|
|
|
–
|
|
|
|
|
|
|
|
|
End of period *
|
|
$
|
12,931,087
|
|
|
$
|
5,158,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*Including accumulated net investment income of :
|
|
$
|
73,847
|
|
|
$
|
70,257
|
|
(a)
Commenced operations on October 1, 2012.
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
65
|
|
|
|
|
|
T
he Arbitrage Fund – Class R
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
Income (loss) from investment operations
|
|
Net investment loss
(a)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
From net realized gains
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(c)
|
|
|
|
Net assets, end of period (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(f)(g)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(f)(g)
|
|
Net investment loss
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Per share amounts were calculated using average shares for the period.
|
|
(b)
|
Amount rounds to less than $0.01 per share.
|
|
(c)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(f)
|
Dividend expense totaled 0.32% (annualized), 0.42%, 0.58%, 0.51%, 0.88% and 0.74%, respectively, of average net assets for the six months ended
November 30, 2013 and the years ended May 31, 2013, 2012, 2011, 2010 and 2009 respectively.
|
|
(g)
|
Interest rebate expense and line of credit interest expense totaled 0.10% (annualized), 0.10%, 0.20%, 0.13%, 0.29% and 0.58%, respectively, of
average net assets for the six months ended November 30, 2013 and the years ended May 31, 2013, 2012, 2011, 2010, and 2009, respectively.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
66
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Year Ended
May 31, 2013
|
|
Year Ended
May 31, 2012
|
|
Year Ended
May 31, 2011
|
|
Year Ended
May 31, 2010
|
|
Year Ended
May 31, 2009
|
|
$12.50
|
|
$12.80
|
|
$12.77
|
|
$12.50
|
|
$12.43
|
|
$12.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.01)
|
|
(0.10)
|
|
(0.11)
|
|
(0.12)
|
|
(0.14)
|
|
(0.16)
|
|
0.12
|
|
0.15
|
|
0.44
|
|
0.66
|
|
0.52
|
|
0.30
|
|
0.11
|
|
0.05
|
|
0.33
|
|
0.54
|
|
0.38
|
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
(0.09)
|
|
–
|
|
–
|
|
(0.05)
|
|
–
|
|
–
|
|
(0.26)
|
|
(0.30)
|
|
(0.27)
|
|
(0.26)
|
|
(0.52)
|
|
–
|
|
(0.35)
|
|
(0.30)
|
|
(0.27)
|
|
(0.31)
|
|
(0.52)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
0.02
|
|
|
|
|
|
|
|
|
$12.61
|
|
$12.50
|
|
$12.80
|
|
$12.77
|
|
$12.50
|
|
$12.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.88%
(d)
|
|
0.42%
|
|
2.54%
|
|
4.37%
|
|
3.08%
|
|
1.64%
|
|
|
|
|
|
|
|
|
$914,906
|
|
$916,677
|
|
$1,003,646
|
|
$866,885
|
|
$759,235
|
|
$219,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.87%
(e)
|
|
1.97%
|
|
2.23%
|
|
2.16%
|
|
2.80%
|
|
3.28%
|
|
1.46%
(e)
|
|
1.45%
|
|
1.45%
|
|
1.52%
|
|
1.63%
|
|
1.95%
|
|
1.46%
(e)
|
|
1.45%
|
|
1.44%
|
|
1.52%
|
|
1.63%
|
|
1.95%
|
|
(0.09)%
(e)
|
|
(0.78)%
|
|
(0.83)%
|
|
(0.93)%
|
|
(1.12)%
|
|
(1.34)%
|
|
|
|
|
|
|
|
|
202%
(d)
|
|
459%
|
|
563%
|
|
389%
|
|
371%
|
|
709%
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
67
|
|
|
|
|
|
The Arbitrage Fund – Class I
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
|
|
Income (loss) from investment operations
|
|
Net investment income (loss)
(a)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
From net realized gains
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(c)
|
|
|
|
Net assets, end of period : (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(f)(g)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(f)(g)
|
|
Net investment income (loss)
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Per share amounts were calculated using average shares for the period.
|
|
(b)
|
Amount rounds to less than $0.01 per share.
|
|
(c)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(f)
|
Dividend expense totaled 0.32% (annualized), 0.42%, 0.58%, 0.51%, 0.88% and 0.74%, respectively, of average net assets for the six months ended
November 30, 2013 and the years ended May 31, 2013, 2012, 2011, 2010 and 2009 respectively.
|
|
(g)
|
Interest rebate expense and line of credit interest expense totaled 0.10% (annualized), 0.10%, 0.20%, 0.13%, 0.29% and 0.58%, respectively, of
average net assets for the six months ended November 30, 2013 and the years ended May 31, 2013, 2012, 2011, 2010, and 2009, respectively.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
68
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Year Ended
May 31, 2013
|
|
Year Ended
May 31, 2012
|
|
Year Ended
May 31, 2011
|
|
Year Ended
May 31, 2010
|
|
Year Ended
May 31, 2009
|
|
$12.74
|
|
$13.04
|
|
$12.98
|
|
$12.68
|
|
$12.60
|
|
$12.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.01
|
|
(0.07)
|
|
(0.07)
|
|
(0.08)
|
|
(0.11)
|
|
(0.11)
|
|
0.12
|
|
0.16
|
|
0.43
|
|
0.67
|
|
0.52
|
|
0.28
|
|
0.13
|
|
0.09
|
|
0.36
|
|
0.59
|
|
0.41
|
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
(0.13)
|
|
–
|
|
(0.02)
|
|
(0.07)
|
|
–
|
|
–
|
|
(0.26)
|
|
(0.30)
|
|
(0.27)
|
|
(0.26)
|
|
(0.52)
|
|
–
|
|
(0.39)
|
|
(0.30)
|
|
(0.29)
|
|
(0.33)
|
|
(0.52)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
0.00
(b)
|
|
|
|
|
|
|
|
|
$12.87
|
|
$12.74
|
|
$13.04
|
|
$12.98
|
|
$12.68
|
|
$12.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.02%
(d)
|
|
0.67%
|
|
2.74%
|
|
4.74%
|
|
3.28%
|
|
1.69%
|
|
|
|
|
|
|
|
|
$1,879,787
|
|
$1,937,514
|
|
$2,084,530
|
|
$1,346,801
|
|
$582,460
|
|
$108,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.62%
(e)
|
|
1.72%
|
|
1.98%
|
|
1.91%
|
|
2.55%
|
|
3.03%
|
|
1.21%
(e)
|
|
1.20%
|
|
1.20%
|
|
1.27%
|
|
1.38%
|
|
1.70%
|
|
1.21%
(e)
|
|
1.20%
|
|
1.20%
|
|
1.27%
|
|
1.38%
|
|
1.70%
|
|
0.17%
(e)
|
|
(0.51)%
|
|
(0.56)%
|
|
(0.62)%
|
|
(0.85)%
|
|
(0.87)%
|
|
|
|
|
|
|
|
|
202%
(d)
|
|
459%
|
|
563%
|
|
389%
|
|
371%
|
|
709%
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
69
|
|
|
|
|
|
The Arbitrage Fund – Class C
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
Income (loss) from investment operations
|
|
Net investment loss
(b)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
From net realized gains
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(d)
|
|
|
|
Net assets, end of period (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(g)(h)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(g)(h)
|
|
Net investment loss
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Commenced operations on June 1, 2012.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Amount rounds to less than $0.01 per share.
|
|
(d)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(g)
|
Dividend expense totaled 0.32% (annualized) and 0.42% of average net assets for the six months ended November 30, 2013 the year ended
May 31, 2013.
|
|
(h)
|
Interest rebate expense and line of credit interest expense totaled 0.10% (annualized) and 0.11% of average net assets for the six months ended
November 30, 2013 and the year ended May 31, 2013.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
70
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Year Ended
May 31, 2013
(a)
|
|
$12.38
|
|
$12.80
|
|
|
|
|
|
(0.05)
|
|
(0.23)
|
|
0.12
|
|
0.20
|
|
|
|
0.07
|
|
(0.03)
|
|
|
|
|
|
|
|
|
|
|
–
|
|
(0.13)
|
|
–
|
|
(0.26)
|
|
|
|
–
|
|
(0.39)
|
|
|
|
0.00
(c)
|
|
0.00
(c)
|
|
|
|
|
|
|
$12.45
|
|
$12.38
|
|
|
|
|
|
|
0.57%
(e)
|
|
(0.27%)
|
|
|
|
|
$31,546
|
|
$18,741
|
|
|
|
|
|
|
|
|
2.62%
(f)
|
|
2.75%
|
|
2.21%
(f)
|
|
2.20%
|
|
2.21%
(f)
|
|
2.20%
|
|
(0.87)%
(f)
|
|
(1.84)%
|
|
|
|
|
202%
(e)
|
|
459%
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
71
|
|
|
|
|
|
The Arbitrage Fund – Class A
|
|
Financial Highlights
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Period Presented:
|
|
|
|
|
|
|
Six Months Ended
November 30, 2013
(Unaudited)
(a)
|
|
Net asset value, beginning of period
|
|
$12.50
|
|
Income (loss) from investment operations
|
|
|
|
Net investment loss
(b)
|
|
(0.01)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
0.13
|
|
|
|
|
|
Total from investment operations
|
|
0.12
|
|
|
|
|
|
|
|
|
Less distributions
|
|
|
|
From net realized gains
|
|
|
|
|
|
|
|
Total distributions
|
|
–
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$12.62
|
|
|
|
|
|
|
|
|
Total return
(c)
|
|
0.96%
(d)
|
|
|
|
|
Net assets, end of period (in 000s)
|
|
$2,384
|
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
|
|
Expenses including interest and dividend expense
|
|
1.89%
(e)
|
|
Expenses excluding interest and dividend expense
(f)(g)
|
|
1.48%
(e)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(f)(g)
|
|
1.44%
(e)
|
|
Net investment loss
|
|
(0.12)%
(e)
|
|
|
|
|
Portfolio turnover rate
|
|
202%
(d)
|
|
(a)
|
Commenced Operations on June 1, 2013.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(f)
|
Dividend expense totaled 0.32% (annualized) of average net assets for the six months ended November 30, 2013.
|
|
(g)
|
Interest rebate expense and line of credit interest expense totaled 0.10% (annualized) of average net assets for the six months ended November
30, 2013.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
72
|
|
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|
Page Intentionally Left Blank
|
|
|
|
|
The Arbitrage Event-Driven Fund – Class R
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
Income (loss) from investment operations
|
|
Net investment income (loss)
(b)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
From net realized gains
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(d)
|
|
|
|
Net assets, end of period (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(g)(h)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(g)(h)
|
|
Net investment income (loss)
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Commenced operations on October 1, 2010.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Amount rounds to less than $0.01 per share.
|
|
(d)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(g)
|
Dividend expense totaled 0.31% (annualized), 0.36%, 0.27% and 0.28% (annualized), respectively, of average net assets for the six months ended
November 30, 2013 and the years ended May 31, 2013, 2012 and the period ended May 31, 2011, respectively.
|
|
(h)
|
Interest rebate expense and line of credit interest expense totaled 0.09% (annualized), 0.13%, 0.21% and 0.21% (annualized) of average net
assets for the six months ended November 30, 2013 and the years ended May 31, 2013, 2012 and the period ended May 31, 2011, respectively.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
74
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|
|
|
|
|
|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Year Ended
May 31, 2013
|
|
Year Ended
May 31, 2012
|
|
Period Ended
May 31, 2011
(a)
|
|
$9.80
|
|
$9.79
|
|
$10.23
|
|
$10.00
|
|
|
|
|
|
|
|
|
|
0.09
|
|
0.15
|
|
0.10
|
|
(0.02)
|
|
0.27
|
|
0.11
|
|
0.09
|
|
0.36
|
|
0.36
|
|
0.26
|
|
0.19
|
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
(0.10)
|
|
(0.15)
|
|
(0.01)
|
|
–
|
|
(0.15)
|
|
(0.48)
|
|
(0.10)
|
|
–
|
|
(0.25)
|
|
(0.63)
|
|
(0.11)
|
|
0.00
(c)
|
|
0.00
(c)
|
|
0.00
(c)
|
|
0.00
(c)
|
|
|
|
|
|
|
$10.16
|
|
$9.80
|
|
$9.79
|
|
$10.23
|
|
|
|
|
|
|
|
|
3.67%
(e)
|
|
2.72%
|
|
1.88%
|
|
3.43%
(e)
|
|
|
|
|
|
|
$27,695
|
|
$10,080
|
|
$8,976
|
|
$4,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.26%
(f)
|
|
2.55%
|
|
2.67%
|
|
4.33%
(f)
|
|
1.86%
(f)
|
|
2.06%
|
|
2.19%
|
|
3.84%
(f)
|
|
1.69%
(f)
|
|
1.69%
|
|
1.69%
|
|
1.69%
(f)
|
|
1.84%
(f)
|
|
1.58%
|
|
1.02%
|
|
(0.26)%
(f)
|
|
|
|
|
|
|
172%
(e)
|
|
336%
|
|
490%
|
|
298%
(e)
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
75
|
|
|
|
|
|
The Arbitrage Event-Driven Fund – Class I
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
Income (loss) from investment operations
|
|
Net investment income
(b)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
From net realized gains
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(d)
|
|
|
|
Net assets, end of period (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(g)(h)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and
dividend expense
(g)(h)
|
|
Net investment income
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Commenced operations on October 1, 2010.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Amount rounds to less than $0.01 per share.
|
|
(d)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(g)
|
Dividend expense totaled 0.31% (annualized), 0.36%, 0.27% and 0.28% (annualized), respectively, of average net assets for the six months ended
November 30, 2013 and the years ended May 31, 2013, 2012 and the period ended May 31, 2011, respectively.
|
|
(h)
|
Interest rebate expense and line of credit interest expense totaled 0.09% (annualized), 0.13%, 0.21% and 0.21% (annualized) of average net
assets for the six months ended November 30, 2013 and the years ended May 31, 2013, 2012 and the period ended May 31, 2011, respectively.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
76
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Year Ended
May 31, 2013
|
|
Year Ended
May 31, 2012
|
|
Period Ended
May 31, 2011
(a)
|
|
$9.86
|
|
$9.82
|
|
$10.24
|
|
$10.00
|
|
|
|
|
|
|
|
|
|
0.10
|
|
0.16
|
|
0.12
|
|
0.01
|
|
0.27
|
|
0.13
|
|
0.09
|
|
0.35
|
|
0.37
|
|
0.29
|
|
0.21
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
–
|
|
(0.10)
|
|
(0.15)
|
|
(0.02)
|
|
–
|
|
(0.15)
|
|
(0.48)
|
|
(0.10)
|
|
–
|
|
(0.25)
|
|
(0.63)
|
|
(0.12)
|
|
0.00
(c)
|
|
0.00
(c)
|
|
0.00
(c)
|
|
0.00
(c)
|
|
|
|
|
|
|
$10.23
|
|
$9.86
|
|
$9.82
|
|
$10.24
|
|
|
|
|
|
|
|
|
3.75%
(e)
|
|
3.04%
|
|
2.09%
|
|
3.57%
(e)
|
|
|
|
|
|
|
$90,924
|
|
$41,493
|
|
$21,389
|
|
$11,701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.99%
(f)
|
|
2.31%
|
|
2.42%
|
|
4.73%
(f)
|
|
1.59%
(f)
|
|
1.82%
|
|
1.94%
|
|
4.24%
(f)
|
|
1.44%
(f)
|
|
1.44%
|
|
1.44%
|
|
1.44%
(f)
|
|
2.00%
(f)
|
|
1.68%
|
|
1.25%
|
|
0.12%
(f)
|
|
|
|
|
|
|
172%
(e)
|
|
336%
|
|
490%
|
|
298%
(e)
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
77
|
|
|
|
|
|
The Arbitrage Event-Driven Fund – Class C
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
Income (loss) from investment operations
|
|
Net investment income
(b)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
From net realized gains
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(c)
|
|
|
|
Net assets, end of period (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(f)(g)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(f)(g)
|
|
Net investment income
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Commenced operations on June 1, 2012.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(f)
|
Dividend expense totaled 0.31% (annualized) and 0.36% of average net assets for the six months ended November 30, 2013 and the year ended May
31, 2013.
|
|
(g)
|
Interest rebate expense and line of credit interest expense totaled 0.09% (annualized) and 0.13% of average net assets for the six months ended
November 30, 2013 and the year ended May 31, 2013.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
78
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Year Ended
May 31, 2013
(a)
|
|
$9.78
|
|
$9.79
|
|
|
|
|
|
0.06
|
|
0.09
|
|
0.26
|
|
0.13
|
|
0.32
|
|
0.22
|
|
|
|
|
|
|
|
|
–
|
|
(0.08)
|
|
–
|
|
(0.15)
|
|
–
|
|
(0.23)
|
|
–
|
|
–
|
|
|
|
|
$10.10
|
|
$9.78
|
|
|
|
|
|
|
|
|
3.27%
(d)
|
|
2.33%
|
|
|
|
|
$1,131
|
|
$342
|
|
|
|
|
|
|
|
|
3.02%
(e)
|
|
3.31%
|
|
2.62%
(e)
|
|
2.82%
|
|
2.44%
(e)
|
|
2.44%
|
|
1.13%
(e)
|
|
0.95%
|
|
|
|
|
172%
(d)
|
|
336%
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
79
|
|
|
|
|
|
The Arbitrage Event-Driven Fund – Class A
|
|
Financial Highlights
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Period Presented:
|
|
|
|
|
|
|
Six Months Ended
November 30, 2013
(Unaudited)
(a)
|
|
Net asset value, beginning of period
|
|
$9.80
|
|
Income (loss) from investment operations
|
|
|
|
Net investment income
(b)
|
|
0.07
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
0.29
|
|
|
|
|
|
Total from investment operations
|
|
0.36
|
|
|
|
|
|
|
|
|
Less distributions
|
|
|
|
From net realized gains
|
|
|
|
|
|
|
|
Total distributions
|
|
–
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$10.16
|
|
|
|
|
|
|
|
|
Total return
(c)
|
|
3.67%
(d)
|
|
|
|
|
Net assets, end of period (in 000s)
|
|
$1,029
|
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
|
|
Expenses including interest and dividend expense
|
|
2.24%
(e)
|
|
Expenses excluding interest and dividend expense
(f)(g)
|
|
1.84%
(e)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(f)(g)
|
|
1.69%
(e)
|
|
Net investment income
|
|
1.41%
(e)
|
|
|
|
|
Portfolio turnover rate
|
|
172%
(d)
|
|
(a)
|
Commenced Operations on June 1, 2013.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(f)
|
Dividend expense totaled 0.31% (annualized) of average net assets for the six months ended November 30, 2013.
|
|
(g)
|
Interest rebate expense and line of credit interest expense totaled 0.09% (annualized) of average net assets for the six months ended November
30, 2013.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
80
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Page Intentionally Left Blank
|
|
|
|
|
The Arbitrage Credit Opportunities Fund – Class R
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
|
|
Income (loss) from investment operations
|
|
Net investment income
(b)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(d)
|
|
|
|
Net assets, end of period (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(g)(h)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(g)(h)
|
|
Net investment income
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Commenced Operations on October 1, 2012.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Amount rounds to less than $0.01 per share.
|
|
(d)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(g)
|
Dividend expense totaled 0.17% (annualized) and 0.03% (annualized) of average net assets for the six months ended November 30, 2013 and the
period ended May 31, 2013.
|
|
(h)
|
Interest rebate expense totaled 0.03% (annualized) and 0.02% (annualized) of average net assets for the six months ended November 30, 2013 and
the period ended May 31, 2013.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
82
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|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Period Ended
May 31, 2013
(a)
|
|
$10.18
|
|
$10.00
|
|
|
|
|
|
|
|
|
0.22
|
|
0.17
|
|
0.11
|
|
0.06
|
|
0.33
|
|
0.23
|
|
|
|
|
|
|
|
|
(0.26)
|
|
(0.05)
|
|
(0.26)
|
|
(0.05)
|
|
0.00
(c)
|
|
0.00
(c)
|
|
|
|
|
$10.25
|
|
$10.18
|
|
|
|
|
|
|
|
|
3.35%
(e)
|
|
2.33%
(e)
|
|
|
|
|
$3,150
|
|
$1,671
|
|
|
|
|
|
|
|
|
3.41%
(f)
|
|
3.79%
(f)
|
|
3.21%
(f)
|
|
3.74%
(f)
|
|
1.50%
(f)
|
|
1.50%
(f)
|
|
4.37%
(f)
|
|
2.49%
(f)
|
|
|
|
|
77%
(e)
|
|
92%
(e)
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
83
|
|
|
|
|
|
The Arbitrage Credit Opportunities Fund – Class I
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
|
|
Income (loss) from investment operations
|
|
Net investment income
(b)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(d)
|
|
|
|
Net assets, end of period (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(g)(h)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(g)(h)
|
|
Net investment income
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Commenced Operations on October 1, 2012.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Amount rounds to less than $0.01 per share.
|
|
(d)
|
Total return is a measure of the change in the value of an investment in the Fund over the
years covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(g)
|
Dividend expense totaled 0.17% (annualized) and 0.03% (annualized) of average net assets for the six months ended November 30, 2013 and the
period ended May 31, 2013.
|
|
(h)
|
Interest rebate expense totaled 0.03% (annualized) and 0.01% (annualized) of average net assets for the six months ended November 30, 2013 and
the period ended May 31, 2013.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
84
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|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Period Ended
May 31, 2013
(a)
|
|
$10.16
|
|
$10.00
|
|
|
|
|
|
|
|
|
0.23
|
|
0.17
|
|
0.10
|
|
0.08
|
|
0.33
|
|
0.25
|
|
|
|
|
|
|
|
|
(0.27)
|
|
(0.09)
|
|
(0.27)
|
|
(0.09)
|
|
0.00
(c)
|
|
–
|
|
|
|
|
$10.22
|
|
$10.16
|
|
|
|
|
|
|
|
|
3.34%
(e)
|
|
2.49%
(e)
|
|
|
|
|
$9,664
|
|
$3,462
|
|
|
|
|
|
|
|
|
3.31%
(f)
|
|
3.64%
(f)
|
|
3.12%
(f)
|
|
3.60%
(f)
|
|
1.25%
(f)
|
|
1.25%
(f)
|
|
4.62%
(f)
|
|
2.62%
(f)
|
|
|
|
|
77%
(e)
|
|
92%
(e)
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
85
|
|
|
|
|
|
The Arbitrage Credit Opportunities Fund – Class C
|
|
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Periods Presented:
|
|
|
Net asset value, beginning of period
|
|
|
|
Income (loss) from investment operations
|
|
Net investment income
(b)
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
Total from investment operations
|
|
|
|
Less distributions
|
|
From net investment income
|
|
Total distributions
|
|
Proceeds from redemption fees collected
|
|
|
|
Net asset value, end of period
|
|
|
|
Total return
(c)
|
|
|
|
Net assets, end of period (in 000s)
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
Expenses including interest and dividend expense
|
|
Expenses excluding interest and dividend expense
(f)(g)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(f)(g)
|
|
Net investment income
|
|
|
|
Portfolio turnover rate
|
|
(a)
|
Commenced Operations on October 1, 2012.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(f)
|
Dividend expense totaled 0.17% (annualized) and 0.03% (annualized) of average net assets for the six months ended November 30, 2013 and the
period ended May 31, 2013.
|
|
(g)
|
Interest rebate expense totaled 0.03% (annualized) and 0.02% (annualized) of average net assets for the six months ended November 30, 2013 and
the period ended May 31, 2013.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
86
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|
|
|
|
|
Six Months
Ended
November 30,
2013
(Unaudited)
|
|
Period Ended
May 31, 2013
(a)
|
|
$10.17
|
|
$10.00
|
|
|
|
|
|
|
|
|
0.19
|
|
0.11
|
|
0.09
|
|
0.09
|
|
0.28
|
|
0.20
|
|
|
|
|
|
|
|
|
(0.25)
|
|
(0.03)
|
|
(0.25)
|
|
(0.03)
|
|
–
|
|
–
|
|
|
|
|
$10.20
|
|
$10.17
|
|
|
|
|
|
|
|
|
2.82%
(d)
|
|
2.01%
(d)
|
|
|
|
|
$91
|
|
$26
|
|
|
|
|
|
|
|
|
4.73%
(e)
|
|
4.69%
(e)
|
|
4.54%
(e)
|
|
4.64%
(e)
|
|
2.25%
(e)
|
|
2.25%
(e)
|
|
3.67%
(e)
|
|
1.58%
(e)
|
|
|
|
|
77%
(d)
|
|
92%
(d)
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
87
|
|
|
|
|
|
The Arbitrage Credit Opportunities Fund – Class A
|
|
Financial Highlights
|
|
|
|
|
Selected Per Share Data and Ratios for a
Share Outstanding Throughout the Period Presented:
|
|
|
|
|
|
|
Period Ended
November 30, 2013
(Unaudited)
(a)
|
|
Net asset value, beginning of period
|
|
$10.18
|
|
|
|
|
Income (loss) from investment operations
|
|
|
|
Net investment income
(b)
|
|
0.23
|
|
Net realized and unrealized gains on investments and foreign currencies
|
|
0.10
|
|
|
|
|
|
Total from investment operations
|
|
0.33
|
|
|
|
|
|
|
|
|
Less distributions
|
|
|
|
From net investment income
|
|
(0.28)
|
|
|
|
|
|
Total distributions
|
|
(0.28)
|
|
|
|
|
|
|
|
|
Net asset value, end of period
|
|
$10.23
|
|
|
|
|
|
|
|
|
Total return
(c)
|
|
3.30%
(d)
|
|
|
|
|
Net assets, end of period (in 000s)
|
|
$26
|
|
|
|
|
RATIOS TO AVERAGE NET ASSETS:
|
|
|
|
Expenses including interest and dividend expense
|
|
3.57%
(e)
|
|
Expenses excluding interest and dividend expense
(f)(g)
|
|
3.38%
(e)
|
|
Expenses after advisory fees waived and expenses reimbursed excluding interest and dividend expense
(f)(g)
|
|
1.50%
(e)
|
|
Net investment income
|
|
4.53%
(e)
|
|
|
|
|
Portfolio turnover rate
|
|
77%
(d)
|
|
(a)
|
Commenced Operations on June 1, 2013.
|
|
(b)
|
Per share amounts were calculated using average shares for the period.
|
|
(c)
|
Total return is a measure of the change in the value of an investment in the Fund over the years covered, which assumes any dividends or
capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.
|
|
(f)
|
Dividend expense totaled 0.17% (annualized) of average net assets for the six months ended November 30, 2013.
|
|
(g)
|
Interest rebate expense totaled 0.03% (annualized) of average net assets for the six months ended November 30, 2013.
|
|
|
|
|
|
See Notes to Financial Statements.
|
|
|
|
88
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|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements
|
|
|
|
November 30, 2013 (Unaudited)
|
1. ORGANIZATION
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 three series
presently authorized are The Arbitrage Fund (the “Arbitrage Fund”), The Arbitrage Event-Driven Fund (the “Event-Driven Fund”) and The Arbitrage Credit Opportunities Fund (“Credit Opportunities Fund”), each a
“Fund” and collectively the “Funds”, each a diversified series, which offer four classes of shares. Class R shares, Class I shares, Class C shares and Class A shares of the Arbitrage Fund commenced operations on September 18,
2000, October 17, 2003, June 1, 2012 and June 1, 2013, respectively. Class R shares, Class I shares, Class C shares, and Class A shares of the Event-Driven Fund commenced operations on October 1, 2010, October 1, 2010, June 1, 2012 and June 1, 2013,
respectively. Class R shares, Class I and Class C shares of the Credit Opportunities Fund commenced operations on October 1, 2012 and Class A shares commenced operations on June 1, 2013.
The investment objective of the Arbitrage Fund is to achieve capital growth by engaging in merger arbitrage. The investment objective of the
Event-Driven Fund is to achieve capital growth by investing in companies that are impacted by corporate events such as mergers, acquisitions, restructurings, recapitalizations, refinancings, reorganizations and other special situations. The
investment objective of the Credit Opportunities Fund is to provide current income and capital growth by investing in debt securities impacted by events such as reorganizations, restructurings, recapitalizations, debt maturities, refinancings,
mergers, acquisitions, regulatory changes and other special situations.
The Funds’ four classes of shares, Class R, Class I, Class C and
Class A represent interests in the same portfolio of investments and have the same rights, but differ primarily in the expenses to which they are subject and the investment eligibility requirements. Class R shares, Class C shares and Class A shares
are subject to an annual distribution fee of up to 0.25%, 1.00% and 0.25% respectively, of each Fund’s average daily net assets attributable to Class R shares, Class C shares and Class A shares, respectively, whereas Class I shares are not
subject to any distribution fees. Class C shares are also subject to a 1.00% contingent deferred sales charge on all purchases redeemed in 12 months of purchase. Class A shares of the Arbitrage Fund are sold subject to a maximum front-end sales load
equal to 2.50% of the offering price and are also subject to a 0.50% contingent deferred sales load on purchases at or above $250,000, purchased without a front-end sales charge and redeemed within 12 months of purchase. Class A shares of the
Event-Driven Fund and the Credit Opportunities Fund are sold subject to a maximum front-end sales load equal to 3.25% of the offering price and are also subject to a 1.00% contingent deferred sales load on purchases at or above $500,000, purchased
without a front-end sales charge and redeemed within 18 months of purchase.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant
accounting policies followed by the Funds. These policies are in conformity with U.S. generally accepted accounting principles (“GAAP”).
Use of estimates
— The preparation of
financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and
|
|
|
|
|
|
|
|
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Semi-Annual Report | November 30, 2013
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89
|
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|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those estimates.
Valuation of
investments
— The Funds’ portfolio securities are valued as of the close of trading of the New York Stock Exchange (“NYSE”) (normally 4:00 p.m., Eastern time). Common
stocks and other securities, including open short positions that are traded on a securities exchange, are valued at the last quoted sales price at the close of regular trading on the day the valuation is made. Securities which are quoted by NASDAQ
are valued at the NASDAQ Official Closing Price. Price information on listed stocks is taken from the exchange where the security is primarily traded. 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. When there is no bid price available, put and call
options will be valued using the average of the last ask price and zero. If available, debt securities are priced based upon an evaluated bid provided by independent, third-party pricing agents. The third-party pricing agents may also value debt
securities at an evaluated bid price by employing methodologies that utilize actual market transactions, broker-supplied valuations, or other methodologies designed to identify the market value for such securities. Unlisted securities for which
market quotations are readily available are valued at the latest quoted bid price. Swap contracts that are listed or traded on a national securities exchange, commodities exchange, contract market or comparable over-the-counter market, and that are
freely transferable, are valued at their closing settlement price on the exchange on which they are primarily traded or based upon the current settlement price for a like instrument acquired on the day on which the instrument is being valued.
Over-the-counter swap contracts for which market quotations are readily available are valued based on quotes received from independent pricing services or one or more dealers that make markets in such securities. Other assets and securities for
which no quotations are readily available are valued at fair value 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 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 7).
Fair value
measurements
— In accordance with the authoritative guidance on fair value measurements under GAAP, the Funds disclose fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure
the fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit
price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The guidance establishes
three levels of the fair value hierarchy as follows:
|
|
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|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
Level 1 —
|
|
Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Funds have the ability to access at the measurement
date;
|
|
Level 2 —
|
|
Observable inputs other than quoted prices included in Level 1 that are observable (either directly or indirectly) for substantially the full term of the asset or
liability; and
|
|
|
|
|
Level 3 —
|
|
Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing each Fund’s own assumption about the
assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.
|
Investments are classified within the level of the lowest significant input considered in determining fair value.
Investments classified within Level 3, whose fair value measurement considers several inputs, may include Level 1 or Level 2 inputs as components of the overall fair value measurement. The inputs or methodology used for valuing securities are not
necessarily an indication of the risk associated with investing in those securities. The Funds recognize transfers between levels as of the beginning of the annual period in which the transfer occurred.
For the period ended November 30, 2013, there have been no significant changes to the Funds’ fair value methodologies. Additionally, during the
period ended November 30, 2013, there were no transfers between level 1 and 2 securities. Transfers for level 3 securities, if any, are shown as part of the leveling table in the Portfolio of Investments.
Share valuation and redemption fees
— The net asset value per share of each class of
shares of the Funds is calculated daily by dividing the total value of a Fund’s assets attributable to that class, less liabilities attributable to that class, by the number of shares of that class outstanding. The offering price and redemption
price per share of each class of each Fund is equal to the net asset value per share, except that, shares of Class R, Class I and Class A are subject to a redemption fee of 2% if redeemed within 30 days for the Arbitrage Fund and Event-Driven Fund
and 60 days for the Credit Opportunities Fund from the date of purchase. The Class A redemption fee does not apply for purchases over $250,000 in the Arbitrage Fund and purchases over $500,000 in the Event-Driven Fund and Credit Opportunities Fund,
as these purchases are subject to a contingent deferred sales charge. For the six months ended November 30, 2013, proceeds from redemption fees in the Arbitrage Fund were $28,915 in Class R, $17,501 in Class I, $3,683 in Class C and $0 in Class A.
For the six months ended November 30, 2013, proceeds from redemption fees in the Event-Driven Fund were $455 in Class R, $9,352 in Class I, $0 in Class C and $0 in Class A. For the six months ended November 30, 2013, proceeds from redemption fees in
the Credit Opportunities Fund were $711 in Class R, $301 in Class I, $0 in Class C and $0 in Class A. The redemption fee is paid directly to each Fund rather than the Adviser and is allocated pro-rata to the shareholders based on net assets.
Security Transactions
— Security transactions are accounted for on trade date. Gains
and losses on securities sold are determined on a specific identification basis.
Short
Positions
— The Funds may sell securities short for economic hedging purposes. Subsequent fluctuations in the market prices of securities sold, but not yet purchased, may require purchasing the securities at prices which may differ
from the market value reflected on the Portfolio of Investments. The Funds are liable for any dividends payable on securities while those securities are in a short position. As collateral for their short positions, the Funds are required
|
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|
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Semi-Annual Report | November 30, 2013
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|
91
|
|
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|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
under the 1940 Act to maintain assets consisting of cash, cash equivalents or liquid securities. The amount of the collateral is required to be adjusted daily to reflect changes in the value of
the securities sold short. The Funds are charged an interest rebate expense by the prime broker on securities sold short. The interest rebate expense is charged for the duration of time that a security is sold short and is shown on the Statements of
Operations.
Derivative Instruments and Hedging Activities
— The following
discloses the Funds’ use of derivative instruments and hedging activities.
The Funds’ investment objectives not only permit the Funds to
purchase investment securities, they also allow certain Funds to enter into various types of derivative contracts, including, but not limited to swap contracts, forward foreign currency exchange contracts, and purchased and written options. In doing
so, the Funds will employ strategies in differing combinations to permit them to increase, decrease, or change the level or types of exposure to market factors. Central to those strategies are features inherent to derivatives that make them more
attractive for this purpose than equity or debt securities; they require little or no initial cash investment, they can focus exposure on only certain selected risk factors, and they may not require the ultimate receipt or delivery of the underlying
security (or securities) to the contract. This may allow the Funds to pursue their objectives more quickly and efficiently than if they were to make direct purchases or sales of securities capable of effecting a similar response to market factors.
Market Risk Factors:
In pursuit of their investment objectives, the Funds may seek to
use derivatives to increase or decrease their exposure to the following market risk factors:
Equity Risk:
Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market.
Interest Rate Risk:
Interest rate risk refers to the fluctuations in value
of fixed-income securities resulting from the inverse relationship between price and yield. For example, an increase in general interest rates will tend to reduce the market value of fixed income investments, and a decline in general interest rates
will tend to increase the value of such investments. In addition, debt securities with longer maturities, which tend to have higher yields, are subject to potentially greater fluctuations in value from changes in interest rates than obligations with
shorter maturities.
Foreign Exchange Rate Risk:
Foreign exchange rate
risk relates to the change in the U.S. dollar value of a security held that is denominated in a foreign currency. The value of a foreign currency denominated security will decrease as the dollar appreciates against the currency, while the value of
the foreign currency denominated security will increase as the dollar depreciates against the currency.
Risk of Investing in Derivatives:
The Funds’ use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the
Funds are using derivatives to decrease or hedge exposures to market risk factors for securities held by the Funds, there are also risks that those derivatives may not perform as expected, resulting in losses for the combined or hedged positions.
|
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|
92
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www.arbitragefunds.com | 1-800-295-4485
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|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
Derivatives may have little or no initial cash investment relative to their market value exposure and
therefore can produce significant gains or losses in excess of their cost. This use of embedded leverage allows the Funds to increase their market value exposure relative to their net assets and can substantially increase the volatility of the
Funds’ performance.
Additional associated risks from investing in derivatives also exist and potentially could have significant effects on
the valuation of the derivative and the Funds. Typically, the associated risks are not the risks that the Funds are attempting to increase or decrease exposure to, per their investment objectives, but are the additional risks from investing in
derivatives.
Examples of these associated risks are liquidity risk, which is the risk that the Funds will not be able to sell the derivative in
the open market in a timely manner, and counterparty credit risk, which is the risk that the counterparty will not fulfill its obligation to the Funds. Associated risks can be different for each type of derivative and are discussed by each
derivative type in the notes that follow.
Option Writing/Purchasing:
Certain Funds
may write or purchase option contracts to adjust risk and return of their overall investment positions. When a Fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is recorded as a liability or an asset and
is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options that expire unexercised are treated by the Fund on the expiration date as realized gains or losses.
The difference between the premium and the amount paid or received on effecting a closing purchase or sale transaction, including brokerage commissions, is also treated as a realized gain or loss. If an option is exercised, the premium paid or
received is added to the cost of the purchase or proceeds from the sale in determining whether the Fund has realized a gain or loss on investment transactions. Risks from entering into option transactions arise from the potential inability of
counterparties to meet the terms of the contracts, the potential inability to enter into closing transactions because of an illiquid secondary market and from unexpected movements in security values.
A summary of put and call option contracts written in the Arbitrage Fund during the six months ended November 30, 2013, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put Contracts
|
|
|
Put Premiums
|
|
|
Call Contracts
|
|
|
Call Premiums
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of period
|
|
|
2,493
|
|
|
$
|
140,837
|
|
|
|
94,373
|
|
|
$
|
2,466,604
|
|
|
Options written
|
|
|
93,964
|
|
|
|
2,993,434
|
|
|
|
115,449
|
|
|
|
6,658,047
|
|
|
Options closed
|
|
|
(16,604)
|
|
|
|
(779,029)
|
|
|
|
(17,231)
|
|
|
|
(1,032,363)
|
|
|
Options exercised
|
|
|
(35,037)
|
|
|
|
(1,293,170)
|
|
|
|
(81,000)
|
|
|
|
(4,068,080)
|
|
|
Options expired
|
|
|
(41,466)
|
|
|
|
(936,874)
|
|
|
|
(100,770)
|
|
|
|
(2,367,029)
|
|
|
|
|
|
|
|
|
Options outstanding at end of period
|
|
|
3,350
|
|
|
$
|
125,198
|
|
|
|
10,821
|
|
|
$
|
1,657,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Semi-Annual Report | November 30, 2013
|
|
93
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
A summary of put and call option contracts written in the Event-Driven Fund during the six months
ended November 30, 2013, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put Contracts
|
|
|
Put Premiums
|
|
|
Call Contracts
|
|
|
Call Premiums
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of period
|
|
|
291
|
|
|
$
|
25,068
|
|
|
|
1,304
|
|
|
$
|
46,909
|
|
|
Options written
|
|
|
4,344
|
|
|
|
161,985
|
|
|
|
8,197
|
|
|
|
406,525
|
|
|
Options closed
|
|
|
(1,174
|
)
|
|
|
(65,410
|
)
|
|
|
(2,788
|
)
|
|
|
(111,363
|
)
|
|
Options exercised
|
|
|
(1,196
|
)
|
|
|
(59,591
|
)
|
|
|
(3,373
|
)
|
|
|
(159,984
|
)
|
|
Options expired
|
|
|
(1,996
|
)
|
|
|
(50,142
|
)
|
|
|
(2,338
|
)
|
|
|
(92,770
|
)
|
|
|
|
|
|
|
|
Options outstanding at end of period
|
|
|
269
|
|
|
$
|
11,910
|
|
|
|
1,002
|
|
|
$
|
89,317
|
|
|
|
|
|
|
|
A summary of put and call option contracts written in the Credit Opportunities Fund during the six months ended
November 30, 2013, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Put Contracts
|
|
|
Put Premiums
|
|
|
Call Contracts
|
|
|
Call Premiums
|
|
|
|
|
|
|
|
|
Options outstanding at beginning of period
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
Options written
|
|
|
1
|
|
|
|
84
|
|
|
|
1
|
|
|
|
91
|
|
|
Options closed
|
|
|
(1
|
)
|
|
|
(84
|
)
|
|
|
–
|
|
|
|
–
|
|
|
Options exercised
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Options expired
|
|
|
–
|
|
|
|
–
|
|
|
|
(1
|
)
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
Options outstanding at end of period
|
|
|
–
|
|
|
$
|
–
|
|
|
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
Foreign currency exchange contracts:
The Funds may enter into forward foreign currency exchange contracts as a
way of managing foreign exchange rate risk. The Funds may enter into these contracts for the purchase or sale of a specific foreign currency at a fixed price on a future date as a hedge or cross-hedge against either specific transactions or
portfolio positions. The objective of the Funds’ foreign currency hedging transactions is to reduce risk that the U.S. dollar value of the Funds’ securities denominated in foreign currency will decline in value due to changes in foreign
currency exchange rates.
Warrants and Rights:
The Funds may invest in warrants. A Fund may purchase warrants issued by domestic and foreign
companies to purchase newly created equity securities consisting of common and preferred stock. Warrants are securities that give the holder the right, but not the obligation to purchase equity issues of the company issuing the warrants, or a
related company, at a fixed price either on a date certain or during a set period. The equity security underlying a warrant is authorized at the time the warrant is issued or is issued together with the warrant.
Investing in warrants can provide a greater potential for profit or loss than an equivalent investment in the underlying security, and, thus, can be a
speculative investment. At the time of issue, the cost of a warrant is substantially less than the cost of the underlying security itself, and price movements in the underlying security are generally magnified in the price movements of the warrant.
This leveraging effect enables the investor to gain exposure to the underlying security with a relatively low capital investment. This leveraging increases an investor’s risk, however, in the event of a decline in the value of the underlying
security, a complete loss of the amount
|
|
|
|
|
|
|
|
|
94
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|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
invested in the warrant may result. In addition, the price of a warrant tends to be more volatile
than, and may not correlate exactly to, the price of the underlying security. If the market price of the underlying security is below the exercise price of the warrant on its expiration date, the warrant will generally expire without value. The
value of a warrant may decline because of a decline in the value of the underlying security, the passage of time, changes in interest rates or in the dividend or other policies of the company whose equity underlies the warrant or a change in the
perception as to the future price of the underlying security, or any combination thereof. Warrants generally pay no dividends and confer no voting or other rights other than to purchase the underlying security.
Equity swap contracts:
The Funds may invest in swaps for the purpose of managing exposure to interest rate, credit or market risk. Additionally,
the Funds enter 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 Funds than if the Funds had
invested directly in such securities. An equity swap contract entitles the Funds to receive from the counterparty any appreciation and dividends paid on an individual security, while obligating the Funds 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 Funds 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 Funds’ custodian and/or counterparty’s broker. Risks may exceed amounts
recognized on the Statements 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.
Whether a Fund’s use of swap agreements will be successful in furthering its investment objective will depend
on Management’s ability to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Because they are two-party contracts and because they may have terms of greater than seven days,
swap agreements may be considered to be illiquid investments. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty.
International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreements”) govern OTC financial derivative
transactions entered into by a Fund and those counterparties. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include
conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Pursuant to the Funds’ derivative ISDA Master Agreements, the Funds are
required to maintain sufficient collateral or maintain a predetermined level of net assets. Any election to terminate early could be material to the financial statements. The values of all derivative instruments with credit-risk-related contingent
features that are in a net liability position at November 30, 2013, in the tables below exclude the effects of cash collateral received or posted pursuant to these derivative contracts and, therefore, are not representative of the Funds’ net
exposure.
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
95
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
Fair Value of Derivative Instruments
— Fair values of derivatives presented in the
financial statements are not netted with the fair value of other derivatives or with any collateral amounts posted by the Funds or any counterparty. The fair value of derivative instruments for the Funds as of November 30, 2013, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not
Accounted For As
Hedging Instruments
|
|
Asset Derivatives
Statement of
Assets and
Liabilities
Location
|
|
Fair Value
|
|
|
Liability
Derivatives
Statement of
Assets
and Liabilities
Location
|
|
Fair Value
|
|
|
Arbitrage Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts
|
|
Unrealized appreciation on
forward foreign currency
exchange contracts
|
|
$
|
9,093,713
|
|
|
Unrealized depreciation on
forward foreign currency
exchange contracts
|
|
$
|
13,521,774
|
|
|
Equity Contracts
(swap contracts)
|
|
Unrealized appreciation on
equity swap contracts
|
|
|
963,966
|
|
|
Unrealized depreciation on
equity swap contracts
|
|
|
300,673
|
|
|
Equity Contracts
(rights)
|
|
Investments: at value
|
|
|
4,276,578
|
|
|
|
|
|
|
|
|
Equity Contracts
(purchased option contracts)
|
|
Investments: at value
|
|
$
|
356,450
|
|
|
|
|
|
|
|
|
Equity Contracts
(written option contracts)
|
|
|
|
|
|
|
|
Written options, at value
|
|
$
|
5,739,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,690,707
|
|
|
|
|
$
|
19,562,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96
|
|
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|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not
Accounted For As
Hedging Instruments
|
|
Asset Derivatives
Statement of
Assets and
Liabilities
Location
|
|
Fair Value
|
|
|
Liability
Derivatives
Statement of
Assets
and Liabilities
Location
|
|
Fair Value
|
|
|
Event-Driven Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Unrealized appreciation
on forward foreign
currency exchange
contracts
|
|
$
|
337,947
|
|
|
Unrealized depreciation
on forward foreign
currency exchange
contracts
|
|
$
|
268,758
|
|
|
Equity Contracts
(swap contracts)
|
|
Unrealized appreciation
on equity swap contracts
|
|
|
24,147
|
|
|
Unrealized depreciation
on equity swap contracts
|
|
|
4,898
|
|
|
Equity Contracts
(rights)
|
|
Investments: at value
|
|
|
263,920
|
|
|
|
|
|
|
|
|
Equity Contracts
(purchased option contracts)
|
|
Investments: at value
|
|
|
65,254
|
|
|
|
|
|
|
|
|
Equity Contracts
(written option contracts)
|
|
|
|
|
|
|
|
Written options, at value
|
|
|
235,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
691,268
|
|
|
|
|
$
|
509,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not
Accounted For As
Hedging Instruments
|
|
Asset Derivatives
Statement of
Assets and
Liabilities
Location
|
|
Fair Value
|
|
|
Liability
Derivatives
Statement of
Assets
and Liabilities
Location
|
|
Fair Value
|
|
|
Credit Opportunities Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
|
Unrealized appreciation on
forward foreign currency
exchange contracts
|
|
$
|
7,273
|
|
|
Unrealized depreciation on
forward foreign currency
exchange contracts
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,273
|
|
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
97
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
The effect of derivative instruments on the Funds’ Statement of Operations for the six months ended
November 30, 2013, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not
Accounted For As
Hedging Instruments
|
|
Location Of Gains/(Loss) On
Derivatives Recognized In Income
|
|
Realized
Gain/(Loss) On
Derivatives
Recognized In
Income
|
|
|
Changed In
Unrealized
Gain/(Loss) On
Derivatives
Recognized In
Income
|
|
|
|
|
|
Arbitrage Fund
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts
|
|
Net realized gains (losses) from: Foreign currency transactions /Net change in unrealized appreciation (depreciation) on:
Foreign currency transactions
|
|
$
|
1,201,894
|
|
|
$
|
(11,168,610)
|
|
|
Equity Contracts
(swap contracts)
|
|
Net realized gains (losses) from: Equity swap contracts /Net change in unrealized appreciation (depreciation) on: Equity swap
contracts
|
|
|
2,684,033
|
|
|
|
(426,977)
|
|
|
Equity Contracts Long
(rights)
|
|
Net realized gains (losses) from: Investments /Net change in unrealized appreciation (depreciation) on: Investments
|
|
|
(356,563)
|
|
|
|
(528,936)
|
|
|
Equity Contracts Short
(rights)
|
|
Net realized gains (losses) from: Investments /Net change in unrealized appreciation (depreciation) on: Securities sold
short
|
|
|
131,945
|
|
|
|
–
|
|
|
Equity Contracts
(purchased option contracts)
|
|
Net realized gains (losses) from: Investments /Net change in unrealized appreciation (depreciation) on: Investments
|
|
$
|
1,192,789
|
|
|
$
|
2,246,178
|
|
|
Equity Contracts
(written option contracts)
|
|
Net realized gains (losses) from: Written option contracts /Net change in unrealized appreciation (depreciation) on: Written
option contracts
|
|
|
3,535,965
|
|
|
|
(344,171)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,390,063
|
|
|
$
|
(10,22,516)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
98
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not
Accounted For As
Hedging Instruments
|
|
Location Of Gains/(Loss) On
Derivatives Recognized In Income
|
|
Realized
Gain/(Loss) On
Derivatives
Recognized In
Income
|
|
|
Changed In
Unrealized
Gain/(Loss) On
Derivatives
Recognized In
Income
|
|
|
Event-Driven Fund
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Contracts
|
|
Net realized gains (losses) from: Foreign currency transactions /Net change in unrealized appreciation (depreciation) on:
Foreign currency transactions
|
|
$
|
49,017
|
|
|
$
|
(50,499
|
)
|
|
Equity Contracts
(swap contracts)
|
|
Net realized gains (losses) from: Equity swap contracts /Net change in unrealized appreciation (depreciation) on: Equity swap
contracts
|
|
|
28,385
|
|
|
|
1,018
|
|
|
Equity Contracts Long
(rights)
|
|
Net realized gains (losses) from: Investments /Net change in unrealized appreciation (depreciation) on: Investments
|
|
|
4,349
|
|
|
|
(39,503
|
)
|
|
Equity Contracts Short
(rights)
|
|
Net realized gains (losses) from: Investments /Net change in unrealized appreciation (depreciation) on: Securities sold
short
|
|
|
–
|
|
|
|
–
|
|
|
Equity Contracts
(purchased option contracts)
|
|
Net realized gains (losses) from: Investments /Net change in unrealized appreciation (depreciation) on: Investments
|
|
|
(123,614
|
)
|
|
|
(491
|
)
|
|
Equity Contracts
(written option contracts)
|
|
Net realized gains (losses) from: Written option contracts /Net change in unrealized appreciation (depreciation) on: Written
option contracts
|
|
$
|
82,124
|
|
|
$
|
(93,527
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,261
|
|
|
$
|
(183,002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
99
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives Not
Accounted For As
Hedging
Instruments
|
|
Location Of Gains/(Loss) On
Derivatives Recognized In Income
|
|
Realized
Gain/(Loss) On
Derivatives
Recognized In
Income
|
|
|
Changed In
Unrealized
Gain/(Loss) On
Derivatives
Recognized In
Income
|
|
|
Credit Opportunities Fund
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
Net realized gains (losses) from:
contracts Foreign currency transactions /
Net change in unrealized
appreciation (depreciation) on: Foreign currency
transactions
|
|
$
|
2,102
|
|
|
$
|
4,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,102
|
|
|
$
|
4,342
|
|
|
|
|
|
|
|
|
|
Volume of Derivative Instruments for the Funds during the period ended November 30, 2013 was as follows:
|
|
|
|
|
|
|
|
|
Derivative Type
|
|
Unit of Measurement
|
|
Monthly Average
|
|
|
Arbitrage Fund
|
|
|
|
|
|
|
Equity Swap Contracts
|
|
Notional Quantity
|
|
|
51,624,670
|
|
|
Forward Foreign Currency
Exchange Contracts
|
|
Net Contracts to
Deliver/Receive
|
|
|
(1,639,286,793
|
)
|
|
Purchased Option Contracts
|
|
Contracts
|
|
|
23,862
|
|
|
Rights
|
|
Shares
|
|
|
1,897,723
|
|
|
Written Option Contracts
|
|
Contracts
|
|
|
(54,472
|
)
|
|
|
|
|
|
Derivative Type
|
|
Unit of Measurement
|
|
Monthly Average
|
|
|
Event-Driven Fund
|
|
|
|
|
|
|
|
Equity Swap Contracts
|
|
Notional Quantity
|
|
|
972,670
|
|
|
Forward Foreign Currency
Exchange Contracts
|
|
Net Contracts to
Deliver/Receive
|
|
|
(44,823,733
|
)
|
|
Purchased Option Contracts
|
|
Contracts
|
|
|
1,560
|
|
|
Rights
|
|
Shares
|
|
|
135,421
|
|
|
Written Option Contracts
|
|
Contracts
|
|
|
(2,130
|
)
|
|
|
|
|
|
Derivative Type
|
|
Unit of Measurement
|
|
Monthly Average
|
|
|
Credit Opportunities Fund
|
|
|
|
|
|
|
|
Forward Foreign Currency
Exchange Contracts
|
|
Net Contracts to
Deliver/Receive
|
|
|
(193,667
|
)
|
|
|
|
|
|
|
|
|
|
100
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
Certain derivative contracts are executed under either standardized netting agreements or, for
exchange-traded derivatives, the relevant contracts for a particular exchange which contain enforceable netting provisions. A derivative netting arrangement creates an enforceable right of set-off that becomes effective, and affects the realization
of settlement on individual assets, liabilities and collateral amounts, only following a specified event of default or early termination. Default events may include the failure to make payments or deliver securities timely, material adverse changes
in financial condition or insolvency, the breach of minimum regulatory capital requirements, or loss of license, charter or other legal authorization necessary to perform under the contract.
The following table presents financial instruments that are subject to enforceable netting arrangements or other similar agreements as of November 30,
2013:
Offsetting of Financial Assets and Derivative Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts
Not Offset in
the
Statement of
Assets and
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
Gross
Amounts of
Recognized
Assets
|
|
|
Gross
Amounts
Offset in the
Statement
of Assets
and
Liabilities
|
|
|
Net Amounts
Presented in
the
Statement of
Assets and
Liabilities
|
|
|
Financial
Instruments
(a)
|
|
|
Cash
Collateral
Received
(a)
|
|
|
Net Amount
|
|
|
Equity Swap Contracts
|
|
$
|
963,966
|
|
|
$
|
–
|
|
|
$
|
963,966
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
963,966
|
|
|
|
|
|
Total
|
|
$
|
963,966
|
|
|
$
|
–
|
|
|
$
|
963,966
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
963,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
101
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event-Driven Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts
Not Offset in
the
Statement of
Assets and
Liabilities
|
|
|
Description
|
|
Gross
Amounts of
Recognized
Assets
|
|
|
Gross
Amounts
Offset in the
Statement
of Assets
and
Liabilities
|
|
|
Net Amounts
Presented in
the
Statement of
Assets and
Liabilities
|
|
|
Financial
Instruments
(a)
|
|
|
Cash
Collateral
Received
(a)
|
|
|
Net Amount
|
|
|
Equity Swap Contracts
|
|
$
|
24,147
|
|
|
$
|
–
|
|
|
$
|
24,147
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
24,147
|
|
|
|
|
|
Total
|
|
$
|
24,147
|
|
|
$
|
–
|
|
|
$
|
24,147
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
$
|
24,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offsetting of Financial Liabilities and Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts
Not Offset in
the
Statement of
Assets and
Liabilities
|
|
|
Description
|
|
Gross
Amounts of
Recognized
Liabilities
|
|
|
Gross
Amounts
Offset in the
Statement
of Assets
and
Liabilities
|
|
|
Net Amounts
Presented in
the
Statement of
Assets and
Liabilities
|
|
|
Financial
Instruments
(a)
|
|
|
Cash
Collateral
Pledged
(a)
|
|
|
Net Amount
|
|
|
Equity Swap Contracts
|
|
$
|
300,673
|
|
|
$
|
–
|
|
|
$
|
300,673
|
|
|
$
|
–
|
|
|
$
|
(300,673
|
)
|
|
$
|
–
|
|
|
|
|
|
Total
|
|
$
|
300,673
|
|
|
$
|
–
|
|
|
$
|
300,673
|
|
|
$
|
–
|
|
|
$
|
(300,673
|
)
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Event-Driven Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amounts
Not Offset in
the
Statement of
Assets and
Liabilities
|
|
|
Description
|
|
Gross
Amounts of
Recognized
Liabilities
|
|
|
Gross
Amounts
Offset in the
Statement
of
Assets
and
Liabilities
|
|
|
Net Amounts
Presented in
the
Statement
of
Assets and
Liabilities
|
|
|
Financial
Instruments
(a)
|
|
|
Cash
Collateral
Pledged
(a)
|
|
|
Net Amount
|
|
|
Equity Swap Contracts
|
|
$
|
4,898
|
|
|
$
|
–
|
|
|
$
|
4,898
|
|
|
$
|
–
|
|
|
$
|
(4,898)
|
|
|
$
|
–
|
|
|
Total
|
|
$
|
4,898
|
|
|
$
|
–
|
|
|
$
|
4,898
|
|
|
$
|
–
|
|
|
$
|
(4,898)
|
|
|
$
|
–
|
|
|
|
|
|
(a)
|
These amounts are limited to the derivative asset/liability balance and, accordingly, do
not include excess collateral received/pledged.
|
Investment income
— Interest income and interest rebate expense
is accrued as earned. Dividend income and expense are recorded on the ex-dividend date, net of any non-reclaimable tax withholdings.
Dividends
and distributions to shareholders
—
Dividends arising from net investment income and net capital gain distributions, if any, are declared and paid at least annually to shareholders of the Arbitrage Fund and Event-Driven Fund.
Dividends arising from net investment income, if any, are declared and paid quarterly, and net capital gain distributions, if any, are declared and paid at least annually to shareholders of the Credit Opportunities Fund.
Allocation between classes
— Investment income earned, realized capital gains and losses, and unrealized appreciation and depreciation are
allocated daily to each class of shares based upon the proportionate shares of total net assets of each Fund. Class specific expenses are charged directly to the class incurring the expense. Common expenses which are not attributable to a specific
class are allocated daily to each class of shares based upon the proportionate share of total net assets of each Fund.
Offering costs
— Offering costs, including costs of printing initial prospectuses, legal and registration fees, have been amortized over twelve months from the inception date of the Credit Opportunities Fund. As of November 30, 2013, the offering costs
have been fully amortized.
Federal income tax
—
It is the Funds’ policy to continue to comply with the special provisions
of Subchapter M of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies. As provided therein, in any fiscal year in which a fund so qualifies and distributes at least 90% of its taxable net income, a fund (but
not the shareholders) will be relieved
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
103
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
of Federal income tax on the income distributed. Accordingly, no provision for income taxes has been
made.
As of and during the period ended November 30, 2013, the Funds did not have a liability for any unrecognized tax benefits. The Funds file
U.S. federal, state, and local tax returns as required. The Funds’ tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations which is generally three years after the filing
of the tax return. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.
3. INVESTMENT
TRANSACTIONS
During the six months
ended November 30, 2013 for the Arbitrage Fund, the Event-Driven Fund, and the Credit Opportunities Fund, cost of purchases and proceeds from sales and maturities of investment securities, other than short-term investments, U.S. government
securities, equity swap contracts, purchased and written option contracts and securities sold short, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage Fund
|
|
|
Event-Driven Fund
|
|
|
Credit Opportunities
Fund
|
|
|
Purchases
|
|
$
|
5,027,210,058
|
|
|
$
|
180,712,878
|
|
|
$
|
9,059,679
|
|
|
Sales and Maturities
|
|
|
5,724,884,899
|
|
|
|
126,272,530
|
|
|
|
4,795,138
|
|
4. LINE OF CREDIT
The Trust, on behalf of the Funds, entered
into an agreement which enables the Funds to participate in a $300,000,000 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 Funds. Interest is charged to the Funds based on their borrowings at a rate per annum of the higher of the LIBOR rate plus 1.25% and the overnight
federal funds rate plus 1.25%. In addition, a commitment fee of 0.10% per annum is payable at the end of each calendar quarter. The Trust accrues, on behalf of each of the Funds, the commitment fee on the unused portion of the line of credit. Such
fees are included in custodian and bank service fees on the Statements of Operations.
The Arbitrage Fund did not have outstanding borrowings at
November 30, 2013. For the six months ended November 30, 2013, the Arbitrage Fund had average borrowings of $65,244,444 over a period of 9 days at a weighted average interest rate of 1.364%. Interest expense on the line of credit for the Arbitrage
Fund during the six months ended November 30, 2013 is shown as line of credit interest expense on the Arbitrage Fund’s Statement of Operations.
The Event-Driven Fund did not have outstanding borrowings at November 30, 2013. For the six months ended November 30, 2013, the Event-Driven Fund had
average borrowings of $1,200,000 over a period of 7 days at a weighted average interest rate of 1.380%. Interest expense on the line of credit for the Event-Driven Fund during the six months ended November 30, 2013 is shown as line of credit
interest expense on the Event-Driven Fund’s Statement of Operations.
For the six months ended November 30, 2013, the Credit Opportunities
Fund had no borrowings.
|
|
|
|
|
|
|
|
|
104
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
5. LOAN PARTICIPATIONS AND ASSIGNMENTS
The Funds may invest in direct debt
instruments which are interests in amounts owed to lenders or lending syndicates by corporate, governmental, or other borrowers. The Funds’ investments in loans may be in the form of participations in loans or assignments of all or a portion of
loans from third parties. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. The Funds
may invest in multiple series or tranches of a loan, which may have varying terms and carry different associated risks. The Funds generally have no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, the
Funds may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When the Funds purchase assignments from lenders they acquire direct rights against the borrower of the loan. The Funds may enter into
unfunded loan commitments, which are contractual obligations for future funding. Unfunded loan commitments represent a future obligation in full, even though a percentage of the notional loan amounts may not be utilized by the borrower. When
investing in a loan participation, the Funds have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt of payments by the lender from the
borrower. The Funds may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of a floating rate loan. In certain circumstances, the Funds may receive a penalty fee upon the prepayment of a floating rate loan
by a borrower. Fees earned or paid are recorded as a component of interest income or interest expense, respectively, on the Statement of Operations. At November 30, 2013, the Arbitrage Fund, Event-Driven Fund and Credit Opportunities Fund all had
$0, $8,179,160 and $975,580, respectively, in outstanding loan commitments.
6. ADVISORY FEES, ADMINISTRATION FEES AND OTHER AGREEMENTS
Investment Advisory Agreement
The Funds’ investments are managed by Water Island Capital, LLC (the “Adviser”) under the terms of Investment Advisory Agreements. Under
the Investment Advisory Agreement between the Adviser and the Arbitrage Fund, as amended and restated on October 1, 2007, the Arbitrage Fund pays the Adviser an annual fee, which is computed and accrued daily and paid monthly, of 1.25% on the first
$250 million, 1.20% on the next $50 million, 1.15% on the next $50 million, 1.10% on the next $75 million, 1.05% on the next $75 million and 1.00% for amounts over $500 million, based on the Arbitrage Fund’s average daily net assets. Under the
Investment Advisory Agreement between the Adviser and the Event-Driven Fund dated September 27, 2010, the Event-Driven Fund pays the Adviser an annual fee, which is computed and accrued daily and paid monthly, of 1.25% based on the Event-Driven
Fund’s average daily net assets. Under the Investment Advisory Agreement between the Adviser and the Credit Opportunities Fund dated October 1, 2012, the Credit Opportunities Fund pays the Adviser an annual fee, which is computed and accrued
daily and paid monthly, of 1.00% based on the Credit Opportunities Fund’s average daily net assets.
The Adviser has contractually agreed, at
least until August 31, 2015, to waive its advisory fee and/or reimburse the Funds’ other expenses to the extent that total operating expenses (exclusive of interest, taxes, dividends on short positions, brokerage commissions, acquired fund fees
and expenses and other costs incurred in connection with the purchase or sale of portfolio securities) exceed the annual rate of the Funds’ average daily net assets attributable to each share class as shown in the table below:
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|
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|
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|
Semi-Annual Report | November 30, 2013
|
|
105
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage Fund
|
|
Event-Driven Fund
|
|
Credit Opportunities Fund
|
|
Class R
|
|
1.69%
|
|
1.69%
|
|
1.50%
|
|
Class I
|
|
1.44%
|
|
1.44%
|
|
1.25%
|
|
Class C
|
|
2.44%
|
|
2.44%
|
|
2.25%
|
|
Class A
|
|
1.69%
|
|
1.69%
|
|
1.50%
|
For the six months ended November 30, 2013, the aggregate net fee paid to the Adviser as a percentage of average net
assets for the Arbitrage Fund, Event-Driven Fund and Credit Opportunities Fund was 1.03%, 1.10% and 0.00%, respectively.
The Adviser is permitted
to recapture fees waived and expenses reimbursed to the extent actual fees and expenses for a period are less than the expense limitation of each class, provided, however, that the Adviser shall only be entitled to recapture such amounts for a
period of three years from the end of the fiscal year during which such amount was waived or reimbursed. The Adviser can recapture any fees it has waived within the three-year period subject to the applicable annual rate of: 1.69% for Class R
shares, 1.44% for Class I shares, 2.44% for Class C shares and 1.69% for Class A shares for Event-Driven Fund and 1.50% for Class R shares, 1.25% for Class I shares, 2.25% for Class C shares and 1.50% for Class A shares for Credit Opportunities
Fund, respectively.
As of November 30, 2013, the balances of future recapture for each Fund were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expiring
May 31, 2015
|
|
|
Expiring
May 31, 2016
|
|
|
Total
|
|
|
Event-Driven Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R
|
|
$
|
37,027
|
|
|
$
|
30,441
|
|
|
$
|
67,468
|
|
|
Class I
|
|
$
|
78,860
|
|
|
$
|
127,460
|
|
|
$
|
206,320
|
|
|
Class C
|
|
$
|
N/A
|
|
|
$
|
620
|
|
|
$
|
620
|
|
|
|
|
|
|
|
Credit Opportunities Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R
|
|
|
N/A
|
|
|
$
|
22,353
|
|
|
$
|
22,353
|
|
|
Class I
|
|
|
N/A
|
|
|
$
|
51,089
|
|
|
$
|
51,089
|
|
|
Class C
|
|
|
N/A
|
|
|
$
|
399
|
|
|
$
|
399
|
|
There were no amounts recaptured during the period ended November, 2013 for the Funds.
Certain officers of the Trust are also officers of the Adviser. The Chief Compliance Officer (“CCO”) of the Trust also serves as the CCO of
the Adviser. The Funds pay the Adviser 60% of the CCO’s salary for providing CCO services.
Administration Agreement
ALPS Fund Services, Inc. (“ALPS” and the “Administrator”) serves as the Trust’s administrator pursuant to an Administration,
Bookkeeping a9.nd Pricing Services Agreement (“Administration Agreement”) with the Trust. As compensation for its services to the Trust, ALPS receives an annual administration fee based on the annual minimum fee of $370,000. The
Administrator is also reimbursed by the Trust for certain out-of-pocket expenses. Certain officers of the Trust are also officers of the Administrator.
|
|
|
|
|
|
|
|
|
106
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
Distribution Agreement
ALPS Distributors, Inc. (the “Distributor”) serves as the Funds’ distributors. The Distributor acts as an agent for the Funds and the
distributor of their shares.
The Funds have adopted, with respect to its Class R, Class C shares and Class A shares, a plan of distribution
pursuant to Rule 12b 1 under the 1940 Act which permits each Fund to pay for expenses incurred in the distribution and promotion of the Funds’ Class R shares, Class C shares and Class A shares and for services provided to shareholders. The Plan
is a “reimbursement” plan. This means that a Fund’s Class R shares, Class C shares and Class A shares only pay a particular 12b 1 fee to the extent that the Adviser, the Distributor or others have incurred expenses in the promotion
and distribution of the shares, including but not limited to, the printing of prospectuses and reports used for sales purposes, expenses of preparation of sales literature and related expenses, advertisements, and other distribution related
expenses, as well as any distribution fees paid to securities dealers or others. Under the distribution plan, a Fund may pay compensation to any broker dealer with whom the Distributor or the Funds has entered into a contract to distribute Class R
shares, Class C shares or Class A shares, or to any other qualified financial services firm, for distribution and/or shareholder related services with respect to shares held or purchased by their respective customers or in connection with the
purchase of shares attributable to their efforts. The amount of payments under the Plan in any year shall not exceed 0.25% for Class R shares, 0.75% for Class C shares and 0.25% for Class A shares, respectively, annually of the average daily net
assets allocable to a Fund’s Class R shares, Class C shares and Class A shares, respectively. In addition, the Plan permits each Fund to make payments at an annual rate of up to 0.25% of the Fund’s Class C shares for expenses incurred in
connection with the provision of shareholder support or administrative services for the Fund’s Class C shares. During the six months ended November 30, 2013, The Arbitrage Fund’s Class R shares incurred $1,145,322, Class C shares incurred
$127,387 and Class A shares incurred $1,192, respectively, in distribution expenses for Class R shares and Class A shares and distribution and shareholder support expenses for Class C shares, all of which was used to compensate broker dealers. With
respect to the Event Driven Fund, during the six months ended November 30, 2013, the Event Driven Fund’s Class R shares incurred $2,582, Class C shares incurred $761 and Class A shares incurred $18,107, respectively, in distribution expenses
for Class R shares and Class A shares and distribution and shareholder support expenses for Class C shares, all of which was used to compensate broker dealers. With respect to the Credit Opportunities Fund, during the six months ended November 30,
2013, the Credit Opportunities Fund’s Class R shares incurred $2,799, Class C shares incurred $151 and Class A shares incurred $16, respectively, in distribution expenses for Class R shares and Class A shares and distribution and shareholder
support expenses for Class C shares, all of which was used to compensate broker dealers.
Principal Financial Officer
ALPS receives an annual fee of $10,000 for providing Principal Financial Officer (“PFO”) services to the Trust. ALPS is compensated by the
trust under the PFO Services Agreement.
Transfer Agent And Shareholder Services Agreement
DST Systems, Inc. (“DST”) maintains the records of each shareholder’s account, answers shareholders’ inquiries concerning their
accounts, processes purchases and redemptions of the Funds shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions.
Under the terms of the amended Transfer Agent and Shareholder Services Agreement between the Trust and DST, DST receives from the Funds a monthly
complex minimum fee, including four
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
107
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
cusips (i.e., an individual share class), at an annual rate of $67,795 per year. For each cusip
thereafter, an additional fee is applied at a minimum fee of $10,430 per cusip per year. There were eight additional cusips for the six months ended November 30, 2013. In addition, the Funds pay out-of-pocket expenses, including but not limited to,
postage, envelopes, checks, drafts, forms, reports, telephone services, record storage and communication lines. These out-of-pocket expenses are included in transfer agent fees on the Funds Statement of Operations.
7. CAPITAL SHARE TRANSACTIONS
Proceeds and payments on capital shares as shown in the Statements of Changes in Net Assets are the result of the following capital share transactions
for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
November 30, 2013
(Unaudited)
|
|
|
Year
Ended
May 31, 2013
|
|
|
Arbitrage Fund - Class R
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
15,618,056
|
|
|
|
31,786,403
|
|
|
Shares issued in reinvestment of dividends
|
|
|
–
|
|
|
|
2,177,472
|
|
|
Shares redeemed
|
|
|
(16,420,562)
|
|
|
|
(39,071,802)
|
|
|
|
|
|
|
|
|
Net decrease in shares outstanding
|
|
|
(802,506)
|
|
|
|
(5,107,927)
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
73,329,601
|
|
|
|
78,437,528
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
72,527,095
|
|
|
|
73,329,601
|
|
|
|
|
|
|
|
|
Arbitrage Fund - Class I
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
26,834,200
|
|
|
|
73,503,353
|
|
|
Shares issued in reinvestment of dividends
|
|
|
–
|
|
|
|
2,674,069
|
|
|
Shares redeemed
|
|
|
(32,877,413)
|
|
|
|
(84,020,838)
|
|
|
|
|
|
|
|
|
Net decrease in shares outstanding
|
|
|
(6,043,213)
|
|
|
|
(7,843,416)
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
152,071,318
|
|
|
|
159,914,734
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
146,028,105
|
|
|
|
152,071,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
November 30, 2013
(Unaudited)
|
|
|
Year
Ended
May 31, 2013
|
|
|
Arbitrage Fund - Class
C
(a)
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
1,188,979
|
|
|
|
1,567,850
|
|
|
Shares issued in reinvestment of dividends
|
|
|
–
|
|
|
|
13,063
|
|
|
Shares redeemed
|
|
|
(168,532)
|
|
|
|
(67,176)
|
|
|
|
|
|
|
|
|
Net increase in shares outstanding
|
|
|
1,020,447
|
|
|
|
1,513,736
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
2,534,184
|
|
|
|
1,513,737
|
|
|
|
|
|
|
|
|
Arbitrage Fund - Class
A
(b)
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
200,244
|
|
|
|
–
|
|
|
Shares redeemed
|
|
|
(11,379)
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Net increase in shares outstanding
|
|
|
188,865
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
188,865
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
November 30, 2013
(Unaudited)
|
|
|
Year
Ended
May 31, 2013
|
|
|
Event-Driven Fund - Class R
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
1,974,739
|
|
|
|
696,518
|
|
|
Shares issued in reinvestment of dividends
|
|
|
–
|
|
|
|
17,016
|
|
|
Shares redeemed
|
|
|
(276,848)
|
|
|
|
(602,065)
|
|
|
|
|
|
|
|
|
Net increase in shares outstanding
|
|
|
1,697,891
|
|
|
|
111,469
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
1,028,761
|
|
|
|
917,292
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
2,726,652
|
|
|
|
1,028,761
|
|
|
|
|
|
|
|
|
Event-Driven Fund - Class I
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
6,008,055
|
|
|
|
3,921,901
|
|
|
Shares issued in reinvestment of dividends
|
|
|
–
|
|
|
|
65,105
|
|
|
Shares redeemed
|
|
|
(1,332,128)
|
|
|
|
(1,956,757)
|
|
|
|
|
|
|
|
|
Net increase in shares outstanding
|
|
|
4,675,927
|
|
|
|
2,030,250
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
4,208,864
|
|
|
|
2,178,615
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
8,884,791
|
|
|
|
4,208,864
|
|
|
|
|
|
|
|
|
Event-Driven Fund - Class
C
(a)
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
77,036
|
|
|
|
35,656
|
|
|
Shares issued in reinvestment of dividends
|
|
|
–
|
|
|
|
309
|
|
|
Shares redeemed
|
|
|
–
|
|
|
|
(1,026)
|
|
|
|
|
|
|
|
|
Net increase in shares outstanding
|
|
|
77,036
|
|
|
|
34,939
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
111,975
|
|
|
|
34,939
|
|
|
|
|
|
|
|
|
Event-Driven Fund - Class
A
(b)
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
101,253
|
|
|
|
–
|
|
|
Net increase in shares outstanding
|
|
|
101,253
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
101,253
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
109
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
November 30, 2013
(Unaudited)
|
|
|
Period Ended
May 31, 2013
(c)
|
|
|
Credit Opportunities Fund - Class R
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
151,774
|
|
|
|
170,405
|
|
|
Shares issued in reinvestment of dividends
|
|
|
5,139
|
|
|
|
786
|
|
|
Shares redeemed
|
|
|
(13,637)
|
|
|
|
(7,026)
|
|
|
|
|
|
|
|
|
Net increase in shares outstanding
|
|
|
143,276
|
|
|
|
164,165
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
307,441
|
|
|
|
164,165
|
|
|
|
|
|
|
|
|
Credit Opportunities Fund - Class I
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
632,290
|
|
|
|
339,129
|
|
|
Shares issued in reinvestment of dividends
|
|
|
11,143
|
|
|
|
1,700
|
|
|
Shares redeemed
|
|
|
(39,075)
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Net increase in shares outstanding
|
|
|
604,358
|
|
|
|
340,829
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
945,187
|
|
|
|
340,829
|
|
|
|
|
|
|
|
|
Credit Opportunities Fund - Class C
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
6,379
|
|
|
|
2,510
|
|
|
Shares issued in reinvestment of dividends
|
|
|
63
|
|
|
|
8
|
|
|
Net increase in shares outstanding
|
|
|
6,442
|
|
|
|
2,518
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
8,960
|
|
|
|
2,518
|
|
|
|
|
|
|
|
|
Credit Opportunities Fund - Class
A
(b)
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
2,469
|
|
|
|
–
|
|
|
Shares issued in reinvestment of dividends
|
|
|
28
|
|
|
|
–
|
|
|
Net increase in shares outstanding
|
|
|
2,497
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at beginning of period
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
Shares outstanding at end of period
|
|
|
2,497
|
|
|
|
–
|
|
|
|
|
|
|
|
|
(a)
|
Commenced operations on June 1, 2012.
|
|
(b)
|
Commenced operations on June 1, 2013.
|
|
(c)
|
Commenced operations on October 1, 2012.
|
8. FOREIGN CURRENCY TRANSLATION
Amounts denominated in or expected to settle
in foreign currencies are translated to U.S. dollars based on exchange rates on the 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
Funds do not isolate that portion of the results of operations caused by changes in foreign exchange rates on investments from those caused by changes in market prices of securities held. Such fluctuations are included with the net realized and
unrealized gains or losses on investments.
|
|
|
|
|
|
|
|
|
110
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
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 Funds’ books, and
the U.S. dollar equivalent of the amounts actually received or paid. Reported net unrealized foreign exchange gains and losses arise from changes in the value of assets and liabilities, other than investment securities, resulting from changes in
exchange rates.
9. CONTINGENCIES AND COMMITMENTS
The Funds indemnify the Trust’s
officers and trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business the Funds enter into contracts that contain a variety of representations and
warranties and which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on
experience, the Funds expect the risk of loss to be remote.
10. SECURITIES LENDING
In order to generate additional income, the
Funds may, from time to time, lend portfolio securities to broker-dealers, banks or institutional borrowers of securities. The Funds 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 Funds. During the time portfolio securities are on loan, the borrower pays the Funds any dividends or interest paid on such
securities.
Loans are subject to termination by the Funds or the borrower at any time. While the Funds do not have the right to vote securities on
loan, they have the right to terminate the loan and regain the right to vote if that is considered important with respect to the investment. In the event the borrower defaults in its obligation to the Funds, the Funds bear the risk of delay in the
recovery of portfolio securities and the risk of loss of rights in the collateral. There were no securities on loan in the Funds during the six months ended November 30, 2013.
11. FEDERAL TAX INFORMATION
In order to avoid imposition of the excise tax applicable to regulated investment companies, it is also the Funds’ intention to declare as
dividends in each calendar year at least 98% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts from prior years.
The amount of distributions from net investment income and net realized gains, if any, are determined in accordance with Federal income tax
regulations which may differ from accounting principles generally accepted in the United States of America. These “book/tax” differences are either temporary or permanent in nature and permanent differences are charged or credited to
undistributed net investment income (loss), accumulated net realized gain (loss) or paid—in capital as appropriate in the period that the differences arise.
Permanent differences between the Funds’ financial statement and income tax reporting requirements are primarily attributable to gains and losses
on certain foreign currency related transactions, short sale related dividend expense, investments in passive foreign investment
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
111
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
companies, and investments in swaps. These have no effect on the Funds’ net assets or net asset value per share.
The tax character of dividends and distributions declared during the year ended May 31, 2013 for the Arbitrage Fund was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Ordinary Income
|
|
|
Long-Term
Capital Gains*
|
|
|
Total Distributions
|
|
|
5/31/13
|
|
$
|
86,556,164
|
|
|
$
|
2,300
|
|
|
$
|
86,558,464
|
|
The tax character of dividends and distributions declared during the year ended May 31, 2013 for the Event-Driven Fund
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Ordinary Income
|
|
|
Long-Term
Capital Gains*
|
|
|
Total Distributions
|
|
|
5/31/13
|
|
$
|
1,074,249
|
|
|
$
|
–
|
|
|
$
|
1,074,249
|
|
The tax character of dividends and distributions declared during the period ended May 31, 2013 for the Credit
Opportunities Fund was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
Ordinary Income
|
|
|
Long-Term
Capital Gains*
|
|
|
Total Distributions
|
|
|
5/31/13
|
|
$
|
36,674
|
|
|
$
|
–
|
|
|
$
|
36,674
|
|
|
*
|
The Funds designate these distributions as long-term capital gain dividends per IRC code section 852(b)(3)(C).
|
The following information is computed on a tax basis for each item as of November 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
|
|
Cost of
Investments
|
|
|
Gross
Unrealized
Appreciation
|
|
|
Gross
Unrealized
(Depreciation)
|
|
|
Net
Unrealized
Appreciation/
(Depreciation)
|
|
|
Arbitrage Fund
|
|
$
|
2,803,117,571
|
|
|
$
|
75,000,863
|
|
|
$
|
(22,888,167)
|
|
|
$
|
52,112,696
|
|
|
Event-Driven Fund
|
|
$
|
122,499,668
|
|
|
$
|
3,631,226
|
|
|
$
|
(1,008,897)
|
|
|
$
|
2,622,329
|
|
|
Credit Opportunities Fund
|
|
$
|
13,653,708
|
|
|
$
|
174,254
|
|
|
$
|
(47,037)
|
|
|
$
|
127,217
|
|
The differences between book–basis and tax–basis net unrealized appreciation/(depreciation) for the Arbitrage
Fund, the Event-Driven Fund and the Credit Opportunities Fund are attributable to constructive sales, dividends related to short securities, investments in passive foreign investment companies, and wash sales.
Post-Enactment Capital Losses:
Under the
recently enacted Regulated Investment Company Modernization Act of 2010, Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010, for an unlimited period. Post-enactment capital losses that are
carried forward will retain their character as either short-term or long-term capital.
The Arbitrage Credit Fund has elected to defer Short Term
capital losses in the amount of $10,925 to the next tax year.
|
|
|
|
|
|
|
|
|
112
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Notes to Financial Statements (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
12. RECENT ACCOUNTING PRONOUNCEMENT
In June 2013, the Financial Accounting
Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-08, Financial Services-Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The FASB standard identifies characteristics a
company must assess to determine whether it is considered an investment company for financial reporting purposes. This ASU is effective for fiscal years beginning after December 15, 2013. The Funds believe the adoption of this ASU will not have a
material impact on the financial statements.
13. SUBSEQUENT EVENTS
The Funds have evaluated the need for
disclosures and/or adjustments resulting from subsequent events through the date the financial statements were available to be issued. Based on this evaluation, no adjustments were required to the financial statements.
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
113
|
|
|
|
|
|
The Arbitrage Funds
|
|
Disclosure of Fund Expenses
|
|
|
|
November 30, 2013 (Unaudited)
|
All mutual funds have operating expenses. As a shareholder of a mutual fund, your investment is affected by these ongoing costs, which include (among
others) costs for portfolio management, administrative services, distribution (12b-1) expenses, redemption fees and shareholder reports like this one. It is important for you to understand the impact of these costs on your investment returns.
Operating expenses such as these are deducted from a mutual fund’s gross income and directly reduce its final investment return. These expenses
are expressed as a percentage of a mutual fund’s average net assets; this percentage is known as a mutual fund’s expense ratio.
The
following examples use the expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000
made at the beginning of the period shown and held for the entire period.
The table on the following page illustrates your Fund’s 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 period, 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.
|
|
|
|
|
|
|
|
|
114
|
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www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Disclosure of Fund Expenses (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Account Value
06/01/2013
|
|
Ending
Account Value
11/30/2013
|
|
Expense
Ratio
(a)
|
|
Expenses
Paid During
Period
(b)
|
|
The Arbitrage Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,008.80
|
|
|
|
|
1.87
|
%
|
|
|
|
$9.42
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,015.69
|
|
|
|
|
1.87
|
%
|
|
|
|
$9.45
|
|
|
Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,010.20
|
|
|
|
|
1.62
|
%
|
|
|
|
$8.16
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,016.95
|
|
|
|
|
1.62
|
%
|
|
|
|
$8.19
|
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,005.70
|
|
|
|
|
2.62
|
%
|
|
|
|
$13.17
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,011.93
|
|
|
|
|
2.62
|
%
|
|
|
|
$13.21
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,009.60
|
|
|
|
|
1.85
|
%
|
|
|
|
$9.32
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,015.79
|
|
|
|
|
1.85
|
%
|
|
|
|
$9.35
|
|
|
|
|
|
|
|
|
The Arbitrage Event-Driven Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,036.70
|
|
|
|
|
2.09
|
%
|
|
|
|
$10.67
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,014.59
|
|
|
|
|
2.09
|
%
|
|
|
|
$10.56
|
|
|
Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,037.50
|
|
|
|
|
1.84
|
%
|
|
|
|
$9.40
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,015.84
|
|
|
|
|
1.84
|
%
|
|
|
|
$9.30
|
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,032.70
|
|
|
|
|
2.84
|
%
|
|
|
|
$14.47
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,010.83
|
|
|
|
|
2.84
|
%
|
|
|
|
$14.32
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,036.70
|
|
|
|
|
2.09
|
%
|
|
|
|
$10.67
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,014.59
|
|
|
|
|
2.09
|
%
|
|
|
|
$10.56
|
|
|
|
|
|
|
|
|
The Arbitrage Credit Opportunities Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,033.50
|
|
|
|
|
1.69
|
%
|
|
|
|
$8.62
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,016.60
|
|
|
|
|
1.69
|
%
|
|
|
|
$8.54
|
|
|
Class I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,033.40
|
|
|
|
|
1.44
|
%
|
|
|
|
$7.34
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,017.85
|
|
|
|
|
1.44
|
%
|
|
|
|
$7.28
|
|
|
|
|
|
|
|
|
|
|
Semi-Annual Report | November 30, 2013
|
|
115
|
|
|
|
|
|
The Arbitrage Funds
|
|
Disclosure of Fund Expenses (continued)
|
|
|
|
November 30, 2013 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Account Value
06/01/2013
|
|
Ending
Account Value
11/30/2013
|
|
Expense
Ratio
(a)
|
|
Expenses
Paid During
Period
(b)
|
|
Class C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,028.20
|
|
|
|
|
2.44
|
%
|
|
|
|
$12.41
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,012.84
|
|
|
|
|
2.44
|
%
|
|
|
|
$12.31
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
|
|
$1,000.00
|
|
|
|
|
$1,033.00
|
|
|
|
|
1.69
|
%
|
|
|
|
$8.61
|
|
|
Hypothetical (5% return before expenses)
|
|
|
|
$1,000.00
|
|
|
|
|
$1,016.60
|
|
|
|
|
1.69
|
%
|
|
|
|
$8.54
|
|
|
(a)
|
Annualized, based on the Fund’s most recent fiscal half-year expenses.
|
|
(b)
|
Expenses are equal to the Fund’s annualized ratio multiplied by the average account value over the period, multiplied by the number of
days in the most recent fiscal half year (183), divided by 365.
|
|
|
|
|
|
|
|
|
|
116
|
|
www.arbitragefunds.com | 1-800-295-4485
|
|
|
|
|
|
The Arbitrage Funds
|
|
Additional Information
|
|
|
|
November 30, 2013 (Unaudited)
|
1. PROXY VOTING POLICIES AND VOTING RECORD
A description of the policies and procedures
that the Funds use to vote proxies relating to portfolio securities is available without charge upon request by calling toll-free 1-800-295-4485, or on the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.
Information regarding how the Funds voted proxies relating to portfolio securities during the most recent fiscal year ending June 30, 2012 will be available without charge upon request by calling toll-free 1-800-295-4485, or on the SEC’s
website at http://www.sec.gov.
2. QUARTERLY PORTFOLIO HOLDINGS
The Funds file a complete listing of their
portfolio holdings with the SEC as of the first and third quarters of each fiscal year on Form N-Q. The filings are available upon request by calling 1-800-295-4485. Furthermore, you may obtain a copy of the filing on the SEC’s website at
http://www.sec.gov. The Funds’ Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Semi-Annual Report | November 30, 2013
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