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Arbitrage Funds

Filed: 3 Feb 22, 4:33pm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED 

MANAGEMENT INVESTMENT COMPANIES

 

Investment Company Act file number: 811-09815

 

the arbitrage funds 

(exact name of registrant as specified in charter)

 

41 Madison Avenue, 42nd Floor, New York, NY 10010 

(Address of principal executive offices) (Zip code)

 

John S. Orrico 

Water Island Capital, LLC 

41 Madison Avenue 

42nd Floor 

New York, NY 10010 

(Name and address of agent for service)

 

Registrant’s telephone number, including area code: 800-295-4485

 

Date of fiscal year end:    May 31

 

Date of reporting period: November 30, 2021

 

 

 

 

 

 

Item 1.    Reports to Stockholders.

 

 

 

 

 

Semi-Annual Report

November 30, 2021

Arbitrage Fund

Water Island Event-Driven Fund

Water Island Credit Opportunities Fund


TABLE OF CONTENTS

Arbitrage Fund

 

Portfolio Information

  

1

  

Portfolio of Investments

  

3

  

Water Island Event-Driven Fund

 

Portfolio Information

  

18

  

Portfolio of Investments

  

20

  

Water Island Credit Opportunities Fund

 

Portfolio Information

  

33

  

Portfolio of Investments

  

35

  

Statements of Assets and Liabilities

  

46

  

Statements of Operations

  

50

  

Statements of Changes in Net Assets

  

54

  

Financial Highlights

 

Arbitrage Fund - Class R

  

58

  

Arbitrage Fund - Class I

  

60

  

Arbitrage Fund - Class C

  

62

  

Arbitrage Fund - Class A

  

64

  

Water Island Event-Driven Fund - Class R

  

66

  

Water Island Event-Driven Fund - Class I

  

68

  

Water Island Event-Driven Fund - Class A

  

70

  

Water Island Credit Opportunities Fund - Class R

  

72

  

Water Island Credit Opportunities Fund - Class I

  

74

  

Water Island Credit Opportunities Fund - Class A

  

76

  

Notes to Financial Statements

  

78

  

Disclosure of Fund Expenses

  

103

  

Additional Information

  

106

  

Arbitrage Fund  Portfolio Information

November 30, 2021 (Unaudited)

Performance^ (annualized returns as of November 30, 2021)

  One
Year
 Five
Year
 Ten
Year
 Since
Inception*
 

Arbitrage Fund, Class R

  

1.28

%

  

2.83

%

  

2.02

%

  

3.85

%

 

Arbitrage Fund, Class I

  

1.54

%

  

3.08

%

  

2.27

%

  

3.05

%

 

Arbitrage Fund, Class C**

  

-0.42

%#

  

2.04

%

  

N/A

   

1.41

%

 

Arbitrage Fund, Class A***

  

-1.50

%

  

2.30

%

  

N/A

   

2.07

%

 

ICE BofA 3-Month Treasury Bill Index

  

0.05

%

  

1.15

%

  

0.63

%

  

1.51

%

 

Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from the amount reported in the Financial Highlights. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com. This table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^ After sales charge.

* Class R inception: 9/18/00; Class I inception: 10/17/03; Class C inception: 6/1/12; Class A inception: 6/1/13. The "Since Inception" returns for securities indices are for the inception date of Class R shares.

# Class C One Year return includes load.

** Class C shares are subject to a 1.00% contingent deferred sales charge on all purchases redeemed within 12 months of purchase.

*** Class A shares are subject to a maximum front-end sales load of 2.75% on purchases up to $250,000. The shares are also subject to a deferred sales charge of up to 1.00% on purchases of $250,000 or more purchased without a front-end sales charge and redeemed within 18 months of purchase.

The Total Annual Fund Operating Expenses for Class R, Class I, Class C and Class A are 1.74%, 1.49%, 2.49% and 1.74%, respectively. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.

The ICE BofA U.S. 3-Month Treasury Bill Index (formerly named, ICE BofA Merrill Lynch U.S. 3-Month Treasury Bill Index) tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.

An investor may not invest directly in an index.

Semi-Annual Report | November 30, 2021
1


Arbitrage Fund  Portfolio Information (continued)

November 30, 2021 (Unaudited)

Growth of $10,000 Investment

The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund over ten years. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

  

Sector Weighting

The following chart shows the sector weightings of the Arbitrage Fund's investments (including short sales and excluding derivatives) as of the report date.

* Concentration Risk: If a large percentage of mergers or event-driven investment opportunities taking place within the U.S. are within one industry over a given period of time, the Fund may invest a large portion of its assets in securities of issuers in a single industry for that period of time. During such a period of concentration, the Fund may be subject to greater volatility with respect to its portfolio securities than a fund that is more broadly diversified.

www.arbitragefunds.com | 1-800-295-4485
2


Arbitrage Fund  Portfolio of Investments

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

COMMON STOCKS - 89.19%

 

Aerospace & Defense - 1.53%

 

Aerojet Rocketdyne Holdings, Inc.(a)

  

595,012

  

$

25,014,304

  

Auto Parts & Equipment - 0.91%

 

Veoneer, Inc.(b)

  

417,772

   

14,872,683

  

Banks - 1.15%

 

Sbanken ASA(c)

  

1,000,885

   

10,457,528

  

TriState Capital Holdings, Inc.(a)(b)

  

278,000

   

8,314,980

  
   

18,772,508

  

Biotechnology - 1.77%

 

Dicerna Pharmaceuticals, Inc.(b)

  

497,772

   

18,920,314

  

Swedish Orphan Biovitrum AB(b)

  

412,659

   

10,083,609

  
   

29,003,923

  

Chemicals - 4.75%

 

Atotech Ltd.(a)(b)

  

1,250,756

   

30,193,250

  

Kraton Corp.(b)

  

227,237

   

10,466,536

  

Rogers Corp.(b)

  

136,732

   

37,275,878

  
   

77,935,664

  

Commercial Services - 9.52%

 

Afterpay Ltd., ADR(a)(b)

  

85,696

   

6,639,726

  

Bakkt Holdings, Inc.(b)(d)(e)

  

171,827

   

2,682,219

  

Europcar Mobility Group(b)(c)

  

13,799,346

   

7,981,422

  

GreenSky, Inc., Class A(a)(b)

  

1,393,804

   

15,805,737

  

IHS Markit Ltd.

  

705,607

   

90,190,687

  

Moneylion, Inc.(b)(d)

  

1,911,916

   

8,068,286

  

RR Donnelley & Sons Co.(b)

  

2,344,009

   

24,752,735

  
   

156,120,812

  

Computers & Computer Services - 1.02%

 

Avast Plc(c)

  

826,453

   

6,658,597

  

McAfee Corp., Class A

  

386,544

   

9,992,162

  
   

16,650,759

  

Construction Materials - 0.95%

 

Forterra, Inc.(b)

  

654,034

   

15,559,469

  

Diversified Financial Services - 0.83%

 

Sanne Group Plc

  

1,128,610

   

13,629,033

  

Electric - 1.50%

 

PNM Resources, Inc.

  

500,365

   

24,637,973

  

Electronics - 2.57%

 

Coherent, Inc.(a)(b)

  

162,981

   

42,200,670

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
3


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

COMMON STOCKS - 89.19% (Continued)

 

Energy - Alternate Sources - 0.56%

 

Falck Renewables SpA

  

929,039

  

$

9,124,381

  

Engineering & Construction - 1.45%

 

Akka Technologies(b)

  

73,852

   

4,003,518

  

Sydney Airport(b)

  

3,347,206

   

19,804,258

  
   

23,807,776

  

Food - 1.55%

 

Sanderson Farms, Inc.

  

131,779

   

24,745,461

  

Stryve Foods, Inc., Class A(b)(d)

  

171,198

   

667,672

  
   

25,413,133

  

Healthcare - Products - 2.92%

 

Hill-Rom Holdings, Inc.(a)

  

275,459

   

42,833,874

  

Itamar Medical Ltd., ADR(a)(b)

  

165,000

   

5,057,250

  
   

47,891,124

  

Healthcare - Services - 4.52%

 

PPD, Inc.(a)(b)

  

1,571,929

   

74,037,856

  

UpHealth, Inc.(b)(d)

  

48,973

   

127,819

  
   

74,165,675

  

Insurance - 6.33%

 

Athene Holding Ltd., Class A(a)(b)

  

198,929

   

16,296,264

  

TOWER Ltd.

  

8,008,907

   

3,716,935

  

Willis Towers Watson Plc(a)

  

371,136

   

83,817,354

  
   

103,830,553

  

Internet - 0.50%

 

Zix Corp.(b)

  

967,225

   

8,192,396

  

Machinery - Diversified - 3.44%

 

Neles Oyj

  

346,525

   

5,175,733

  

Welbilt, Inc.(a)(b)

  

2,171,005

   

51,148,878

  
   

56,324,611

  

Real Estate Investment Trusts - 8.94%

 

Columbia Property Trust, Inc.(a)

  

1,085,326

   

20,838,259

  

Cominar Real Estate Investment Trust

  

1,340,987

   

12,050,985

  

Corepoint Lodging, Inc.(b)

  

635,729

   

9,809,298

  

CoreSite Realty Corp.

  

191,235

   

32,710,747

  

CyrusOne, Inc.

  

278,240

   

24,768,925

  

MGM Growth Properties LLC, Class A(a)

  

399,165

   

14,613,431

  

Monmouth Real Estate Investment Corp.(a)

  

1,527,305

   

31,722,125

  
   

146,513,770

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
4


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

COMMON STOCKS - 89.19% (Continued)

 

Retail - 0.76%

 

GrandVision N.V.(b)(c)

  

131,148

  

$

4,224,075

  

Vivo Energy Plc(c)

  

4,662,407

   

8,185,013

  
   

12,409,088

  

Semiconductors - 7.44%

 

DSP Group, Inc.(b)

  

742,785

   

16,333,842

  

Magnachip Semiconductor Corp.(b)

  

727,164

   

13,147,125

  

Xilinx, Inc.(a)

  

404,997

   

92,521,565

  
   

122,002,532

  

Software - 16.87%

 

Blue Prism Group Plc(b)

  

999,131

   

17,261,037

  

Change Healthcare, Inc.(a)(b)

  

1,778,570

   

36,069,400

  

Five9, Inc.(a)(b)(e)

  

223,523

   

31,814,029

  

Inovalon Holdings, Inc., Class A(b)(f)

  

405,270

   

16,616,070

  

Kaleyra, Inc.(b)

  

134,591

   

1,410,514

  

MINDBODY, Inc., Class A(b)(f)

  

843,793

   

31,503,602

  

Momentive Global, Inc.(b)

  

735,254

   

15,021,239

  

Nuance Communications, Inc.(a)(b)

  

1,344,404

   

74,600,978

  

Onemarket Ltd.(b)(f)

  

111,800

   

  

Playtech Plc(b)

  

898,242

   

8,911,842

  

Pluralsight, Inc., Class A(b)(f)

  

1,000,062

   

23,016,627

  

QAD, Inc., Class A(b)(f)

  

232,603

   

20,352,762

  
   

276,578,100

  

Telecommunications - 1.76%

 

NeoPhotonics Corp.(b)

  

1,073,920

   

16,506,150

  

Vonage Holdings Corp.(b)

  

599,396

   

12,359,546

  
   

28,865,696

  

Transportation - 4.73%

 

Kansas City Southern(a)

  

211,712

   

61,576,435

  

Ocean Yield ASA

  

1,740,000

   

7,795,088

  

Teekay LNG Partners LP

  

486,015

   

8,228,234

  
   

77,599,757

  

Water - 0.92%

 

Suez SA

  

674,971

   

15,106,847

  
TOTAL COMMON STOCKS
(Cost $1,413,963,691)
  

1,462,223,237

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
5


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

RIGHTS(b) - 0.17%

 

Bristol-Myers Squibb Co. CVR

  

857,631

  

$

857,631

  

CA Immobilien Anlagen AG CVR(f)

  

221,534

   

  
Contra Adamas Pharmaceuticals, Inc. CVR,
Expires 12/31/2024(f)
  

1,150,652

   

69,269

  
Contra Adamas Pharmaceuticals, Inc. CVR,
Expires 12/31/2025(f)
  

1,150,652

   

69,154

  

Contra Flexion Therapeutics, Inc. CVR, Expires 12/31/2030(f)

  

1,411,000

   

877,642

  

Contra Pfenex, Inc. CVR, Expires 12/31/2021(f)

  

1,108,177

   

928,874

  

Elanco Animal Health, Inc. CVR, Expires 12/31/2021(f)

  

1,124,589

   

  

Media General, Inc. CVR(f)

  

613,589

   

  

NewStar Financial, Inc. CVR, Expires 12/17/2021(f)

  

1,514,945

   

  
TOTAL RIGHTS
(Cost $3,058,131)
  

2,802,570

  

 

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CONVERTIBLE CORPORATE BONDS - 1.23%

 

Auto Manufacturers - 0.13%

 

Lightning eMotors, Inc.(c)

 

05/15/2024

  

7.500

%

 

$

2,596,000

  

$

2,179,460

  

Healthcare - Services - 0.19%

 

UpHealth, Inc.(c)

 

06/15/2026

  

6.250

%

  

3,613,000

   

3,127,065

  

Pharmaceuticals - 0.69%

 

Flexion Therapeutics, Inc.

 

05/01/2024

  

3.375

%

  

11,311,000

   

11,254,445

  

Software - 0.22%

 

Kaleyra, Inc.(c)

 

06/01/2026

  

6.125

%

  

3,525,000

   

3,573,834

  
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $20,989,193)
  

20,134,804

  

 

  

Shares

 

Value

 

MUTUAL FUNDS - 4.44%

 

Water Island Event-Driven Fund, Class I(g)

  

6,605,365

  

$

72,791,125

  
TOTAL MUTUAL FUNDS
(Cost $60,632,644)
  

72,791,125

  

PRIVATE INVESTMENTS(b)(d)(f)(h) - 0.17%

 

Fast Capital LLC

  

290,700

   

290,700

  

Fuse LLC

  

725,800

   

2,230,399

  

Fuse Sponsor Capital, Z2 Shares

  

72,580

   

293,868

  
TOTAL PRIVATE INVESTMENTS
(Cost $1,036,875)
  

2,814,967

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
6


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

WARRANTS(b) - 0.03%

 

Auto Manufacturers - 0.02%

 
Lightning eMotors, Inc., Exercise Price $11.50,
Expires 05/18/2025(d)
  

225,739

  

$

316,035

  

Commercial Services - 0.01%

 

Moneylion, Inc., Exercise Price $11.50, Expires 06/01/2027

  

290,320

   

229,353

  

Healthcare - Services - 0.00%(i)

 

UpHealth, Inc., Exercise Price $11.50, Expires 07/01/2024

  

4,897

   

2,350

  
TOTAL WARRANTS
(Cost $0)
  

547,738

  

PREFERRED STOCKS - 0.09%

 

Entertainment - 0.09%

 

1317774 B.C. Ltd.

  

29,562

   

1,515,588

  
TOTAL PREFERRED STOCKS
(Cost $2,400,434)
  

1,515,588

  

 

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(b) - 0.40%

 

Call Options Purchased - 0.21%

 
Acceleron
Pharma, Inc.
 

12/2021

 

$

180.00

  

$

0

   

904

  

$

0

  
Advanced Micro
Devices, Inc.
 
  

12/2021

  

145.00

   

8,615,872

   

544

   

875,840

  
  

12/2021

  

150.00

   

5,527,462

   

349

   

433,632

  
Canadian Pacific
Railway Ltd.
 
  

12/2021

  

78.00

   

15,357,579

   

2,193

   

87,720

  
  

12/2021

  

80.00

   

15,357,579

   

2,193

   

38,378

  
Sportsman's
Warehouse
Holdings, Inc.
 

12/2021

  

17.50

   

3,390,673

   

1,991

   

94,573

  
Trillium
Therapeutics,
Inc.
 

12/2021

  

20.00

   

0

   

1,844

   

0

  

Zendesk, Inc.

 

12/2021

  

95.00

   

21,116,348

   

2,068

   

1,840,520

  
TOTAL CALL OPTIONS PURCHASED
(Cost $2,919,138)
  

3,370,663

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
7


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(b) - 0.40% (Continued)

 

Put Options Purchased - 0.19%

 

Bakkt Holdings, Inc.

 

 

 

12/2021

 

$

25.00

  

$

426,153

   

273

  

$

308,490

  

 

 

12/2021

  

30.00

   

452,690

   

290

   

472,700

  

Five9, Inc.

 

 

 

12/2021

  

145.00

   

13,991,039

   

983

   

830,635

  

 

 

12/2021

  

150.00

   

15,585,135

   

1,095

   

1,281,150

  

 

 

12/2021

  

155.00

   

2,291,513

   

161

   

239,890

  
TOTAL PUT OPTIONS PURCHASED
(Cost $2,165,210)
  

3,132,865

  
TOTAL PURCHASED OPTIONS
(Cost $5,084,348)
  

6,503,528

  

 

  

Yield

 

Shares

 

Value

 

SHORT-TERM INVESTMENTS - 3.18%

 

Money Market Funds

 
Morgan Stanley Institutional Liquidity
Fund  - Government Portfolio
  

0.026

%(j)

  

26,057,176

  

$

26,057,176

  
State Street Institutional U.S. Government
Money Market Fund, Premier Class
  

0.063

%(j)

  

26,057,176

   

26,057,176

  
       

52,114,352

  
TOTAL SHORT-TERM INVESTMENTS
(Cost $52,114,352)
  

52,114,352

  
Total Investments - 98.90%
(Cost $1,559,279,668)
  

1,621,447,909

  

Other Assets in Excess of Liabilities - 1.10%(k)

  

17,953,271

  

NET ASSETS - 100.00%

 

$

1,639,401,180

  

Portfolio Footnotes

(a)  Security, or a portion of security, is being held as collateral for short sales, written option contracts or forward foreign currency exchange contracts. At November 30, 2021, the aggregate fair market value of those securities was $319,525,490, representing 19.49% of net assets.

(b)  Non-income-producing security.

(c)  Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of November 30, 2021, these securities had a total value of $46,386,994 or 2.83% of net assets.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
8


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

(d)  Restricted securities (including private placements) - The Fund may own investment securities that have other legal or contractual limitations. At the end of the period, the value of restricted securities (excluding 144A issues) amounted to $14,676,998 or 0.90% of net assets.

Restricted Security

 

Acquisition Date

 

Acquisition Cost

 

Bakkt Holdings, Inc.

 

10/06/2021

 

$

1,718,270

  

Fast Capital LLC

 

08/18/2020

  

300,786

  

Fuse LLC

 

06/19/2020

  

669,078

  

Fuse Sponsor Capital, Z2 Shares

 

06/19/2020

  

67,011

  
Lightning eMotors, Inc., Exercise Price $11.50,
Expires 05/18/2025
 

04/28/2021

  

  

Moneylion, Inc.

 

09/14/2021

  

16,344,382

  

Stryve Foods, Inc.

 

07/09/2021

  

1,711,980

  

UpHealth, Inc.

 

05/25/2021

  

489,730

  

Total

   

$

21,301,237

  

(e)  Underlying security for a written/purchased call/put option.

(f)  Security fair valued using significant unobservable inputs and classified as a Level 3 security. As of November 30, 2021, the total fair market value of these securities was $96,248,967, representing 5.87% of net assets.

(g)  Affiliated investment.

(h)  Represents a holding that is a direct investment into a private company and is not a listed or publicly traded entity.

(i)  Less than 0.005% of net assets.

(j)  Rate shown is the 7-day effective yield as of November 30, 2021.

(k)  Includes cash held as collateral for short sales.

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (12.20%)

 

Commercial Services - (0.44%)

 

Bakkt Holdings, Inc.

  

(35,484

)

 

$

(553,905

)

 

Square, Inc., Class A

  

(32,136

)

  

(6,694,893

)

 
   

(7,248,798

)

 

Diversified Financial Services - (0.42%)

 

Raymond James Financial, Inc.

  

(69,500

)

  

(6,831,155

)

 

Electronics - (0.57%)

 

II-VI, Inc.

  

(148,313

)

  

(9,274,012

)

 

Entertainment - (0.09%)

 

Penn National Gaming, Inc.

  

(29,562

)

  

(1,514,461

)

 

Internet - (1.03%)

 

Zendesk, Inc.

  

(165,432

)

  

(16,892,262

)

 

Machinery - Diversified - (0.28%)

 

Valmet Oyj

  

(113,547

)

  

(4,661,609

)

 

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
9


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (12.20%) (Continued)

 

Semiconductors - (6.76%)

 

Advanced Micro Devices, Inc.

  

(697,967

)

 

$

(110,537,034

)

 

MKS Instruments, Inc.

  

(1,656

)

  

(251,977

)

 
   

(110,789,011

)

 

Transportation - (2.61%)

 

Canadian Pacific Railway Ltd.

  

(610,577

)

  

(42,758,707

)

 
TOTAL COMMON STOCKS
(Proceeds $159,504,546)
  

(199,970,015

)

 
TOTAL SECURITIES SOLD SHORT
(Proceeds $159,504,546)
 

$

(199,970,015

)

 

 

WRITTEN OPTIONS

 Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

Written Call Options

 

Bakkt Holdings, Inc.

 

12/2021

 

$

40.00

  

$

(426,153

)

  

(273

)

 

$

(6,142

)

 
Dicerna
Pharmaceuticals,
Inc.
 

01/2022

  

40.00

   

(4,051,866

)

  

(1,066

)

  

(29,315

)

 
TOTAL WRITTEN CALL OPTIONS
(Premiums received $216,325)
  

(35,457

)

 
TOTAL WRITTEN OPTIONS
(Premiums received $216,325)
 

$

(35,457

)

 

EQUITY SWAP CONTRACTS

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Goldman
Sachs &
Co./
Monthly
 
 
 Equiniti
Group
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
95 bps
(0.995%)
 




05/10/2022
 

$

  

$

  

$

  

GBP

5,494,300

  

$

  
Goldman
Sachs &
Co./
Monthly
 
 
 GCP
Student
Living
Plc
 
 
 Paid
1 Month
SONIA
Plus
47 bps
(0.516%)
 

07/16/2022

  

   

   

  

GBP

5,959,391

   

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
10


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Goldman
Sachs &
Co./
Monthly
 
 
 Meggitt
Plc
 
 
 
 
 Paid
1 Month
SONIA
Plus
55 bps
(0.596%)
 




08/04/2022
 

$

  

$

  

$

  

GBP

12,315,265

  

$

  
Goldman
Sachs &
Co./
Monthly
 
 
 Sanne
Group
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
45 bps
(0.496%)
 
08/31/2022
  

   

   

  

GBP

5,637,963

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 Zardoya
Otis SA
 
 
 
 
 Paid
1 Week
ESTR
Plus
60 bps
(0.031%)
 
09/27/2022
  

   

   

  

EUR

5,320,590

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 CNP
Assurance
 
 
 
 
 Paid
1 Week
ESTR
Plus
55 bps
(0.000%)
 
11/01/2022
  

   

   

  

EUR

17,405,027

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 Alstria
Office
REIT - AG
 
 
 
 Paid
1 Week
ESTR
Plus
45 bps
(1.000%)
 
11/08/2022
  

   

   

  

EUR

7,527,000

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 ICA
Gruppen
AB
 
 
 
 Paid
1 Month
STIBOR
Plus
50 bps
(0.447%)
 
11/14/2022
  

   

   

  

SEK

14,151,000

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 Distell
Group
Holdings
Ltd.
 
 
 Paid
1 Month
JIBAR
Plus
150 bps
(4.992%)
 
11/18/2022
  

   

   

  

ZAR

59,573,067

   

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
11


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 
 Apollo
Global
Management,
Inc.
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/11/2023
 

$

  

$

  

$

  

USD

16,183,847

  

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 iShares
MSCI
Australia
ETF
 
 
 
 Received
1 Month-
Federal
Rate
Minus
153 bps
(-1.440%)
 





08/11/2023
  

   

   

  

USD

1,384,999

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Goldman
Sachs
Group,
Inc.
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/11/2023
  

   

   

  

USD

15,930,716

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 iShares
Russell 2000
ETF
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
88 bps
(-0.800%)
 





08/11/2023
  

   

   

  

USD

3,423,087

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 MKS
Instruments,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/11/2023
  

   

   

  

USD

10,253,149

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 NortonLifeLock,
Inc.
 
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/11/2023
  

   

   

  

USD

618,914

   

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
12


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 
 S&P
Global,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/11/2023
 

$

  

$

  

$

  

USD

91,260,388

  

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Vici
Properties,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/11/2023
  

   

   

  

USD

14,831,045

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 Amasten
Fastighets
AB
 
 
 
 Paid
1 Month
STIBOR
Plus
150 bps
(1.401%)
 




11/17/2023
  

   

   

  

SEK

15,984,000

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 Distell
Group
Holdings
Ltd.
 
 
 Paid
1 Month
SABOR
Plus
125 bps
(4.590%)
 




11/17/2023
  

   

   

  

ZAR

20,969,869

   

  
  

 

 

 

 

 

 

 

 

 

 

$

  

 

 

$

  

OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Appreciation
 

USD

21,001,261

  

AUD

28,625,400

  

Morgan Stanley & Co.

 

12/15/2021

 

$

592,864

  

USD

12,647,355

  

CAD

15,756,600

  

Morgan Stanley & Co.

 

12/15/2021

  

311,488

  

EUR

7,660,600

  

USD

8,676,258

  

Morgan Stanley & Co.

 

12/15/2021

  

15,493

  

USD

101,387,780

  

EUR

85,923,900

  

Morgan Stanley & Co.

 

12/15/2021

  

3,898,139

  

USD

44,805,921

  

GBP

32,974,900

  

Morgan Stanley & Co.

 

12/15/2021

  

942,070

  

USD

26,334,361

  

NOK

228,861,700

  

Morgan Stanley & Co.

 

12/15/2021

  

1,032,337

  

USD

4,573,196

  

NZD

6,447,100

  

Morgan Stanley & Co.

 

12/15/2021

  

173,562

  

SEK

3,893,000

  

USD

429,023

  

Morgan Stanley & Co.

 

12/15/2021

  

2,971

  

USD

11,243,576

  

SEK

97,111,300

  

Morgan Stanley & Co.

 

12/15/2021

  

467,434

  
  

$

7,436,358

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
13


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Depreciation
 

AUD

1,044,400

  

USD

758,087

  

Morgan Stanley & Co.

 

12/15/2021

 

$

(13,486

)

 

EUR

37,436,200

  

USD

43,783,071

  

Morgan Stanley & Co.

 

12/15/2021

  

(1,307,791

)

 

GBP

3,573,700

  

USD

4,861,047

  

Morgan Stanley & Co.

 

12/15/2021

  

(107,242

)

 

NOK

53,104,700

  

USD

6,221,459

  

Morgan Stanley & Co.

 

12/15/2021

  

(350,418

)

 

NZD

1,001,000

  

USD

700,064

  

Morgan Stanley & Co.

 

12/15/2021

  

(16,960

)

 

SEK

4,290,300

  

USD

491,851

  

Morgan Stanley & Co.

 

12/15/2021

  

(15,769

)

 

USD

662,561

  

SEK

6,024,800

  

Morgan Stanley & Co.

 

12/15/2021

  

(5,993

)

 
  

$

(1,817,659

)

 

The following is a summary of investments classified by country exposure:

Country

 

% of Net Assets(a)

 

United Kingdom

  

14.83

%

 

Australia

  

1.62

%

 

Sweden

  

1.53

%

 

Bermuda

  

1.49

%

 

France

  

1.41

%

 

Norway

  

1.11

%

 

Canada

  

0.83

%

 

Republic of Korea

  

0.80

%

 

Italy

  

0.65

%

 

Isle of Man

  

0.54

%

 

Czech Republic

  

0.41

%

 

Finland

  

0.32

%

 

Israel

  

0.31

%

 

Netherlands

  

0.26

%

 

Belgium

  

0.24

%

 

New Zealand

  

0.23

%

 

Austria

  

0.00

%(b)

 

United States

  

72.32

%

 

Other Assets in Excess of Liabilities

  

1.10

%

 
   

100.00

%

 

(a)  These percentages represent long positions only and are not net of short positions.

(b)  Less than 0.005% of net assets.

Abbreviations:

AB - Aktiebolag is the Swedish term for a limited company.

ADR - American Depositary Receipt

ASA - Allmennaksjeselskap is the Norwegian term for public limited company.

AUD - Australian dollar

bps - Basis Points. 100 Basis Points is equal to 1 percentage point.

CAD - Canadian dollar

CVR - Contingent Value Rights

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
14


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

ESTR - Euro Short-term Rate

ETF - Exchange-Traded Fund

EUR - Euro

GBP - British pound

JIBAR - Johannesburg Interbank Agreed Rate

LLC - Limited Liability Company

LP - Limited Partnership

Ltd. - Limited

MSCI - Morgan Stanley Capital International

NOK - Norwegian krone

N.V. - Naamloze Vennootschap is the Dutch term for a public limited liability corporation.

NZD - New Zealand dollar

Oyj - Osakeyhtio is the Finnish equivalent of a public limited company.

Plc - Public Limited Company

REIT - Real Estate Investment Trust

SA - Generally designates corporations in various countries, mostly those employing civil law. This translates literally in all languages mentioned as anonymous company.

SABOR - South African Benchmark Overnight Rate

SEK - Swedish krona

SONIA - Sterling OverNight Index Average

S&P - Standard & Poor's

SpA - Societa per Azione

STIBOR - Stockholm Interbank Offered Rate

USD - United States Dollar

ZAR - South African rand

The following table summarizes the Arbitrage Fund's investments and derivative financial instruments categorized in the fair value hierarchy as of November 30, 2021:

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets

 

Common Stocks

 

Aerospace & Defense

 

$

25,014,304

  

$

  

$

  

$

25,014,304

  

Auto Parts & Equipment

  

14,872,683

   

   

   

14,872,683

  

Banks

  

18,772,508

   

   

   

18,772,508

  

Biotechnology

  

29,003,923

   

   

   

29,003,923

  

Chemicals

  

77,935,664

   

   

   

77,935,664

  

Commercial Services

  

156,120,812

   

   

   

156,120,812

  

Computers & Computer Services

  

16,650,759

   

   

   

16,650,759

  

Construction Materials

  

15,559,469

   

   

   

15,559,469

  

Diversified Financial Services

  

13,629,033

   

   

   

13,629,033

  

Electric

  

24,637,973

   

   

   

24,637,973

  

Electronics

  

42,200,670

   

   

   

42,200,670

  

Energy - Alternate Sources

  

9,124,381

   

   

   

9,124,381

  

Engineering & Construction

  

23,807,776

   

   

   

23,807,776

  

Food

  

25,413,133

   

   

   

25,413,133

  

Healthcare - Products

  

47,891,124

   

   

   

47,891,124

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
15


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Healthcare - Services

 

$

74,165,675

  

$

  

$

  

$

74,165,675

  

Insurance

  

103,830,553

   

   

   

103,830,553

  

Internet

  

8,192,396

   

   

   

8,192,396

  

Machinery - Diversified

  

56,324,611

   

   

   

56,324,611

  

Real Estate Investment Trusts

  

146,513,770

   

   

   

146,513,770

  

Retail

  

12,409,088

   

   

   

12,409,088

  

Semiconductors

  

122,002,532

   

   

   

122,002,532

  

Software

  

185,089,039

   

   

91,489,061

   

276,578,100

  

Telecommunications

  

28,865,696

   

   

   

28,865,696

  

Transportation

  

69,804,669

   

7,795,088

   

   

77,599,757

  

Water

  

15,106,847

   

   

   

15,106,847

  

Rights

  

   

857,631

   

1,944,939

   

2,802,570

  

Convertible Corporate Bonds**

  

   

20,134,804

   

   

20,134,804

  

Mutual Funds

  

72,791,125

   

   

   

72,791,125

  

Private Investments

  

   

   

2,814,967

   

2,814,967

  

Warrants

  

547,738

   

   

   

547,738

  
Preferred Stocks
Entertainment
  

   

1,515,588

   

   

1,515,588

  

Purchased Options

  

6,503,528

   

   

   

6,503,528

  

Short-Term Investments

  

52,114,352

   

   

   

52,114,352

  

TOTAL

 

$

1,494,895,831

  

$

30,303,111

  

$

96,248,967

  

$

1,621,447,909

  

Other Financial Instruments***

 

Assets

 
Forward Foreign Currency
Exchange Contracts
 

$

  

$

7,436,358

  

$

  

$

7,436,358

  

Equity Swaps

  

0

   

0

   

   

0

  

Liabilities

 

Common Stocks**

  

(199,970,015

)

  

   

   

(199,970,015

)

 

Written Options

  

(35,457

)

  

   

   

(35,457

)

 
Forward Foreign Currency
Exchange Contracts
  

   

(1,817,659

)

  

   

(1,817,659

)

 

TOTAL

 

$

(200,005,472

)

 

$

5,618,699

  

$

  

$

(194,386,773

)

 

*  Refer to footnote 2 where leveling hierarchy is defined.

**  Refer to Portfolio of Investments for sector information.

***  Other financial instruments are instruments such as written options, securities sold short, equity swaps and forward foreign currency exchange contracts.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
16


Arbitrage Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended November 30, 2021:

Investments
in Securities
 Balance as of
May 31, 2021
 Realized
Gain
(Loss)
 Change in
Unrealized
Appreciation
(Depreciation)
 

Purchases

 Sales
Proceeds
 Transfers
into
Level 3
 Transfers
out of
Level 3
 Balance as of
November 30,
2021
 Net change in
Unrealized
Appreciation
(Depreciation)
from
investments
still held as of
November 30,
2021
 
Common
Stocks
 

$

85,217,245

  

$

3,261,325

  

$

(1,386,807

)

 

$

36,590,099

  

$

(32,192,801

)

 

$

  

$

  

$

91,489,061

  

$

1,599,123

  

Rights

  

1,135,875

   

464,601

   

25,000

   

1,012,898

   

(693,435

)

  

   

   

1,944,939

   

47,051

  
Convertible
Corporate
Bonds
  

6,433,715

   

   

328,097

   

   

   

   

(6,761,812

)

  

   

  
Private
Investments
  

1,016,499

   

   

1,795,077

   

3,391

   

   

   

   

2,814,967

   

1,795,077

  

Total

 

$

93,803,334

  

$

3,725,926

  

$

761,367

  

$

37,606,388

  

$

(32,886,236

)

 

$

  

$

(6,761,812

)

 

$

96,248,967

  

$

3,441,251

  

The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of November 30, 2021:

Investments in
Securities
 Fair Value at
November 30,
2021
 Valuation
Technique
 Unobservable
Input
 Range of
Values
 Weighted
Average
 
Common Stocks
 
 
 
 
 
 

$

91,489,061




 Deal Value,
Liquidation
Value
 
 
 
 Final
determination
on Dissent,
Final
Liquidation
Value
 $23.02-$41
 
 
 
 
 
 $45.56
 
 
 
 
 
 
Rights
 
 
 
 1,944,939


 Discounted,
probability
adjusted
value
 Discount
Rate,
Probability
 
 10%, 16.14%-42.25%
 
 
 
 10%, 29.72%
 
 
 
 
Private
Investments
 2,814,967
 Cost, Model
Driven
 Cost, Model
Price
 $1, $3.07-$4.05
 
 $1, $3.19
 
 

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
17


Water Island Event-Driven Fund  Portfolio Information

November 30, 2021 (Unaudited)

Performance^ (annualized returns as of November 30, 2021)

  One
Year
 Five
Year
 Ten
Year
 Since
Inception*
 

Water Island Event-Driven Fund Class R

  

3.02

%

  

4.14

%

  

2.16

%

  

2.37

%

 

Water Island Event-Driven Fund Class I

  

3.24

%

  

4.41

%

  

2.42

%

  

2.62

%

 

Water Island Event-Driven Fund, Class A**

  

-0.41

%

  

3.46

%

  

N/A

   

1.78

%

 

ICE BofA 3-Month Treasury Bill Index

  

0.05

%

  

1.15

%

  

0.63

%

  

0.58

%

 

Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance, and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from the amount reported in the Financial Highlights. Contractual fee waivers are currently in effect. Without such fee waivers, performance numbers would be reduced. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com. This table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^ After sales charge.

* Class R and Class I inception: 10/1/10; Class A inception: 6/1/13. The "Since Inception" returns for securities indices are for the inception date of Class R and Class I shares.

** Class A shares are subject to a maximum front-end sales load of 3.25% of the offering price and are also subject to a 1.00% contingent deferred sales load on purchases at or above $250,000 purchased without a front-end sales charge and redeemed within 18 months of purchase.

The Total Annual Fund Operating Expenses for Class R, Class I and Class A are 1.98%, 1.73% and 2.00%, respectively. The Adviser has contractually agreed to limit the total annual operating expenses of the Fund, not including taxes, interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses, and other costs incurred in connection with the purchase or sale of portfolio securities so they do not exceed 1.69%, 1.44% and 1.69% for Class R, Class I and Class A, respectively. The agreement remains in effect until September 30, 2022, unless terminated earlier by the Board of Trustees. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.

The ICE BofA U.S. 3-Month Treasury Bill Index (formerly named, ICE BofA Merrill Lynch U.S. 3-Month Treasury Bill Index) tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.

An investor may not invest directly in an index.

www.arbitragefunds.com | 1-800-295-4485
18


Water Island Event-Driven Fund  Portfolio Information (continued)

November 30, 2021 (Unaudited)

Growth of $10,000 Investment

The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund over ten years. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

  

Sector Weighting

The following chart shows the sector weightings of the Water Island Event-Driven Fund's investments (including short sales and excluding derivatives) as of the report date.

* Concentration Risk: If a large percentage of mergers or event-driven investment opportunities taking place within the U.S. are within one industry over a given period of time, the Fund may invest a large portion of its assets in securities of issuers in a single industry for that period of time. During such a period of concentration, the Fund may be subject to greater volatility with respect to its portfolio securities than a fund that is more broadly diversified.

Semi-Annual Report | November 30, 2021
19


Water Island Event-Driven Fund  Portfolio of Investments

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

COMMON STOCKS - 99.69%

 

Aerospace & Defense - 2.36%

 

Aerojet Rocketdyne Holdings, Inc.(a)

  

71,960

  

$

3,025,198

  

Auto Parts & Equipment - 1.08%

 

Veoneer, Inc.(a)(b)

  

39,002

   

1,388,471

  

Biotechnology - 2.28%

 

Dicerna Pharmaceuticals, Inc.(b)(c)

  

50,337

   

1,913,309

  

Swedish Orphan Biovitrum AB(b)

  

41,244

   

1,007,826

  
   

2,921,135

  

Chemicals - 3.93%

 

Kraton Corp.(b)

  

21,400

   

985,684

  

Recticel SA

  

31,826

   

598,437

  

Rogers Corp.(a)(b)

  

12,674

   

3,455,186

  
   

5,039,307

  

Commercial Services - 11.32%

 

Afterpay Ltd., ADR(a)(b)

  

6,899

   

534,534

  

Bakkt Holdings, Inc.(b)(c)(d)

  

29,314

   

457,591

  

GreenSky, Inc., Class A(b)

  

128,417

   

1,456,249

  

IHS Markit Ltd.(a)

  

71,806

   

9,178,243

  

Moneylion, Inc.(b)(d)

  

218,409

   

921,686

  

RR Donnelley & Sons Co.(b)

  

187,844

   

1,983,633

  
   

14,531,936

  

Computers & Computer Services - 1.14%

 

Avast Plc(e)

  

66,516

   

535,909

  

McAfee Corp., Class A

  

35,725

   

923,491

  
   

1,459,400

  

Construction Materials - 1.04%

 

Forterra, Inc.(b)

  

56,115

   

1,334,976

  

Diversified Financial Services - 0.60%

 

Intertrust N.V.(b)(e)

  

16,836

   

389,512

  

Sanne Group Plc

  

31,615

   

381,781

  
   

771,293

  

Electric - 1.77%

 

PNM Resources, Inc.

  

46,113

   

2,270,604

  

Electronics - 3.32%

 

Coherent, Inc.(a)(b)

  

16,467

   

4,263,800

  

Engineering & Construction - 1.55%

 

Sydney Airport(b)

  

335,297

   

1,983,836

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
20


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

COMMON STOCKS - 99.69% (Continued)

 

Entertainment - 0.16%

 

Cineplex, Inc.(b)

  

23,133

  

$

212,234

  

Food - 1.90%

 

Sanderson Farms, Inc.(a)

  

12,392

   

2,326,970

  

Stryve Foods, Inc., Class A(b)(d)

  

29,191

   

113,845

  
   

2,440,815

  

Healthcare - Products - 3.35%

 

Hill-Rom Holdings, Inc.(a)

  

27,672

   

4,302,996

  

Healthcare - Services - 4.70%

 

PPD, Inc.(a)(b)

  

127,530

   

6,006,663

  

UpHealth, Inc.(b)(d)

  

8,340

   

21,767

  
   

6,028,430

  

Home Furnishings - 0.51%

 

Casper Sleep, Inc.(b)

  

99,776

   

652,535

  

Insurance - 6.73%

 

Hartford Financial Services Group, Inc. (The)

  

5,355

   

353,965

  

Willis Towers Watson Plc(a)

  

36,658

   

8,278,843

  
   

8,632,808

  

Internet - 0.37%

 

Just Eat Takeaway.com N.V.(b)(e)

  

7,623

   

477,131

  

Lodging - 0.21%

 

Crown Resorts Ltd.(b)

  

33,674

   

264,530

  

Machinery - Diversified - 3.59%

 

Neles Oyj

  

27,894

   

416,628

  

Welbilt, Inc.(b)

  

177,792

   

4,188,779

  
   

4,605,407

  

Real Estate Investment Trusts - 10.76%

 

Columbia Property Trust, Inc.

  

102,222

   

1,962,662

  

Cominar Real Estate Investment Trust

  

122,842

   

1,103,938

  

Corepoint Lodging, Inc.(b)

  

51,091

   

788,334

  

CoreSite Realty Corp.

  

19,283

   

3,298,357

  

CyrusOne, Inc.(a)

  

25,622

   

2,280,871

  

MGM Growth Properties LLC, Class A(a)

  

32,000

   

1,171,520

  

Monmouth Real Estate Investment Corp.(a)

  

153,905

   

3,196,607

  
   

13,802,289

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
21


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

COMMON STOCKS - 99.69% (Continued)

 

Retail - 0.51%

 

Vivo Energy Plc(e)

  

376,395

  

$

660,774

  

Semiconductors - 10.64%

 

DSP Group, Inc.(b)

  

69,106

   

1,519,641

  

Magnachip Semiconductor Corp.(b)

  

72,698

   

1,314,380

  

Xilinx, Inc.(a)

  

47,335

   

10,813,681

  
   

13,647,702

  

Software - 18.36%

 

Blue Prism Group Plc(b)

  

80,477

   

1,390,325

  

Change Healthcare, Inc.(a)(b)

  

251,567

   

5,101,779

  

Five9, Inc.(b)(c)

  

22,305

   

3,174,671

  

Inovalon Holdings, Inc., Class A(b)(f)

  

37,435

   

1,534,835

  

Kaleyra, Inc.(b)

  

22,292

   

233,620

  

MINDBODY, Inc., Class A(b)(f)

  

48,463

   

1,809,400

  

Momentive Global, Inc.(a)(b)

  

68,535

   

1,400,170

  

Nuance Communications, Inc.(a)(b)

  

125,032

   

6,938,026

  

Pluralsight, Inc., Class A(b)(f)

  

85,955

   

1,978,271

  
   

23,561,097

  

Telecommunications - 1.92%

 

NeoPhotonics Corp.(a)(b)

  

85,994

   

1,321,728

  

Vonage Holdings Corp.(b)

  

55,303

   

1,140,348

  
   

2,462,076

  

Transportation - 4.42%

 

Kansas City Southern

  

17,191

   

5,000,003

  

Teekay LNG Partners LP

  

39,712

   

672,324

  
   

5,672,327

  

Water - 1.17%

 

Suez SA

  

66,940

   

1,498,216

  
TOTAL COMMON STOCKS
(Cost $122,637,381)
  

127,911,323

  

RIGHTS(b) - 0.05%

 

Bristol-Myers Squibb Co. CVR

  

67,803

   

67,803

  

CA Immobilien Anlagen AG CVR(f)

  

18,714

   

  
TOTAL RIGHTS
(Cost $110,781)
  

67,803

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
22


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CORPORATE BONDS - 1.03%

 

Telecommunications - 1.03%

 

Cincinnati Bell, Inc.(e)

 

07/15/2024

  

7.000

%

 

$

1,305,000

  

$

1,327,837

  
TOTAL CORPORATE BONDS
(Cost $1,311,908)
  

1,327,837

  

CONVERTIBLE CORPORATE BONDS - 2.55%

 

Auto Manufacturers - 0.27%

 

Lightning eMotors, Inc.(e)

 

05/15/2024

  

7.500

%

  

403,000

   

338,337

  

Entertainment - 0.28%

 

Cineplex, Inc.(e)

 

09/30/2025

  

5.750

%

  

392,000

   

361,501

  

Healthcare - Services - 0.42%

 

UpHealth, Inc.(e)

 

06/15/2026

  

6.250

%

  

616,000

   

533,150

  

Pharmaceuticals - 1.12%

 

Dermira, Inc.

 

05/15/2022

  

3.000

%

  

1,430,000

   

1,440,725

  

Software - 0.46%

 

Kaleyra, Inc.(e)

 

06/01/2026

  

6.125

%

  

584,000

   

592,091

  
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $3,325,276)
  

3,265,804

  

 

  

Shares

 

Value

 

WARRANTS(b) - 0.05%

 

Auto Manufacturers - 0.04%

 
Lightning eMotors, Inc., Exercise Price $11.50,
Expires 05/18/2025(d)
  

35,043

  

$

49,060

  

Commercial Services - 0.01%

 

Moneylion, Inc., Exercise Price $11.50, Expires 06/01/2027

  

22,640

   

17,886

  

Healthcare - Services - 0.00%(g)

 

UpHealth, Inc., Exercise Price $11.50, Expires 07/01/2024

  

834

   

400

  
TOTAL WARRANTS
(Cost $0)
  

67,346

  

PREFERRED STOCKS - 0.11%

 

Entertainment - 0.11%

 

1317774 B.C. Ltd.

  

2,753

   

141,158

  
TOTAL PREFERRED STOCKS
(Cost $223,571)
  

141,158

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
23


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

PRIVATE INVESTMENTS(b)(d)(f)(h) - 0.17%

 

Fast Capital LLC

  

22,800

  

$

22,800

  

Fuse LLC

  

56,600

   

173,933

  

Fuse Sponsor Capital, Z2 Shares

  

5,660

   

22,917

  
TOTAL PRIVATE INVESTMENTS
(Cost $80,993)
  

219,650

  

 

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(b) - 0.57%

 

Call Options Purchased - 0.27%

 

Acceleron Pharma, Inc.

 

12/2021

 

$

180.00

  

$

0

   

84

  

$

0

  
Advanced Micro
Devices, Inc.
 
  

12/2021

  

145.00

   

1,013,568

   

64

   

103,040

  
  

12/2021

  

150.00

   

649,317

   

41

   

50,943

  
Canadian Pacific
Railway Ltd.
 
  

12/2021

  

78.00

   

1,246,534

   

178

   

7,120

  
  

12/2021

  

80.00

   

1,246,534

   

178

   

3,115

  
Sportsman's Warehouse
Holdings, Inc.
 

12/2021

  

17.50

   

272,480

   

160

   

7,600

  
Trillium
Therapeutics, Inc.
 

12/2021

  

20.00

   

0

   

148

   

0

  

Zendesk, Inc.

 

12/2021

  

95.00

   

1,970,723

   

193

   

171,770

  
TOTAL CALL OPTIONS PURCHASED
(Cost $275,909)
  

343,588

  

Put Options Purchased - 0.30%

 

Bakkt Holdings, Inc.

 
  

12/2021

  

25.00

   

82,733

   

53

   

59,890

  
  

12/2021

  

30.00

   

85,855

   

55

   

89,650

  

Five9, Inc.

 
  

12/2021

  

145.00

   

1,394,834

   

98

   

82,810

  
  

12/2021

  

150.00

   

1,565,630

   

110

   

128,700

  
  

12/2021

  

155.00

   

227,728

   

16

   

23,840

  
TOTAL PUT OPTIONS PURCHASED
(Cost $278,397)
  

384,890

  
TOTAL PURCHASED OPTIONS
(Cost $554,306)
  

728,478

  
Total Investments - 104.22%
(Cost $128,244,216)
          

133,729,399

  

Liabilities in Excess of Other Assets - (4.22%)(i)

          

(5,415,990

)

 

NET ASSETS - 100.00%

         

$

128,313,409

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
24


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Portfolio Footnotes

(a)  Security, or a portion of security, is being held as collateral for short sales, written option contracts or forward foreign currency exchange contracts. At November 30, 2021, the aggregate fair market value of those securities was $45,217,824, representing 35.24% of net assets.

(b)  Non-income-producing security.

(c)  Underlying security for a written/purchased call/put option.

(d)  Restricted securities (including private placements) – The Fund may own investment securities that have other legal or contractual limitations. At the end of the period, the value of restricted securities (excluding 144A issues) amounted to $1,783,599 or 1.39% of net assets.

Restricted Security

 

Acquisition Date

 

Acquisition Cost

 

Bakkt Holdings, Inc.

 

10/06/2021

 

$

293,140

  

Fast Capital LLC

 

08/18/2020

  

23,591

  

Fuse LLC

 

06/19/2020

  

52,176

  

Fuse Sponsor Capital, Z2 Shares

 

06/19/2020

  

5,226

  
Lightning eMotors, Inc., Exercise Price $11.50,
Expires 05/18/2025
 

04/28/2021

  

  

Moneylion, Inc.

 

09/14/2021

  

1,868,733

  

Stryve Foods, Inc.

 

07/09/2021

  

291,910

  

UpHealth, Inc.

 

05/25/2021

  

83,400

  

Total

   

$

2,618,176

  

(e)  Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of November 30, 2021, these securities had a total value of $5,216,242 or 4.07% of net assets.

(f)  Security fair valued using significant unobservable inputs and classified as a Level 3 security. As of November 30, 2021, the total fair market value of these securities was $5,542,156, representing 4.32% of net assets.

(g)  Less than 0.005% of net assets.

(h)  Represents a holding that is a direct investment into a private company and is not a listed or publicly traded entity.

(i)  Includes cash held as collateral for short sales and written option contracts.

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (15.69%)

 

Commercial Services - (0.48%)

 

Bakkt Holdings, Inc.

  

(4,747

)

 

$

(74,101

)

 

Square, Inc., Class A

  

(2,587

)

  

(538,950

)

 
   

(613,051

)

 

Construction Materials - (0.06%)

 

Forterra, Inc.

  

(3,048

)

  

(72,512

)

 

Electronics - (0.73%)

 

II-VI, Inc.

  

(14,985

)

  

(937,012

)

 

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
25


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  

Shares

 

Value

 

COMMON STOCKS - (15.69%) (Continued)

 

Entertainment - (0.13%)

 

Cineplex, Inc.

  

(3,228

)

 

$

(29,615

)

 

Penn National Gaming, Inc.

  

(2,755

)

  

(141,139

)

 
   

(170,754

)

 

Internet - (1.23%)

 

Zendesk, Inc.

  

(15,420

)

  

(1,574,536

)

 

Machinery - Diversified - (0.29%)

 

Valmet Oyj

  

(9,150

)

  

(375,648

)

 

Semiconductors - (10.07%)

 

Advanced Micro Devices, Inc.

  

(81,577

)

  

(12,919,350

)

 

Transportation - (2.70%)

 

Canadian Pacific Railway Ltd.

  

(49,579

)

  

(3,472,017

)

 
TOTAL COMMON STOCKS
(Proceeds $15,100,583)
  

(20,134,880

)

 
TOTAL SECURITIES SOLD SHORT
(Proceeds $15,100,583)
 

$

(20,134,880

)

 

 

WRITTEN OPTIONS

 Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

Written Call Options

 

Bakkt Holdings, Inc.

 

12/2021

 

$

40.00

  

$

(82,733

)

  

(53

)

 

$

(1,192

)

 
Dicerna
Pharmaceuticals,
Inc.
 

01/2022

  

40.00

   

(406,707

)

  

(107

)

  

(2,943

)

 
TOTAL WRITTEN CALL OPTIONS
(Premiums received $39,601)
  

(4,135

)

 
TOTAL WRITTEN OPTIONS
(Premiums received $39,601)
 

$

(4,135

)

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
26


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

EQUITY SWAP CONTRACTS

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Goldman
Sachs &
Co./
Monthly
 
 
 Equiniti
Group
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
95 bps
(0.995%)
 




05/10/2022
 

$

  

$

  

$

  

GBP

451,084

  

$

  
Goldman
Sachs &
Co./
Monthly
 
 
 Sanne
Group
Plc
 
 
 
 Paid
1 Month
SONIA
Plus
45 bps
(0.496%)
 




06/16/2022
  

   

   

  

GBP

453,682

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 GCP
Student
Living
Plc
 
 
 Paid
1 Month
SONIA
Plus
47 bps
(0.516%)
 




07/16/2022
  

   

   

  

GBP

282,407

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 Meggitt
Plc
 
 
 
 
 Paid
1 Month
SONIA
Plus
55 bps
(0.596%)
 




08/04/2022
  

   

   

  

GBP

994,204

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 CNP
Assurance
 
 
 
 
 Paid
1 Week
ESTR
Plus
55 bps
(0.000%)
 




11/02/2022
  

   

   

  

EUR

1,400,842

   

  
Goldman
Sachs &
Co./
Monthly
 
 
 Distell
Group
Holdings
Ltd.
 
 
 Paid
1 Month
JIBAR
Plus
150 bps
(4.992%)
 




11/18/2022
  

   

   

  

ZAR

4,770,211

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 S&P
Global,
Inc.
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
  
 
 
 
 
 
                     

 

 

 

  

(-0.320

%)

 

08/08/2023

  

   

   

  

USD

9,286,866

   

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
27


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
  
 Vici
Properties,
Inc.
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/08/2023
 

$

  

$

  

$

  

USD

1,188,966

  

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 Goldman
Sachs
Group,
Inc.
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/18/2023
  

   

   

  

USD

1,467,954

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 iShares
Russell
2000
ETF
 
 
 
 Received
1 Month-
Federal
Rate
Minus
88 bps
(-0.800%)
 





08/18/2023
  

   

   

  

USD

523,172

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 NortonLifeLock,
Inc.
 
 
 
 
 
 Received
1 Month-
Federal
Rate
Minus
40 bps
(-0.320%)
 





08/18/2023
  

   

   

  

USD

50,048

   

  
Morgan
Stanley &
Co./
Monthly
 
 
 Distell
Group
Holdings
Ltd.
 
 
 Paid
1 Month
SABOR
Plus
125 bps
(4.590%)
 




11/17/2023
  

   

   

  

ZAR

1,738,046

   

  
            

$

      

$

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
28


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Appreciation
 

USD

2,407,188

  

AUD

3,279,000

  

Morgan Stanley & Co.

 

12/15/2021

 

$

69,434

  

CAD

33,800

  

USD

26,449

  

Morgan Stanley & Co.

 

12/15/2021

  

13

  

USD

1,945,664

  

CAD

2,440,400

  

Morgan Stanley & Co.

 

12/15/2021

  

35,073

  

EUR

55,800

  

USD

62,996

  

Morgan Stanley & Co.

 

12/15/2021

  

315

  

USD

6,565,224

  

EUR

5,554,200

  

Morgan Stanley & Co.

 

12/15/2021

  

263,404

  

USD

2,138,640

  

GBP

1,581,400

  

Morgan Stanley & Co.

 

12/15/2021

  

35,031

  

SEK

439,700

  

USD

48,480

  

Morgan Stanley & Co.

 

12/15/2021

  

313

  

USD

1,129,923

  

SEK

9,759,500

  

Morgan Stanley & Co.

 

12/15/2021

  

46,942

  
  

$

450,525

  
Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Depreciation
 

AUD

142,400

  

USD

103,081

  

Morgan Stanley & Co.

 

12/15/2021

 

$

(1,557

)

 

CAD

264,100

  

USD

209,967

  

Morgan Stanley & Co.

 

12/15/2021

  

(3,205

)

 

EUR

3,234,600

  

USD

3,792,123

  

Morgan Stanley & Co.

 

12/15/2021

  

(122,131

)

 

USD

109,062

  

EUR

96,600

  

Morgan Stanley & Co.

 

12/15/2021

  

(542

)

 

GBP

248,400

  

USD

336,715

  

Morgan Stanley & Co.

 

12/15/2021

  

(6,289

)

 

SEK

431,700

  

USD

49,490

  

Morgan Stanley & Co.

 

12/15/2021

  

(1,586

)

 

USD

66,214

  

SEK

602,100

  

Morgan Stanley & Co.

 

12/15/2021

  

(599

)

 
  

$

(135,909

)

 

The following is a summary of investments classified by country exposure:

Country

 

% of Net Assets(a)

 

United Kingdom

  

15.50

%

 

Australia

  

2.17

%

 

Sweden

  

1.87

%

 

Canada

  

1.42

%

 

France

  

1.17

%

 

Republic of Korea

  

1.02

%

 

Netherlands

  

0.68

%

 

Bermuda

  

0.52

%

 

Belgium

  

0.47

%

 

Czech Republic

  

0.42

%

 

Finland

  

0.32

%

 

Italy

  

0.18

%

 

Austria

  

0.00

%(b)

 

United States

  

78.48

%

 

Liabilities in Excess of Other Assets

  

(4.22

)%

 
   

100.00

%

 

(a)  These percentages represent long positions only and are not net of short positions.

(b)  Less than 0.005% of net assets.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
29


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Abbreviations:

AB - Aktiebolag is the Swedish term for a limited company.

ADR - American Depositary Receipt

AG - Aktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e., owned by shareholders.

AUD - Australian dollar

bps - Basis Points. 100 Basis Points is equal to 1 percentage point.

CAD - Canadian dollar

CVR - Contingent Value Rights

ESTR - Euro Short-term Rate

ETF - Exchange-Traded Fund

EUR - Euro

GBP - British pound

JIBAR - Johannesburg Interbank Agreed Rate

LLC - Limited Liability Company

LP - Limited Partnership

Ltd. - Limited

N.V. - Naamloze Vennootschap is the Dutch term for a public limited liability corporation.

Oyj - Osakeyhtio is the Finnish equivalent of a public limited company.

Plc - Public Limited Company

SA - Generally designates corporations in various countries, mostly those employing civil law. This translates literally in all languages mentioned as anonymous company.

SABOR - South African Benchmark Overnight Rate

SEK - Swedish krona

SONIA - Sterling OverNight Index Average

S&P - Standard & Poor's

USD - United States Dollar

ZAR - South African rand

The following table summarizes the Water Island Event-Driven Fund's investments and derivative financial instruments categorized in the fair value hierarchy as of November 30, 2021:

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets

 

Common Stocks

 

Aerospace & Defense

 

$

3,025,198

  

$

  

$

  

$

3,025,198

  

Auto Parts & Equipment

  

1,388,471

   

   

   

1,388,471

  

Biotechnology

  

2,921,135

   

   

   

2,921,135

  

Chemicals

  

5,039,307

   

   

   

5,039,307

  

Commercial Services

  

14,531,936

   

   

   

14,531,936

  

Computers & Computer Services

  

1,459,400

   

   

   

1,459,400

  

Construction Materials

  

1,334,976

   

   

   

1,334,976

  

Diversified Financial Services

  

771,293

   

   

   

771,293

  

Electric

  

2,270,604

   

   

   

2,270,604

  

Electronics

  

4,263,800

   

   

   

4,263,800

  

Engineering & Construction

  

1,983,836

   

   

   

1,983,836

  

Entertainment

  

212,234

   

   

   

212,234

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
30


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Food

 

$

2,440,815

  

$

  

$

  

$

2,440,815

  

Healthcare - Products

  

4,302,996

   

   

   

4,302,996

  

Healthcare - Services

  

6,028,430

   

   

   

6,028,430

  

Home Furnishings

  

652,535

   

   

   

652,535

  

Insurance

  

8,632,808

   

   

   

8,632,808

  

Internet

  

477,131

   

   

   

477,131

  

Lodging

  

264,530

   

   

   

264,530

  

Machinery - Diversified

  

4,605,407

   

   

   

4,605,407

  

Real Estate Investment Trusts

  

13,802,289

   

   

   

13,802,289

  

Retail

  

660,774

   

   

   

660,774

  

Semiconductors

  

13,647,702

   

   

   

13,647,702

  

Software

  

18,238,591

   

   

5,322,506

   

23,561,097

  

Telecommunications

  

2,462,076

   

   

   

2,462,076

  

Transportation

  

5,672,327

   

   

   

5,672,327

  

Water

  

1,498,216

   

   

   

1,498,216

  

Rights

  

   

67,803

   

   

67,803

  

Corporate Bonds**

  

   

1,327,837

   

   

1,327,837

  

Convertible Corporate Bonds**

  

   

3,265,804

   

   

3,265,804

  

Warrants

  

67,346

   

   

   

67,346

  

Preferred Stocks

 

Entertainment

  

   

141,158

   

   

141,158

  

Private Investments

  

   

   

219,650

   

219,650

  

Purchased Options

  

728,478

   

   

   

728,478

  

TOTAL

 

$

123,384,641

  

$

4,802,602

  

$

5,542,156

  

$

133,729,399

  

Other Financial Instruments***

 

Assets

 
Forward Foreign Currency
Exchange Contracts
 

$

  

$

450,525

  

$

  

$

450,525

  

Equity Swaps

  

0

   

0

   

   

0

  

Liabilities

 

Common Stocks**

  

(20,134,880

)

  

   

   

(20,134,880

)

 

Written Options

  

(4,135

)

  

   

   

(4,135

)

 
Forward Foreign Currency
Exchange Contracts
  

   

(135,909

)

  

   

(135,909

)

 

TOTAL

 

$

(20,139,015

)

 

$

314,616

  

$

  

$

(19,824,399

)

 

*  Refer to footnote 2 where leveling hierarchy is defined.

**  Refer to Portfolio of Investments for sector information.

***  Other financial instruments are instruments such as written options, securities sold short, equity swaps and forward foreign currency exchange contracts.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
31


Water Island Event-Driven Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended November 30, 2021:

Investments
in Securities
 Balance as of
May 31, 2021
 Realized
Gain
(Loss)
 Change in
Unrealized
Appreciation
(Depreciation)
 

Purchases

 Sales
Proceeds
 Transfers
into
Level 3
 Transfers
out of
Level 3
 Balance as of
November 30,
2021
 Net change in
Unrealized
Appreciation
(Depreciation)
from
investments
still held
as of
November 30,
2021
 
Common
Stocks
 

$

6,055,654

  

$

247,381

  

$

(120,283

)

 

$

1,512,151

  

$

(2,372,397

)

 

$

  

$

  

$

5,322,506

  

$

107,467

  

Rights

  

43,889

   

81,275

   

(3,858

)

  

   

(121,306

)

  

   

   

   

  
Convertible
Corporate
Bonds
  

1,081,737

   

   

55,939

   

   

   

   

(1,137,676

)

  

   

  
Private
Investments
  

79,400

   

   

139,984

   

266

   

   

   

   

219,650

   

139,984

  

Total

 

$

7,260,680

  

$

328,656

  

$

71,782

  

$

1,512,417

  

$

(2,493,703

)

 

$

  

$

(1,137,676

)

 

$

5,542,156

  

$

247,451

  

The following table summarizes the quantitative inputs used for investments categorized as Level 3 of the fair value hierarchy as of November 30, 2021:

Investments in
Securities
 Fair Value at
November 30,
2021
 Valuation
Technique
 Unobservable
Input
 Range of
Values
 Weighted
Average
 
Common Stocks
 
 
 
 
 
 

$

5,322,506




 Deal Value,
Liquidation
Value
 
 
 
 Final
determination
on Dissent,
Final
Liquidation
Value
 $23.02-$41
 
 
 
 
 
 

$

33.07
 
 
 
 
 
 
Private
Investments
 219,650
 Cost, Model
Driven
 Cost, Model
Price
 $1, $3.07-$4.05
 
 

$

1, $3.19
 
 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
32


Water Island Credit Opportunities Fund  Portfolio Information

November 30, 2021 (Unaudited)

Performance^ (annualized returns as of November 30, 2021)

 One
Year
 Five
Year
 Ten
Year
 Since
Inception*
 

Water Island Credit Opportunities Fund, Class R

  

3.06

%

  

3.48

%

  

N/A

   

2.92

%

 

Water Island Credit Opportunities Fund, Class I

  

3.33

%

  

3.74

%

  

N/A

   

3.16

%

 

Water Island Credit Opportunities Fund, Class A**

  

-0.32

%

  

2.80

%

  

N/A

   

2.46

%

 

ICE BofA 3-Month Treasury Bill Index

  

0.05

%

  

1.15

%

  

N/A

   

0.68

%

 

Bloomberg US Aggregate Bond Index

  

-1.15

%

  

3.65

%

  

N/A

   

2.75

%

 

Current performance may be higher or lower than performance quoted above. Any performance data quoted represents past performance and the investment return and principal value of an investment in the Fund will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Returns shown above include the reinvestment of all dividends and capital gains. Performance results do not include adjustments made for financial reporting purposes in accordance with U.S. generally accepted accounting principles and may differ from the amount reported in the Financial Highlights. Contractual fee waivers are currently in effect. Without such fee waivers, performance numbers would be reduced. You can obtain performance data current to the most recent month end by calling 1-800-295-4485 or going to www.arbitragefunds.com. This table does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

^ After sales charge.

* Class R and Class I inception: 10/1/12; Class A inception: 6/1/13. The "Since Inception" returns for securities indices are for the inception date of Class R and Class I shares.

** Class A shares are subject to a maximum front-end sales load of 3.25% of the offering price and are also subject to a 1.00% contingent deferred sales load on purchases at or above $250,000 purchased without a front-end sales charge and redeemed within 18 months of purchase.

The Total Annual Fund Operating Expenses for Class R, Class I and Class A are 1.77%, 1.52% and 1.77%, respectively. The Adviser has contractually agreed to limit the total annual operating expenses of the Fund, not including taxes, interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses and other costs incurred in connection with the purchase or sale of portfolio securities so they do not exceed 1.23%, 0.98% and 1.23% for Class R, Class I and Class A, respectively. The agreement remains in effect until September 30, 2022, unless terminated earlier by the Board of Trustees. These expense ratios are as stated in the current prospectus and may differ from the expense ratios disclosed in the financial highlights in this report.

The ICE BofA U.S. 3-Month Treasury Bill Index (formerly named, ICE BofA Merrill Lynch U.S. 3-Month Treasury Bill Index) tracks the performance of the U.S. dollar denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months.

The Bloomberg U.S. Aggregate Bond Index is a market value-weighted index of investment grade fixed-rated debt issues, including government, corporate, asset-backed and mortgage-backed securities with a maturity of one year or more.

An investor may not invest directly in an index.

Semi-Annual Report | November 30, 2021
33


Water Island Credit Opportunities Fund  Portfolio Information (continued)

November 30, 2021 (Unaudited)

Growth of $10,000 Investment

The chart represents historical performance of a hypothetical investment of $10,000 in the Class R shares of the Fund since inception. Past performance does not guarantee future results. This chart does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.

  

Sector Weighting

The following chart shows the sector weightings of the Water Island Credit Opportunities Fund investments (including short sales and excluding derivatives) as of the report date.

* Concentration Risk: If a large percentage of mergers or event-driven investment opportunities taking place within the U.S. are within one industry over a given period of time, the Fund may invest a large portion of its assets in securities of issuers in a single industry for that period of time. During such a period of concentration, the Fund may be subject to greater volatility with respect to its portfolio securities than a fund that is more broadly diversified.

www.arbitragefunds.com | 1-800-295-4485
34


Water Island Credit Opportunities Fund  Portfolio of Investments

November 30, 2021 (Unaudited)

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

BANK LOANS - 3.60%

 

Chemicals - 0.55%

 
Zep Inc., 2017 1st Lien
Term Loan, Variable Rate,
(3 mo. USD LIBOR
plus 4.00%)
 

08/12/2024

  

5.000

%

 

$

725,393

  

$

717,051

  

Computers & Computer Services - 3.05%

 
NeuStar Inc.,
2018 Term Loan B4, TBD(a)
 

08/08/2024

  

TBD

   

4,000,000

   

4,005,000

  
TOTAL BANK LOANS
(Cost $4,727,444)
  

4,722,051

  

CORPORATE BONDS - 66.41%

 

Aerospace & Defense - 1.29%

 

Boeing Co. (The)(b)

 

05/01/2050

  

5.805

%

  

1,250,000

   

1,686,013

  

Banks - 0.78%

 

CIT Group, Inc.

 

08/01/2023

  

5.000

%

  

50,000

   

52,750

  
Truist Bank, Variable Rate,
(3 mo. USD LIBOR
plus 0.65%)
 

03/15/2028

  

0.766

%

  

1,000,000

   

969,502

  
   

1,022,252

  

Chemicals - 5.17%

 
Kraton Polymers LLC / Kraton
Polymers Capital Corp.(c)
 

12/15/2025

  

4.250

%

  

3,028,000

   

3,126,410

  

Tronox, Inc.(c)

 

05/01/2025

  

6.500

%

  

3,500,000

   

3,661,875

  
   

6,788,285

  

Commercial Services - 6.77%

 
Jaguar Holding Co. II /
PPD Development LP(c)
 

06/15/2028

  

5.000

%

  

2,500,000

   

2,678,125

  

Modulaire Global Finance Plc(c)

 

02/15/2023

  

8.000

%

  

3,425,000

   

3,474,662

  

RR Donnelley & Sons Co.(c)

 

11/01/2026

  

6.125

%

  

2,500,000

   

2,736,700

  
   

8,889,487

  

Computers & Computer Services - 0.86%

 

Dell International LLC / EMC Corp.

 

10/01/2026

  

4.900

%

  

1,000,000

   

1,129,490

  

Construction Materials - 1.34%

 
Forterra Finance LLC /
FRTA Finance Corp.(c)
 

07/15/2025

  

6.500

%

  

1,663,000

   

1,756,544

  

Distribution/Wholesale - 1.51%

 

KAR Auction Services, Inc.(c)(d)

 

06/01/2025

  

5.125

%

  

2,000,000

   

1,985,000

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
35


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CORPORATE BONDS - 66.41% (Continued)

 

Entertainment - 1.17%

 
Scientific Games
International, Inc.(c)(d)
 

10/15/2025

  

5.000

%

 

$

1,500,000

  

$

1,539,375

  

Food - 10.30%

 

B&G Foods, Inc.(b)(d)

 

04/01/2025

  

5.250

%

  

1,500,000

   

1,522,500

  
Chobani LLC /
Chobani Finance
Corp., Inc.(b)(c)
 

04/15/2025

  

7.500

%

  

4,097,000

   

4,235,274

  

Fresh Market, Inc. (The)(c)

 

05/01/2023

  

9.750

%

  

6,088,000

   

6,247,810

  

US Foods, Inc.(b)(c)

 

04/15/2025

  

6.250

%

  

1,451,000

   

1,510,055

  
   

13,515,639

  

Hand/Machine Tools - 2.38%

 
Werner FinCo LP /
Werner FinCo, Inc.(b)(c)
 

07/15/2025

  

8.750

%

  

3,000,000

   

3,127,500

  

Healthcare - Products - 3.74%

 

Hill-Rom Holdings, Inc.(b)(c)

 

09/15/2027

  

4.375

%

  

4,736,000

   

4,912,878

  

Machinery - Diversified - 3.54%

 

JPW Industries Holding Corp.(c)

 

10/01/2024

  

9.000

%

  

2,000,000

   

2,085,000

  

Welbilt, Inc.(b)

 

02/15/2024

  

9.500

%

  

2,500,000

   

2,556,250

  
   

4,641,250

  

Media - 3.92%

 

Cengage Learning, Inc.(b)(c)

 

06/15/2024

  

9.500

%

  

1,000,000

   

1,010,000

  

Meredith Corp.

 

02/01/2026

  

6.875

%

  

4,000,000

   

4,137,520

  
   

5,147,520

  

Office/Business Equip - 2.15%

 

Xerox Holdings Corp.(c)

 

08/15/2025

  

5.000

%

  

2,745,000

   

2,820,488

  

Oil & Gas - 2.43%

 
Par Petroleum LLC / Par Petroleum
Finance Corp.(c)
 

12/15/2025

  

7.750

%

  

3,190,000

   

3,190,000

  

Packaging & Containers - 2.98%

 

LABL, Inc.(b)(c)

 

07/15/2026

  

6.750

%

  

2,500,000

   

2,562,500

  

LABL, Inc.(c)

 

07/15/2027

  

10.500

%

  

1,293,000

   

1,351,185

  
   

3,913,685

  

Pipelines - 1.11%

 

Enable Midstream Partners LP(b)

 

05/15/2024

  

3.900

%

  

1,250,000

   

1,311,833

  

Enable Midstream Partners LP

 

05/15/2028

  

4.950

%

  

125,000

   

139,281

  
   

1,451,114

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
36


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CORPORATE BONDS - 66.41% (Continued)

 

Real Estate Investment Trusts - 1.59%

 
Uniti Group LP / Uniti Fiber
Holdings, Inc. /
CSL Capital LLC(c)
 

02/15/2025

  

7.875

%

 

$

2,000,000

  

$

2,091,240

  

Retail - 2.03%

 

Golden Nugget, Inc.(c)

 

10/15/2024

  

6.750

%

  

2,645,000

   

2,658,225

  

Software - 6.63%

 
Change Healthcare Holdings LLC /
Change Healthcare
Finance, Inc.(b)(c)
 

03/01/2025

  

5.750

%

  

2,000,000

   

2,006,990

  

Dun & Bradstreet Corp. (The)(b)(c)

 

02/15/2027

  

10.250

%

  

2,000,000

   

2,125,000

  

Granite Merger Sub 2, Inc.(c)

 

07/15/2027

  

11.000

%

  

4,000,000

   

4,565,000

  
   

8,696,990

  

Telecommunications - 3.37%

 

Cincinnati Bell, Inc.(c)

 
  

07/15/2024

  

7.000

%

  

2,300,000

   

2,340,250

  
  

10/15/2025

  

8.000

%

  

2,000,000

   

2,080,000

  
   

4,420,250

  

Transportation - 1.35%

 

GasLog Ltd.

 

03/22/2022

  

8.875

%

  

1,748,000

   

1,774,220

  
TOTAL CORPORATE BONDS
(Cost $86,683,690)
  

87,157,445

  

CONVERTIBLE CORPORATE BONDS - 27.63%

 

Aerospace & Defense - 2.29%

 

Kaman Corp.(b)

 

05/01/2024

  

3.250

%

  

3,000,000

   

3,004,500

  

Auto Manufacturers - 0.87%

 

Lightning eMotors, Inc.(c)

 

05/15/2024

  

7.500

%

  

1,370,000

   

1,150,178

  

Computers & Computer Services - 1.47%

 

Pure Storage, Inc.(b)

 

04/15/2023

  

0.125

%

  

1,500,000

   

1,931,550

  

Diversified Financial Services - 1.11%

 

WisdomTree Investments, Inc.(c)

 

06/15/2026

  

3.250

%

  

1,500,000

   

1,456,875

  

Entertainment - 0.40%

 

Cineplex, Inc.(c)

 

09/30/2025

  

5.750

%

  

567,000

   

522,885

  

Healthcare - Services - 0.63%

 

UpHealth, Inc.(c)

 

06/15/2026

  

6.250

%

  

951,000

   

823,094

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
37


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

CONVERTIBLE CORPORATE BONDS - 14.71% (Continued)

 

Internet - 6.01%

 

fuboTV, Inc.(c)

 

02/15/2026

  

3.250

%

 

$

2,500,000

  

$

2,150,509

  

Twitter, Inc.

 

06/15/2024

  

0.250

%

  

1,500,000

   

1,636,866

  

Zendesk, Inc.

 

06/15/2025

  

0.625

%

  

3,500,000

   

4,098,500

  
   

7,885,875

  

Pharmaceuticals - 6.26%

 

Dermira, Inc.

 

05/15/2022

  

3.000

%

  

1,938,000

   

1,952,535

  

Flexion Therapeutics, Inc.

 

05/01/2024

  

3.375

%

  

4,249,000

   

4,227,755

  

Paratek Pharmaceuticals, Inc.(b)

 

05/01/2024

  

4.750

%

  

2,250,000

   

2,038,275

  
   

8,218,565

  

Software - 6.06%

 

Nuance Communications, Inc.

 

12/15/2035

  

1.000

%

  

1,000,000

   

2,293,455

  

Kaleyra, Inc.(c)

 

06/01/2026

  

6.125

%

  

1,900,000

   

1,926,322

  

Five9, Inc.

 

06/01/2025

  

0.500

%

  

3,000,000

   

3,735,225

  
   

7,955,002

  

Telecommunications - 2.53%

 

Vonage Holdings Corp.

 

06/01/2024

  

1.750

%

  

2,500,000

   

3,319,871

  
TOTAL CONVERTIBLE CORPORATE BONDS
(Cost $35,197,105)
  

36,268,395

  

 

  

Shares

 

Value

 

WARRANTS(e) - 0.06%

 

Auto Manufacturers - 0.06%

 
Lightning eMotors, Inc., Exercise Price $11.50,
Expires 05/18/2025(f)
  

53,913

  

$

75,478

  
TOTAL WARRANTS
(Cost $0)
    

75,478

  

PREFERRED STOCKS - 0.95%

 

Real Estate Investment Trusts - 0.95%

 

Monmouth Real Estate Investment Corp., Series C

  

50,000

   

1,250,500

  
TOTAL PREFERRED STOCKS
(Cost $1,268,710)
    

1,250,500

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
38


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

  Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

PURCHASED OPTIONS(e) - 0.20%

 

Call Options Purchased - 0.08%

 

B&G Foods, Inc.

 

01/2022

 

$

30.00

  

$

451,950

   

150

  

$

19,500

  

Diversey Holdings Ltd.

 

12/2021

  

17.50

   

171,340

   

130

   

1,950

  

KAR Auction Services, Inc.

 

01/2022

  

17.50

   

322,285

   

215

   

7,525

  

Par Pacific Holdings, Inc.

 

12/2021

  

17.50

   

243,720

   

180

   

1,350

  

Scientific Games Corp.

 
  

12/2021

  

95.00

   

767,040

   

120

   

3,000

  
  

01/2022

  

85.00

   

639,200

   

100

   

10,500

  

SPDR S&P 500 ETF Trust

 
  

12/2021

  

475.00

   

5,694,500

   

125

   

10,625

  
  

01/2022

  

480.00

   

9,111,200

   

200

   

53,200

  
TOTAL CALL OPTIONS PURCHASED
(Cost $249,716)
          

107,650

  

Put Options Purchased - 0.12%

 

Invesco QQQ Trust Series 1

 

12/2021

  

375.00

   

19,691,000

   

500

   

157,250

  
TOTAL PUT OPTIONS PURCHASED
(Cost $190,421)
          

157,250

  
TOTAL PURCHASED OPTIONS
(Cost $440,137)
          

264,900

  

 

  

Yield

 

Shares

 

Value

 

SHORT-TERM INVESTMENTS - 6.89%

 

Money Market Funds

 
Morgan Stanley Institutional Liquidity Fund -
Government Portfolio
  

0.026

%(g)

  

4,518,146

  

$

4,518,146

  
State Street Institutional U.S. Government
Money Market Fund, Premier Class
  

0.063

%(g)

  

4,518,145

   

4,518,145

  
   

9,036,291

  
TOTAL SHORT-TERM INVESTMENTS
(Cost $9,036,291)
  

9,036,291

  
Total Investments - 105.74%
(Cost $137,353,377)
  

138,775,060

  

Liabilities in Excess of Other Assets - (5.74%)(h)

  

(7,531,499

)

 

NET ASSETS - 100.00%

 

$

131,243,561

  

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
39


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Portfolio Footnotes

(a)  This position represents an unsettled loan commitment at period end. Certain details associated with this purchase are not known prior to the settlement date, including coupon rate, which will be adjusted on settlement date.

(b)  Security, or a portion of security, is being held as collateral for short sales, written option contracts or forward foreign currency exchange contracts. At November 30, 2021, the aggregate fair market value of those securities was $27,543,346, representing 20.99% of net assets.

(c)  Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. As of November 30, 2021, these securities had a total value of $79,907,949 or 60.89% of net assets.

(d)  Underlying security for a written/purchased call/put option.

(e)  Non-income-producing security.

(f)  Restricted securities (including private placements) - The Fund may own investment securities that have other legal or contractual limitations. At the end of the period, the value of restricted securities (excluding 144A issues) amounted to $75,478 or 0.06% of net assets.

Restricted Security

 

Acquisition Date

 

Acquisition Cost

 
Lightning eMotors, Inc., Exercise Price $11.50,
Expires 05/18/2025
 

04/28/2021

 

$

  

Total

   

$

  

(g)  Rate shown is the 7-day effective yield as of November 30, 2021.

(h)  Includes cash held as collateral for short sales and written option contracts.

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (8.70%)

 

Aerospace & Defense - (0.19%)

 

Kaman Corp.

  

(6,900

)

 

$

(255,300

)

 

Chemicals - (0.02%)

 

Diversey Holdings Ltd.

  

(2,000

)

  

(26,360

)

 

Computers & Computer Services - (0.88%)

 

Pure Storage, Inc., Class A

  

(37,100

)

  

(1,148,987

)

 

Distribution/Wholesale - (0.07%)

 

KAR Auction Services, Inc.

  

(6,000

)

  

(89,940

)

 

Diversified Financial Services - (0.20%)

 

WisdomTree Investments, Inc.

  

(42,100

)

  

(258,494

)

 

Entertainment - (0.23%)

 

Cineplex, Inc.

  

(33,300

)

  

(305,512

)

 

Food - (0.24%)

 

B&G Foods, Inc.

  

(10,600

)

  

(319,378

)

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
40


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

SCHEDULE OF SECURITIES SOLD SHORT

 

Shares

 

Value

 

COMMON STOCKS - (8.70%) (Continued)

 

Internet - (2.18%)

 

fuboTV, Inc.

  

(15,133

)

 

$

(296,909

)

 

Twitter, Inc.

  

(13,400

)

  

(588,796

)

 

Zendesk, Inc.

  

(19,300

)

  

(1,970,723

)

 
   

(2,856,428

)

 

Oil & Gas - (0.02%)

 

Par Pacific Holdings, Inc.

  

(2,160

)

  

(29,246

)

 

Pharmaceuticals - (0.09%)

 

Paratek Pharmaceuticals, Inc.

  

(27,450

)

  

(115,839

)

 

Software - (3.17%)

 

Five9, Inc.

  

(14,500

)

  

(2,063,785

)

 

Nuance Communications, Inc.

  

(37,700

)

  

(2,091,973

)

 
   

(4,155,758

)

 

Telecommunications - (1.41%)

 

Vonage Holdings Corp.

  

(89,700

)

  

(1,849,614

)

 
TOTAL COMMON STOCKS
(Proceeds $10,849,364)
  

(11,410,856

)

 

 

  Maturity
Date
 

Rate

 Principal
Amount
 

Value

 

U.S. TREASURY & GOVERNMENT AGENCIES - (2.64%)

 

Sovereign - (2.64%)

 

U.S. Treasury Bond

 

02/15/2050

  

2.000

%

 

$

(1,240,000

)

 

$

(1,295,606

)

 

U.S. Treasury Note

 

02/28/2025

  

1.125

%

  

(1,080,000

)

  

(1,087,383

)

 

U.S. Treasury Note

 

04/30/2026

  

0.750

%

  

(1,100,000

)

  

(1,082,727

)

 
   

(3,465,716

)

 
TOTAL U.S. TREASURY & GOVERNMENT AGENCIES
(Proceeds $3,628,232)
  

(3,465,716

)

 
TOTAL SECURITIES SOLD SHORT
(Proceeds $14,477,596)
 

$

(14,876,572

)

 

 

WRITTEN OPTIONS

 Expiration
Date
 Exercise
Price
 Notional
Amount
 

Contracts

 

Value

 

Written Put Options

 

Invesco QQQ Trust Series 1

 

12/2021

 

$

360.00

  

$

(19,691,000

)

  

(500

)

 

$

(77,750

)

 
TOTAL WRITTEN PUT OPTIONS
(Premiums received $104,949)
  

(77,750

)

 
TOTAL WRITTEN OPTIONS
(Premiums received $104,949)
 

$

(77,750

)

 

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
41


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

EQUITY SWAP CONTRACTS

Swap
Counterparty/
Payment
Frequency
 Reference
Obligation
 Rate
Paid/
Received
by the
Fund
 Termination
Date
 Upfront
Payments
Paid
 Upfront
Payments
Received
 Market
Value
 Notional
Amount
 Unrealized
Appreciation
 
Morgan
Stanley &
Co./
Monthly
 
 
 
 SPDR
Bloomberg
High Yield
Bond ETF
 
 
 
 Received
1 Month-
Federal
Rate
Minus
328 bps
(-3.230%)
 

08/18/2023

 

$

  

$

  

$

  

USD

1,484,937

  

$

  
Morgan
Stanley &
Co./
Monthly
 
 
 
 iShares
iBoxx $
Investment
Grade
Corporate
Bond ETF
 
 Received
1 Month-
Federal
Rate
Minus
138 bps
(-1.330%)
 

08/18/2023

  

   

   

  

USD

1,476,966

   

  
            

$

    

$

  

OUTSTANDING FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Appreciation
 

CAD

90,300

  

USD

70,662

  

Morgan Stanley & Co.

 

12/15/2021

 

$

34

  

USD

521,137

  

CAD

657,800

  

Morgan Stanley & Co.

 

12/15/2021

  

6,145

  
  

$

6,179

  
Currency
Purchased
 

Currency Sold

 

Counterparty

 Settlement
Date
 Unrealized
Depreciation
 

CAD

332,000

  

USD

264,605

  

Morgan Stanley & Co.

 

12/15/2021

 

$

(4,682

)

 

USD

24,656

  

CAD

31,600

  

Morgan Stanley & Co.

 

12/15/2021

  

(84

)

 
  

$

(4,766

)

 

The following is a summary of investments classified by country exposure:

Country

 

% of Net Assets(a)

 

United Kingdom

  

2.65

%

 

Greece

  

1.35

%

 

Canada

  

0.40

%

 

United States

  

101.34

%

 

Liabilities in Excess of Other Assets

  

(5.74

)%

 
   

100.00

%

 

(a)  These percentages represent long positions only and are not net of short positions.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
42


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

Abbreviations:

bps - Basis Points. 100 Basis Points is equal to 1 percentage point.

CAD - Canadian dollar

ETF - Exchange-Traded Fund

LIBOR - London Interbank Offered Rate

LLC - Limited Liability Company

LP - Limited Partnership

Ltd. - Limited

Plc - Public Limited Company

S&P - Standard & Poor's

SPDR - Standard & Poor's Depositary Receipt

TBD - To Be Determined

USD - United States Dollar

The following table summarizes the Water Island Credit Opportunities Fund's investments and derivative financial instruments categorized in the fair value hierarchy as of November 30, 2021:

Investments in Securities at Value*

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Assets

 

Bank Loans

 

$

  

$

4,722,051

  

$

  

$

4,722,051

  

Corporate Bonds**

  

   

87,157,445

   

   

87,157,445

  

Convertible Corporate Bonds**

  

   

36,268,395

   

   

36,268,395

  

Warrants

  

75,478

   

   

   

75,478

  

Preferred Stocks**

  

1,250,500

   

   

   

1,250,500

  

Purchased Options

  

264,900

   

   

   

264,900

  

Short-Term Investments

  

9,036,291

   

   

   

9,036,291

  

TOTAL

 

$

10,627,169

  

$

128,147,891

  

$

  

$

138,775,060

  

Other Financial Instruments***

 

Assets

 
Forward Foreign Currency Exchange
Contracts
 

$

  

$

6,179

  

$

  

$

6,179

  

Equity Swaps

  

0

   

   

   

0

  

Liabilities

 

Common Stocks**

  

(11,410,856

)

  

   

   

(11,410,856

)

 

U.S. Treasury & Government Agencies

  

   

(3,465,716

)

  

   

(3,465,716

)

 

Written Options

  

(77,750

)

  

   

   

(77,750

)

 
Forward Foreign Currency Exchange
Contracts
  

   

(4,766

)

  

   

(4,766

)

 

TOTAL

 

$

(11,488,606

)

 

$

(3,464,303

)

 

$

  

$

(14,952,909

)

 

*  Refer to footnote 2 where leveling hierarchy is defined.

**  Refer to Portfolio of Investments for sector information.

***  Other financial instruments are instruments such as written options, securities sold short, equity swaps and forward foreign currency exchange contracts.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
43


Water Island Credit Opportunities Fund  Portfolio of Investments (continued)

November 30, 2021 (Unaudited)

The following is a reconciliation of the fair valuations using significant unobservable inputs (Level 3) for the Fund's assets and liabilities during the period ended November 30, 2021:

Investments
in Securities
 Balance
as of
May 31,
2021
 Accrued
Discounts/
(Premiums)
 Realized
Gain/
(Loss)
 Change in
Unrealized
Appreciation
(Depreciation)
 

Purchases

 Sales
Proceeds
 Amortization
Premium/
Discount
 Transfers
into
Level 3
 Transfers
out of
Level 3
 Balance
as of
November 30,
2021
 Net change in
Unrealized
Appreciation
(Depreciation)
from
investments
still held as of
November 30,
2021
 
Convertible
Corporate
Bonds
 

$

1,668,592

  

$

  

$

  

$

86,360

  

$

  

$

  

$

  

$

  

$

(1,754,952

)

 

$

  

$

  

Total

 

$

1,668,592

  

$

  

$

  

$

86,360

  

$

  

$

  

$

  

$

  

$

(1,754,952

)

 

$

  

$

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
44


This Page Intentionally Left Blank


The Arbitrage Funds

  

Arbitrage Fund

 Water Island
Event-Driven
Fund
 

ASSETS

 

Investments:

 

At cost of unaffiliated investments

 

$

1,498,647,024

  

$

128,244,216

  

At cost of affiliated investments

 

$

60,632,644

  

$

  

At fair value of unaffiliated investments (Note 2)

 

$

1,548,656,784

  

$

133,729,399

  

At fair value of affiliated investments (Note 2)

 

$

72,791,125

  

$

  

Cash

  

   

410,635

  

Cash denominated in foreign currency (Cost $340,468, $27,534 and $0)

  

340,468

   

27,549

  

Deposits with brokers for securities sold short (Note 2)

  

218,585,455

   

21,908,535

  

Segregated cash for collateral (Note 2)

  

229,919

   

1,297,007

  

Receivable for investment securities sold

  

16,365,814

   

465,501

  

Receivable for capital shares sold

  

3,707,693

   

62,753

  

Unrealized appreciation on forward foreign currency exchange contracts (Note 8)

  

7,436,358

   

450,525

  

Dividends and interest receivable

  

995,589

   

119,243

  

Prepaid expenses

  

47,078

   

29,193

  

Total Assets

  

1,869,156,283

   

158,500,340

  

LIABILITIES

 

Securities sold short, at value (Note 2) (proceeds $159,504,546, $15,100,583 and $14,477,596)

  

199,970,015

   

20,134,880

  

Due to bank

  

475,355

   

  

Written options, at value (Note 2) (premiums received $216,325, $39,601 and $104,949)

  

35,457

   

4,135

  

Line of credit payable (Note 4)

  

   

7,500,000

  

Payable for investment securities purchased

  

23,476,240

   

2,096,829

  

Unrealized depreciation on forward foreign currency exchange contracts (Note 8)

  

1,817,659

   

135,909

  

Payable for capital shares redeemed

  

1,693,742

   

43,618

  

Payable to Adviser (Note 5)

  

1,354,146

   

114,683

  

Payable to Distributor (Note 5)

  

43,061

   

2,278

  

Payable to Administrator (Note 5)

  

90,185

   

23,988

  

Payable to Transfer Agent (Note 5)

  

104,053

   

18,168

  

Payable to Custodian

  

51,135

   

26,966

  

Interest expense payable

  

180,496

   

23,139

  

Payable for swap reset

  

249,171

   

21,580

  

Audit and legal fees payable

  

67,617

   

18,159

  

Payable to Trustees

  

36,742

   

3,873

  

Chief Compliance Officer Fees payable (Note 5)

  

73,943

   

6,471

  

Chief Financial Officer Fees payable (Note 5)

  

5,145

   

934

  

Other accrued expenses and liabilities

  

30,941

   

11,321

  

Total Liabilities

  

229,755,103

   

30,186,931

  

NET ASSETS

 

$

1,639,401,180

  

$

128,313,409

  

NET ASSETS CONSIST OF:

 

Paid-in capital

  

1,613,577,695

   

171,893,977

  

Distributable earnings (Accumulated loss)

  

25,823,485

   

(43,580,568

)

 

NET ASSETS

 

$

1,639,401,180

  

$

128,313,409

  

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
46


  Statement of Assets and Liabilities

November 30, 2021 (Unaudited)

  Water Island
Credit
Opportunities Fund
 

ASSETS

 

Investments:

 

At cost of unaffiliated investments

 

$

137,353,377

  

At cost of affiliated investments

 

$

  

At fair value of unaffiliated investments (Note 2)

 

$

138,775,060

  

At fair value of affiliated investments (Note 2)

 

$

  

Cash

  

1

  

Cash denominated in foreign currency (Cost $340,468, $27,534 and $0)

  

  

Deposits with brokers for securities sold short (Note 2)

  

12,959,594

  

Segregated cash for collateral (Note 2)

  

1,633,088

  

Receivable for investment securities sold

  

2,008,698

  

Receivable for capital shares sold

  

219,319

  

Unrealized appreciation on forward foreign currency exchange contracts (Note 8)

  

6,179

  

Dividends and interest receivable

  

1,775,887

  

Prepaid expenses

  

41,206

  

Total Assets

  

157,419,032

  

LIABILITIES

 

Securities sold short, at value (Note 2) (proceeds $159,504,546, $15,100,583 and $14,477,596)

  

14,876,572

  

Due to bank

  

  

Written options, at value (Note 2) (premiums received $216,325, $39,601 and $104,949)

  

77,750

  

Line of credit payable (Note 4)

  

  

Payable for investment securities purchased

  

10,762,490

  

Unrealized depreciation on forward foreign currency exchange contracts (Note 8)

  

4,766

  

Payable for capital shares redeemed

  

281,550

  

Payable to Adviser (Note 5)

  

64,464

  

Payable to Distributor (Note 5)

  

1,997

  

Payable to Administrator (Note 5)

  

29,073

  

Payable to Transfer Agent (Note 5)

  

5,858

  

Payable to Custodian

  

9,428

  

Interest expense payable

  

19,905

  

Payable for swap reset

  

4,766

  

Audit and legal fees payable

  

17,250

  

Payable to Trustees

  

2,130

  

Chief Compliance Officer Fees payable (Note 5)

  

6,007

  

Chief Financial Officer Fees payable (Note 5)

  

763

  

Other accrued expenses and liabilities

  

10,702

  

Total Liabilities

  

26,175,471

  

NET ASSETS

 

$

131,243,561

  

NET ASSETS CONSIST OF:

 

Paid-in capital

  

131,797,385

  

Distributable earnings (Accumulated loss)

  

(553,824

)

 

NET ASSETS

 

$

131,243,561

  

Semi-Annual Report | November 30, 2021
47


The Arbitrage Funds

  

Arbitrage Fund

 Water Island
Event-Driven
Fund
 

PRICING OF SHARES:

 

CLASS R SHARES:

 

Net assets applicable to Class R shares

 

$

97,841,541

  

$

9,284,788

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

7,681,958

   

850,310

  

Net asset value and offering price per share

 

$

12.74

  

$

10.92

  

CLASS I SHARES:

 

Net assets applicable to Class I shares

 

$

1,483,896,220

  

$

116,746,261

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

112,113,426

   

10,590,561

  

Net asset value and offering price per share

 

$

13.24

  

$

11.02

  

CLASS C SHARES:

 

Net assets applicable to Class C shares

 

$

17,395,871

  

$

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

1,465,740

   

  

Net asset value and offering price per share(a)

 

$

11.87

  

$

  

CLASS A SHARES:

 

Net assets applicable to Class A shares

 

$

40,267,548

  

$

2,282,360

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

3,168,243

   

209,288

  

Net asset value and offering price per share(a)

 

$

12.71

  

$

10.91

  

Maximum offering price per share (NAV/(100% — maximum sales charge))

 

$

13.07

  

$

11.28

  

Maximum sales charge

  

2.75

%

  

3.25

%

 

(a)  Redemption price varies based on length of time held (Note 1).

See Notes to Financial Statements.

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48


  Statement of Assets and Liabilities

November 30, 2021 (Unaudited)

  Water Island
Credit
Opportunities Fund
 

PRICING OF SHARES:

 

CLASS R SHARES:

 

Net assets applicable to Class R shares

 

$

9,655,795

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

956,083

  

Net asset value and offering price per share

 

$

10.10

  

CLASS I SHARES:

 

Net assets applicable to Class I shares

 

$

121,479,831

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

12,084,676

  

Net asset value and offering price per share

 

$

10.05

  

CLASS C SHARES:

 

Net assets applicable to Class C shares

 

$

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

  

Net asset value and offering price per share(a)

 

$

  

CLASS A SHARES:

 

Net assets applicable to Class A shares

 

$

107,935

  

Shares of beneficial interest outstanding (unlimited number of shares authorized, no par value)

  

10,732

  

Net asset value and offering price per share(a)

 

$

10.06

  

Maximum offering price per share (NAV/(100% — maximum sales charge))

 

$

10.40

  

Maximum sales charge

  

3.25

%

 

Semi-Annual Report | November 30, 2021
49


The Arbitrage Funds

  

Arbitrage Fund

 Water Island
Event-Driven
Fund
 

INVESTMENT INCOME

 

Dividend income

 

$

9,255,317

  

$

384,298

  

Foreign taxes withheld on dividends

  

(360,467

)

  

(10,235

)

 

Interest income

  

366,152

   

125,711

  

Total Investment Income

  

9,261,002

   

499,774

  

EXPENSES

 

Investment advisory fees (Note 5)

  

8,638,754

   

737,554

  

Distribution and service fees (Note 5)

 

Class R

  

123,674

   

12,127

  

Class C

  

90,308

   

  

Class A

  

47,875

   

1,704

  

Administrative fees (Note 5)

  

182,026

   

31,865

  

Chief Compliance Officer fees (Note 5)

  

91,939

   

7,281

  

Trustees' fees

  

134,877

   

13,504

  

Dividend expense

  

46,447

   

  

Interest rebate expense

  

600,030

   

66,167

  

Transfer agent fees (Note 5)

  

688,810

   

73,662

  

Custodian and bank service fees

  

94,966

   

45,616

  

Registration and filing fees

  

47,146

   

25,251

  

Printing of shareholder reports

  

52,450

   

8,640

  

Professional fees

  

99,827

   

15,519

  

Line of credit interest expense (Note 4)

  

2,068

   

10,517

  

Insurance expense

  

30,052

   

2,355

  

Chief Financial Officer fees (Note 5)

  

29,688

   

5,630

  

Other expenses

  

40,504

   

10,519

  

Total Expenses

  

11,041,441

   

1,067,911

  

Fees waived and/or reimbursed by the Adviser, Class R (Note 5)

  

(28,107

)

  

(861

)

 

Fees waived and/or reimbursed by the Adviser, Class I (Note 5)

  

(420,800

)

  

(10,888

)

 

Fees waived and/or reimbursed by the Adviser, Class C (Note 5)

  

(5,130

)

  

  

Fees waived and/or reimbursed by the Adviser, Class A (Note 5)

  

(10,881

)

  

(122

)

 

Net Expenses

  

10,576,523

   

1,056,040

  

NET INVESTMENT INCOME (LOSS)

  

(1,315,521

)

  

(556,266

)

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES

 

Net realized gains (losses) from:

 

Unaffiliated investments

  

34,473,069

   

2,770,769

  

Purchased option contracts

  

2,599,996

   

236,178

  

Swap contracts

  

(18,225,236

)

  

(1,725,274

)

 

Securities sold short

  

(8,568,589

)

  

(1,331,747

)

 

Written option contracts

  

1,202,383

   

122,078

  

Forward currency contracts

  

1,693,012

   

219,121

  

Foreign currency transactions (Note 8)

  

(415,036

)

  

(12,445

)

 

See Notes to Financial Statements.

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50


  Statement of Operations

For the Six Months Ended November 30, 2021 (Unaudited)

  Water Island
Credit
Opportunities Fund
 

INVESTMENT INCOME

 

Dividend income

 

$

38,816

  

Foreign taxes withheld on dividends

  

  

Interest income

  

1,807,166

  

Total Investment Income

  

1,845,982

  

EXPENSES

 

Investment advisory fees (Note 5)

  

570,574

  

Distribution and service fees (Note 5)

 

Class R

  

11,120

  

Class C

  

  

Class A

  

124

  

Administrative fees (Note 5)

  

45,536

  

Chief Compliance Officer fees (Note 5)

  

5,801

  

Trustees' fees

  

11,038

  

Dividend expense

  

4,233

  

Interest rebate expense

  

42,340

  

Transfer agent fees (Note 5)

  

54,880

  

Custodian and bank service fees

  

12,860

  

Registration and filing fees

  

39,611

  

Printing of shareholder reports

  

9,450

  

Professional fees

  

14,196

  

Line of credit interest expense (Note 4)

  

2,344

  

Insurance expense

  

1,449

  

Chief Financial Officer fees (Note 5)

  

5,240

  

Other expenses

  

9,923

  

Total Expenses

  

840,719

  

Fees waived and/or reimbursed by the Adviser, Class R (Note 5)

  

(14,191

)

 

Fees waived and/or reimbursed by the Adviser, Class I (Note 5)

  

(177,617

)

 

Fees waived and/or reimbursed by the Adviser, Class C (Note 5)

  

  

Fees waived and/or reimbursed by the Adviser, Class A (Note 5)

  

(159

)

 

Net Expenses

  

648,752

  

NET INVESTMENT INCOME (LOSS)

  

1,197,230

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES

 

Net realized gains (losses) from:

 

Unaffiliated investments

  

845,684

  

Purchased option contracts

  

53,621

  

Swap contracts

  

(60,620

)

 

Securities sold short

  

(537,771

)

 

Written option contracts

  

51,341

  

Forward currency contracts

  

454

  

Foreign currency transactions (Note 8)

  

(147

)

 

Semi-Annual Report | November 30, 2021
51


The Arbitrage Funds

  

Arbitrage Fund

 Water Island
Event-Driven
Fund
 

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

 

$

(20,673,025

)

 

$

(48,391

)

 

Affiliated investments

  

(3,038,468

)

  

  

Securities sold short

  

(43,466,818

)

  

(5,926,515

)

 

Foreign currency transactions (Note 8)

  

13,994

   

(1,412

)

 

Purchased option contracts

  

2,773,530

   

324,214

  

Written option contracts

  

180,868

   

35,466

  

Forward currency contracts

  

7,765,608

   

530,566

  

NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS AND FOREIGN CURRENCIES

  

(43,684,712

)

  

(4,807,392

)

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(45,000,233

)

 

$

(5,363,658

)

 

See Notes to Financial Statements.

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52


  Statement of Operations

For the Six Months Ended November 30, 2021 (Unaudited)

  Water Island
Credit
Opportunities Fund
 

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

 

$

(1,263,551

)

 

Affiliated investments

  

  

Securities sold short

  

869,158

  

Foreign currency transactions (Note 8)

  

(182

)

 

Purchased option contracts

  

(95,999

)

 

Written option contracts

  

27,522

  

Forward currency contracts

  

13,092

  

NET REALIZED AND UNREALIZED LOSSES ON INVESTMENTS AND FOREIGN CURRENCIES

  

(97,398

)

 

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

 

$

1,099,832

  

Semi-Annual Report | November 30, 2021
53


The Arbitrage Funds

  

Arbitrage Fund

 
  Six Months
Ended
November 30,
2021
(Unaudited)
 Year Ended
May 31, 2021
 

FROM OPERATIONS

 

Net investment income (loss)

 

$

(1,315,521

)

 

$

1,889,199

  

Net realized gains (losses) from:

 

Unaffiliated investments

  

34,473,069

   

182,484,017

  

Purchased option contracts

  

2,599,996

   

2,387,236

  

Swap contracts

  

(18,225,236

)

  

(59,667,677

)

 

Securities sold short

  

(8,568,589

)

  

(109,802,820

)

 

Written option contracts

  

1,202,383

   

119,130

  

Forward currency contracts

  

1,693,012

   

(4,756,529

)

 

Foreign currency transactions

  

(415,036

)

  

(681,188

)

 

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

  

(20,673,025

)

  

81,360,181

  

Affiliated investments

  

(3,038,468

)

  

9,433,047

  

Securities sold short

  

(43,466,818

)

  

10,863,412

  

Foreign currency transactions

  

13,994

   

4,136

  

Purchased option contracts

  

2,773,530

   

(1,354,350

)

 

Written option contracts

  

180,868

   

  

Forward currency contracts

  

7,765,608

   

(5,032,588

)

 

Net increase (decrease) in net assets resulting from operations

  

(45,000,233

)

  

107,245,206

  

FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

 

Distributions from distributable earnings, Class R

  

   

(5,828,800

)

 

Distributions from distributable earnings, Class I

  

   

(77,238,670

)

 

Distributions from distributable earnings, Class C(a)

  

   

(1,172,789

)

 

Distributions from distributable earnings, Class A

  

   

(1,718,463

)

 

Decrease in net assets from distributions to shareholders

  

   

(85,958,722

)

 

FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):

 

Proceeds from shares sold

  

250,457,395

   

601,365,070

  

Shares issued in reinvestment of distributions

  

   

66,859,378

  

Payments for shares redeemed

  

(163,941,676

)

  

(471,800,936

)

 

Net increase (decrease) in net assets from capital share transactions

  

86,515,719

   

196,423,512

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

  

41,515,486

   

217,709,996

  

NET ASSETS

 

Beginning of period

  

1,597,885,694

   

1,380,175,698

  

End of period

 

$

1,639,401,180

  

$

1,597,885,694

  

(a)  Effective April 27, 2021, Class C shares of the Event-Driven Fund were converted to
Class I shares of the Fund, and Class C was abolished.

See Notes to Financial Statements.

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54


  Statement of Changes in Net Assets

  

Water Island Event-Driven Fund

 
  Six Months
Ended
November 30,
2021
(Unaudited)
 Year Ended
May 31, 2021
 

FROM OPERATIONS

 

Net investment income (loss)

 

$

(556,266

)

 

$

(308,619

)

 

Net realized gains (losses) from:

 

Unaffiliated investments

  

2,770,769

   

21,481,075

  

Purchased option contracts

  

236,178

   

(5,551

)

 

Swap contracts

  

(1,725,274

)

  

(3,277,975

)

 

Securities sold short

  

(1,331,747

)

  

(9,159,552

)

 

Written option contracts

  

122,078

   

36,803

  

Forward currency contracts

  

219,121

   

(312,861

)

 

Foreign currency transactions

  

(12,445

)

  

24,732

  

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated investments

  

(48,391

)

  

5,133,104

  

Affiliated investments

  

   

  

Securities sold short

  

(5,926,515

)

  

2,228,494

  

Foreign currency transactions

  

(1,412

)

  

866

  

Purchased option contracts

  

324,214

   

(156,778

)

 

Written option contracts

  

35,466

   

  

Forward currency contracts

  

530,566

   

(357,496

)

 

Net increase (decrease) in net assets resulting from operations

  

(5,363,658

)

  

15,326,242

  

FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

 

Distributions from distributable earnings, Class R

  

   

  

Distributions from distributable earnings, Class I

  

   

(250,689

)

 

Distributions from distributable earnings, Class C(a)

  

   

  

Distributions from distributable earnings, Class A

  

   

(1,490

)

 

Decrease in net assets from distributions to shareholders

  

   

(252,179

)

 

FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):

 

Proceeds from shares sold

  

11,718,938

   

28,932,531

  

Shares issued in reinvestment of distributions

  

   

243,637

  

Payments for shares redeemed

  

(14,635,547

)

  

(15,135,964

)

 

Net increase (decrease) in net assets from capital share transactions

  

(2,916,609

)

  

14,040,204

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

  

(8,280,267

)

  

29,114,267

  

NET ASSETS

 

Beginning of period

  

136,593,676

   

107,479,409

  

End of period

 

$

128,313,409

  

$

136,593,676

  

Semi-Annual Report | November 30, 2021
55


The Arbitrage Funds  Statement of Changes in Net Assets

  Water Island Credit
Opportunities Fund
 
  Six Months
Ended
November 30,
2021
(Unaudited)
 Year Ended
May 31, 2021
 

FROM OPERATIONS

 

Net investment income (loss)

 

$

1,197,230

  

$

1,843,661

  

Net realized gains (losses) from:

 

Unaffiliated Investments

  

845,684

   

3,994,378

  

Purchased option contracts

  

53,621

   

655,253

  

Swap contracts

  

(60,620

)

  

(376,581

)

 

Securities sold short

  

(537,771

)

  

(3,042,868

)

 

Written option contracts

  

51,341

   

166,314

  

Forward currency contracts

  

454

   

(24,429

)

 

Foreign currency transactions

  

(147

)

  

(1,681

)

 

Net change in unrealized appreciation (depreciation) on:

 

Unaffiliated Investments

  

(1,263,551

)

  

3,306,710

  

Securities sold short

  

869,158

   

(637,868

)

 

Foreign currency transactions

  

(182

)

  

87

  

Purchased option contracts

  

(95,999

)

  

(342,137

)

 

Written option contracts

  

27,522

   

7,644

  

Forward currency contracts

  

13,092

   

(11,679

)

 

Net increase (decrease) in net assets resulting from operations

  

1,099,832

   

5,536,804

  

FROM DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:

 

Distributions from distributable earnings, Class R

  

(128,978

)

  

(69,080

)

 

Distributions from distributable earnings, Class I

  

(1,752,757

)

  

(1,867,325

)

 

Distributions from distributable earnings, Class C(b)

  

   

(10,822

)

 

Distributions from distributable earnings, Class A

  

(1,436

)

  

(2,060

)

 

Decrease in net assets from distributions to shareholders

  

(1,883,171

)

  

(1,949,287

)

 

FROM CAPITAL SHARE TRANSACTIONS (NOTE 7):

 

Proceeds from shares sold

  

31,253,697

   

60,332,486

  

Shares issued in reinvestment of distributions

  

1,809,215

   

1,946,010

  

Payments for shares redeemed

  

(7,464,004

)

  

(20,726,297

)

 
Net increase (decrease) in net assets from capital share
transactions
  

25,598,908

   

41,552,199

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

  

24,815,569

   

45,139,716

  

NET ASSETS

 

Beginning of period

  

106,427,992

   

61,288,276

  

End of period

 

$

131,243,561

  

$

106,427,992

  

(b)  Effective April 27, 2021, Class C shares of the Credit Opportunities Fund were converted to Class I shares of the Fund, and Class C was abolished.

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
56


This Page Intentionally Left Blank


Arbitrage Fund – Class R  

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 
  

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

13.11

  

$

13.04

  

$

12.92

  

$

12.65

  

$

13.06

  

$

12.78

  
Income (loss) from
investment
operations
 
Net investment
income (loss)(a)
  

(0.02

)

  

(0.01

)(c)

  

(0.05

)

  

(0.03

)(c)

  

0.05

   

(0.13

)(b)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

(0.35

)

  

0.97

   

0.44

   

0.52

   

(0.01

)(c)

  

0.53

(d)

 
Total from investment
operations
  

(0.37

)

  

0.96

   

0.39

   

0.49

   

0.04

   

0.40

  

Less distributions

 
From net
investment
income
  

   

   

   

(0.06

)

  

(0.09

)

  

  
From net
realized gains
  

   

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Total distributions

  

   

(0.89

)

  

(0.27

)

  

(0.22

)

  

(0.45

)

  

(0.12

)

 
Proceeds from
redemption fees
collected
  

   

   

   

   

0.00

(e)

  

0.00

(e)

 
Net asset value,
end of period
 

$

12.74

  

$

13.11

  

$

13.04

  

$

12.92

  

$

12.65

  

$

13.06

  

Total return(f)

  

(2.82

%)(g)

  

7.58

%

  

3.07

%

  

3.89

%

  

0.31

%

  

3.17

%

 
Net assets, end of
period (in 000s)
 

$

97,842

  

$

97,909

  

$

98,715

  

$

163,349

  

$

222,309

  

$

340,353

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(h)

  

1.57

%(i)

  

1.64

%

  

1.66

%

  

1.94

%

  

1.91

%

  

1.87

%(b)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(h)(j)
  

1.51

%(i)

  

1.58

%

  

1.63

%

  

1.93

%

  

1.90

%

  

1.87

%(b)

 
Net investment
income (loss)
  

(0.31

%)(i)

  

(0.08

%)(c)

  

(0.36

%)

  

(0.20

%)(c)

  

0.41

%

  

(1.00

%)(b)

 
Portfolio turnover
rate
  

96

%(g)

  

300

%

  

273

%

  

419

%

  

362

%

  

363

%

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
58


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(c)  The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to timing of sales and redemptions of Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

(d)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.

(e)  Amount rounds to less than $0.01 per share.

(f)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(g)  Not annualized.

(h)  Dividend expense totaled 0.01% (annualized), 0.00%, 0.15%, 0.46%, 0.42%, and 0.36% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.11%, 0.01%, 0.00%, 0.01, and 0.03% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(i)  Annualized.

(j)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.43% (annualized), 1.47%, 1.47%, 1.47%, 1.47%, and 1.48% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
59


Arbitrage Fund – Class I  

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 
  

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

13.60

  

$

13.47

  

$

13.32

  

$

13.03

  

$

13.46

  

$

13.13

  
Income (loss) from
investment
operations
 
Net investment
income (loss)(a)
  

(0.01

)

  

0.02

   

(0.02

)

  

0.01

   

0.05

   

(0.10

)(b)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

(0.35

)

  

1.00

   

0.45

   

0.54

   

0.01

   

0.55

(c)

 
Total from investment
operations
  

(0.36

)

  

1.02

   

0.43

   

0.55

   

0.06

   

0.45

  

Less distributions

 
From net
investment
income
  

   

   

(0.01

)

  

(0.10

)

  

(0.13

)

  

  
From net
realized gains
  

   

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Total distributions

  

   

(0.89

)

  

(0.28

)

  

(0.26

)

  

(0.49

)

  

(0.12

)

 
Proceeds from
redemption fees
collected
  

   

   

   

   

0.00

(d)

  

0.00

(d)

 
Net asset value,
end of period
 

$

13.24

  

$

13.60

  

$

13.47

  

$

13.32

  

$

13.03

  

$

13.46

  

Total return(e)

  

(2.72

%)(f)

  

7.87

%

  

3.27

%

  

4.21

%

  

0.50

%

  

3.47

%

 
Net assets, end of
period (in 000s)
 

$

1,483,896

  

$

1,449,309

  

$

1,243,838

  

$

1,546,542

  

$

1,510,598

  

$

1,492,094

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(g)

  

1.32

%(h)

  

1.39

%

  

1.41

%

  

1.69

%

  

1.66

%

  

1.62

%(b)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(g)(i)
  

1.26

%(h)

  

1.33

%

  

1.38

%

  

1.68

%

  

1.65

%

  

1.62

%(b)

 
Net investment
income (loss)
  

(0.13

%)(h)

  

0.16

%

  

(0.13

%)

  

0.06

%

  

0.35

%

  

(0.76

%)(b)

 
Portfolio turnover
rate
  

96

%(f)

  

300

%

  

273

%

  

419

%

  

362

%

  

363

%

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
60


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(c)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.

(d)  Amount rounds to less than $0.01 per share.

(e)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(f)  Not annualized.

(g)  Dividend expense totaled 0.01% (annualized), 0.00%, 0.15%, 0.46%, 0.42%, and 0.36% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.11%, 0.01%, 0.00%, 0.01%, and 0.03% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(h)  Annualized.

(i)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.18% (annualized), 1.22%, 1.22%, 1.22%, 1.22%, and 1.23% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
61


Arbitrage Fund – Class C  

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 
  

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

12.26

  

$

12.34

  

$

12.34

  

$

12.12

  

$

12.54

  

$

12.37

  
Income (loss) from
investment operations
 

Net investment loss(a)

  

(0.07

)

  

(0.10

)(b)

  

(0.14

)

  

(0.12

)(b)

  

(0.07

)(b)

  

(0.22

)(c)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

(0.32

)

  

0.91

   

0.41

   

0.50

   

0.01

   

0.51

(d)

 
Total from investment
operations
  

(0.39

)

  

0.81

   

0.27

   

0.38

   

(0.06

)

  

0.29

  

Less distributions

 
From net
investment
income
  

   

   

   

   

(0.00

)(e)

  

  
From net
realized gains
  

   

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Total distributions

  

   

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 
Net asset value,
end of period
 

$

11.87

  

$

12.26

  

$

12.34

  

$

12.34

  

$

12.12

  

$

12.54

  

Total return(f)(g)

  

(3.18

%)(h)

  

6.77

%

  

2.24

%

  

3.11

%

  

(0.45

%)

  

2.38

%

 
Net assets, end of
period (in 000s)
 

$

17,396

  

$

18,043

  

$

19,860

  

$

19,050

  

$

22,917

  

$

26,900

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(i)

  

2.32

%(j)

  

2.39

%

  

2.41

%

  

2.69

%

  

2.66

%

  

2.62

%(c)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(i)(k)
  

2.26

%(j)

  

2.33

%

  

2.38

%

  

2.68

%

  

2.65

%

  

2.62

%(c)

 

Net investment loss

  

(1.06

%)(j)

  

(0.85

%)(b)

  

(1.16

%)

  

(0.94

%)(b)

  

(0.56

%)

  

(1.76

%)(c)

 
Portfolio turnover
rate
  

96

%(h)

  

300

%

  

273

%

  

419

%

  

362

%

  

363

%

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
62


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to timing of sales and redemptions of Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

(c)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(d)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.

(e)  Amount rounds to less than $0.01 per share.

(f)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(g)  Total return excludes sales charges, if any, and would be lower for the period presented if it reflected these charges.

(h)  Not annualized.

(i)  Dividend expense totaled 0.01% (annualized), 0.00%, 0.15%, 0.46%, 0.42%, and 0.36% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.11%, 0.01%, 0.00%, 0.01%, and 0.03% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(j)  Annualized.

(k)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 2.18% (annualized), 2.22%, 2.22%, 2.22%, 2.22%, and 2.23% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
63


Arbitrage Fund – Class A  

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 
  

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

13.08

  

$

13.01

  

$

12.90

  

$

12.63

  

$

13.07

  

$

12.79

  
Income (loss) from
investment operations
 
Net investment
income (loss)(a)
  

(0.04

)

  

(b)

  

(0.05

)

  

(0.02

)(d)

  

(b)

  

(0.13

)(c)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

(0.33

)

  

0.96

   

0.43

   

0.52

   

0.02

   

0.53

(e)

 
Total from investment
operations
  

(0.37

)

  

0.96

   

0.38

   

0.50

   

0.02

   

0.40

  

Less distributions

 
From net
investment income
  

   

   

   

(0.07

)

  

(0.10

)

  

  
From net
realized gains
  

   

(0.89

)

  

(0.27

)

  

(0.16

)

  

(0.36

)

  

(0.12

)

 

Total distributions

  

   

(0.89

)

  

(0.27

)

  

(0.23

)

  

(0.46

)

  

(0.12

)

 
Net asset value,
end of period
 

$

12.71

  

$

13.08

  

$

13.01

  

$

12.90

  

$

12.63

  

$

13.07

  

Total return(f)(g)

  

(2.83

%)(h)

  

7.60

%

  

3.00

%

  

3.94

%

  

0.21

%

  

3.17

%

 
Net assets, end of
period (in 000s)
 

$

40,268

  

$

32,624

  

$

17,762

  

$

18,341

  

$

16,740

  

$

10,012

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(i)

  

1.57

%(j)

  

1.64

%

  

1.66

%

  

1.94

%

  

1.91

%

  

1.87

%(c)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(i)(k)
  

1.51

%(j)

  

1.58

%

  

1.63

%

  

1.93

%

  

1.90

%

  

1.87

%(c)

 

Net investment loss

  

(0.54

%)(j)

  

(0.03

%)(d)

  

(0.40

%)

  

(0.19

%)(d)

  

(0.01

%)

  

(1.02

%)(c)

 
Portfolio turnover
rate
  

96

%(h)

  

300

%

  

273

%

  

419

%

  

362

%

  

363

%

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
64


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Amount rounds to less than $0.01 per share.

(c)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(d)  The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to timing of sales and redemptions of Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

(e)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of $0.01 per share.

(f)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(g)  Total return excludes sales charges, if any, and would be lower for the period presented if it reflected these charges.

(h)  Not annualized.

(i)  Dividend expense totaled 0.01% (annualized), 0.00%, 0.15%, 0.46%, 0.42%, and 0.36% of average net assets for the six months ended November 30, 2021, and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.11%, 0.01%, 0.00%, 0.01%, and 0.03% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(j)  Annualized.

(k)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.43% (annualized), 1.47%, 1.47%, 1.47%, 1.47%, and 1.48% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
65


Water Island Event-Driven Fund – Class R

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 
  

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

11.38

  

$

9.97

  

$

9.47

  

$

9.46

  

$

9.34

  

$

8.98

  
Income (loss) from
investment
operations
 
Net investment
income (loss)(a)
  

(0.06

)

  

(0.05

)

  

0.01

   

0.07

   

0.06

   

(0.04

)(b)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

(0.40

)

  

1.46

   

0.51

   

0.08

   

0.09

   

0.40

(c)

 
Total from investment
operations
  

(0.46

)

  

1.41

   

0.52

   

0.15

   

0.15

   

0.36

  

Less distributions

 
From net
investment
income
  

   

   

(0.02

)

  

(0.14

)

  

(0.03

)

  

  

Total distributions

  

   

   

(0.02

)

  

(0.14

)

  

(0.03

)

  

  
Proceeds from
redemption fees
collected
  

   

   

   

   

0.00

(d)

  

0.00

(d)

 
Net asset value,
end of period
 

$

10.92

  

$

11.38

  

$

9.97

  

$

9.47

  

$

9.46

  

$

9.34

  

Total return(e)

  

(4.04

%)(f)

  

14.14

%

  

5.49

%

  

1.60

%

  

1.56

%

  

4.01

%

 
Net assets, end of
period (in 000s)
 

$

9,285

  

$

10,116

  

$

7,694

  

$

30,423

  

$

45,383

  

$

70,277

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(g)

  

1.82

%(h)

  

1.98

%

  

2.11

%

  

2.58

%

  

2.59

%

  

2.56

%(b)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(g)(i)
  

1.80

%(h)

  

1.89

%

  

1.83

%

  

2.18

%

  

2.16

%

  

2.26

%

 
Net investment
income (loss)
  

(1.02

%)(h)

  

(0.51

%)

  

0.09

%

  

0.70

%

  

0.58

%

  

(0.45

%)(b)

 
Portfolio turnover
rate
  

101

%(f)

  

320

%

  

397

%

  

504

%

  

421

%

  

409

%

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
66


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.

(c)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.

(d)  Amount rounds to less than $0.01 per share.

(e)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(f)  Not annualized.

(g)  Dividend expense totaled 0.00% (annualized), 0.01%, 0.13%, 0.46%, 0.44%, and 0.53% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.11% (annualized), 0.19%, 0.01%, 0.03%, 0.03, and 0.04% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(h)  Annualized.

(i)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.69% (annualized), 1.69%, 1.69%, 1.69%, 1.69%, and 1.69% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
67


Water Island Event-Driven Fund – Class I

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 
  

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

11.47

  

$

10.05

  

$

9.54

  

$

9.53

  

$

9.43

  

$

9.04

  
Income (loss) from
investment
operations
 
Net investment
income (loss)(a)
  

(0.05

)

  

(0.03

)

  

0.02

   

0.09

   

0.04

   

(0.02

)(b)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

(0.40

)

  

1.48

   

0.53

   

0.09

   

0.12

   

0.41

(c)

 
Total from investment
operations
  

(0.45

)

  

1.45

   

0.55

   

0.18

   

0.16

   

0.39

  

Less distributions

 
From net
investment
income
  

   

(0.03

)

  

(0.04

)

  

(0.17

)

  

(0.06

)

  

  

Total distributions

  

   

(0.03

)

  

(0.04

)

  

(0.17

)

  

(0.06

)

  

  
Proceeds from
redemption fees
collected
  

   

   

   

   

0.00

(d)

  

0.00

(d)

 
Net asset value,
end of period
 

$

11.02

  

$

11.47

  

$

10.05

  

$

9.54

  

$

9.53

  

$

9.43

  

Total return(e)

  

(4.01

%)(f)

  

14.51

%

  

5.83

%

  

1.88

%

  

1.69

%

  

4.31

%

 
Net assets, end of
period (in 000s)
 

$

116,746

  

$

125,093

  

$

99,069

  

$

92,710

  

$

103,001

  

$

68,272

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(g)

  

1.57

%(h)

  

1.73

%

  

1.86

%

  

2.33

%

  

2.34

%

  

2.31

%(b)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(g)(i)
  

1.55

%(h)

  

1.64

%

  

1.58

%

  

1.93

%

  

1.91

%

  

2.01

%

 
Net investment
income (loss)
  

(0.80

%)(h)

  

(0.24

%)

  

0.20

%

  

0.92

%

  

0.46

%

  

(0.22

%)(b)

 
Portfolio turnover
rate
  

101

%(f)

  

320

%

  

397

%

  

504

%

  

421

%

  

409

%

 

See Notes to Financial Statements.

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68


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.

(c)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.

(d)  Amount rounds to less than $0.01 per share.

(e)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(f)  Not annualized.

(g)  Dividend expense totaled 0.00% (annualized), 0.01%, 0.13%, 0.46%, 0.44%, and 0.53% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.11% (annualized), 0.19%, 0.01%, 0.03%, 0.03%, and 0.04% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(h)  Annualized.

(i)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.44% (annualized), 1.44%, 1.44%, 1.44%, 1.44%, and 1.44% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
69


Water Island Event-Driven Fund – Class A

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

  Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 
  

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 

2017

 
Net asset value,
beginning of period
 

$

11.36

  

$

9.97

  

$

9.46

  

$

9.46

  

$

9.35

  

$

8.98

  
Income (loss) from
investment
operations
 
Net investment
income (loss)(a)
  

(0.10

)

  

(0.06

)

  

(0.00

)(c)

  

0.06

   

0.04

   

(0.05

)(b)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

(0.35

)

  

1.46

   

0.53

   

0.08

   

0.10

   

0.42

(d)

 
Total from investment
operations
  

(0.45

)

  

1.40

   

0.53

   

0.14

   

0.14

   

0.37

  

Less distributions

 
From net
investment
income
  

   

(0.01

)

  

(0.02

)

  

(0.14

)

  

(0.03

)

  

  

Total distributions

  

   

(0.01

)

  

(0.02

)

  

(0.14

)

  

(0.03

)

  

  
Net asset value,
end of period
 

$

10.91

  

$

11.36

  

$

9.97

  

$

9.46

  

$

9.46

  

$

9.35

  

Total return(e)(f)

  

(4.05

%)(g)

  

14.20

%

  

5.62

%

  

1.56

%

  

1.49

%

  

4.12

%

 
Net assets, end of
period (in 000s)
 

$

2,282

  

$

1,384

  

$

347

  

$

799

  

$

701

  

$

810

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(h)

  

1.82

%(i)

  

2.00

%

  

2.11

%

  

2.58

%

  

2.59

%

  

2.56

%(b)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(h)(j)
  

1.80

%(i)

  

1.91

%

  

1.83

%

  

2.18

%

  

2.16

%

  

2.26

%

 
Net investment
income (loss)
  

(1.84

%)(i)

  

(0.59

%)

  

0.02

%

  

0.65

%

  

0.41

%

  

(0.53

%)(b)

 
Portfolio turnover
rate
  

101

%(g)

  

320

%

  

397

%

  

504

%

  

421

%

  

409

%

 

See Notes to Financial Statements.

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70


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and 0.01% of average net assets.

(c)  Amount rounds to less than $0.01 per share.

(d)  Includes estimated proceeds from the Fund's participation in a class action lawsuit. This represents a non-recurring gain in the amount of less than $0.005 per share.

(e)  Total return excludes sales charges, if any, and would be lower for the period presented if it reflected these charges.

(f)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares or the imposition of any sales load.

(g)  Not annualized.

(h)  Dividend expense totaled 0.00% (annualized), 0.01%, 0.13%, 0.46%, 0.44%, and 0.53% of average net assets for the six months ended November 30, 2021, and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.11% (annualized), 0.21%, 0.01%, 0.03%, 0.03%, and 0.04% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(i)  Annualized.

(j)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.69% (annualized), 1.69%, 1.69%, 1.69%, 1.69%, and 1.69% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
71


Water Island Credit Opportunities Fund – Class R

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

 Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 

 

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 2017 
Net asset value,
beginning of period
 

$

10.16

  

$

9.64

  

$

9.70

  

$

9.77

  

$

9.67

  

$

9.69

  
Income (loss) from
investment
operations
 
Net investment
income(a)
  

0.09

   

0.22

   

0.24

   

0.31

   

0.20

   

0.23

(b)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

   

0.54

   

(0.01

)

  

(0.07

)

  

0.12

   

0.01

  
Total from investment
operations
  

0.09

   

0.76

   

0.23

   

0.24

   

0.32

   

0.24

  

Less distributions

 
From net
investment
income
  

(0.15

)

  

(0.24

)

  

(0.29

)

  

(0.31

)

  

(0.22

)

  

(0.26

)

 

Total distributions

  

(0.15

)

  

(0.24

)

  

(0.29

)

  

(0.31

)

  

(0.22

)

  

(0.26

)

 
Proceeds from
redemption fees
collected
  

   

   

   

   

   

0.00

(c)

 
Net asset value,
end of period
 

$

10.10

  

$

10.16

  

$

9.64

  

$

9.70

  

$

9.77

  

$

9.67

  

Total return(d)

  

0.77

%(e)

  

8.09

%

  

2.46

%

  

2.55

%

  

3.21

%

  

2.58

%

 
Net assets, end of
period (in 000s)
 

$

9,656

  

$

7,553

  

$

3,673

  

$

7,845

  

$

9,533

  

$

11,935

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(f)

  

1.63

%(g)

  

1.77

%

  

1.96

%

  

2.10

%(h)

  

2.27

%

  

1.96

%(b)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(f)(i)
  

1.31

%(g)

  

1.32

%

  

1.35

%

  

1.59

%(h)

  

1.95

%

  

1.66

%

 
Net investment
income
  

1.76

%(g)

  

2.20

%

  

2.48

%

  

3.18

%(h)

  

2.09

%

  

2.34

%(b)

 
Portfolio turnover
rate
  

79

%(e)

  

147

%

  

175

%

  

221

%

  

314

%

  

211

%

 

See Notes to Financial Statements.

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72


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(c)  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 periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(e)  Not annualized.

(f)  Dividend expense totaled 0.01% (annualized), 0.01%, 0.07%, 0.29%, 0.42%, and 0.16% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.08%, 0.05%, 0.01%, 0.03%, and 0.00% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(g)  Annualized.

(h)  Effective August 6, 2018, the investment adviser reduced the advisory fee paid by the Fund and agreed to increase the expense reimbursements it provides to the Fund by contractually limiting the Fund's total expenses (other than certain expenses noted in the Notes to Financial Statements) to 1.23% for Class R shares. Prior to August 6, 2018, the expense limitation had been 1.50%.

(i)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.23% (annualized), 1.23%, 1.23%, 1.29%, 1.50%, and 1.50% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
73


Water Island Credit Opportunities Fund – Class I

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

 Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 

 

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 2017 
Net asset value,
beginning of period
 

$

10.12

  

$

9.60

  

$

9.65

  

$

9.73

  

$

9.65

  

$

9.67

  
Income (loss) from
investment
operations
 
Net investment
income(a)
  

0.10

   

0.24

   

0.26

   

0.34

   

0.23

   

0.25

(b)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

(0.01

)

  

0.55

   

0.01

(c)

  

(0.08

)

  

0.11

   

0.02

  
Total from investment
operations
  

0.09

   

0.79

   

0.27

   

0.26

   

0.34

   

0.27

  

Less distributions

 
From net
investment
income
  

(0.16

)

  

(0.27

)

  

(0.32

)

  

(0.34

)

  

(0.26

)

  

(0.29

)

 

Total distributions

  

(0.16

)

  

(0.27

)

  

(0.32

)

  

(0.34

)

  

(0.26

)

  

(0.29

)

 
Net asset value,
end of period
 

$

10.05

  

$

10.12

  

$

9.60

  

$

9.65

  

$

9.73

  

$

9.65

  

Total return(d)

  

0.89

%(e)

  

8.29

%

  

2.82

%

  

2.70

%

  

3.61

%

  

2.78

%

 
Net assets, end of
period (in 000s)
 

$

121,480

  

$

98,777

  

$

56,869

  

$

49,795

  

$

36,207

  

$

44,159

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(f)

  

1.38

%(g)

  

1.52

%

  

1.71

%

  

1.85

%(h)

  

2.02

%

  

1.71

%(b)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(f)(i)
  

1.06

%(g)

  

1.07

%

  

1.10

%

  

1.32

%(h)

  

1.70

%

  

1.41

%

 
Net investment
income
  

2.01

%(g)

  

2.44

%

  

2.73

%

  

3.51

%(h)

  

2.34

%

  

2.62

%(b)

 
Portfolio turnover
rate
  

79

%(e)

  

147

%

  

175

%

  

221

%

  

314

%

  

211

%

 

See Notes to Financial Statements.

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74


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(c)  The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to timing of sales and redemptions of Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

(d)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares.

(e)  Not annualized.

(f)  Dividend expense totaled 0.01% (annualized), 0.01%, 0.07%, 0.29%, 0.42%, and 0.16% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.08%, 0.05%, 0.01%, 0.03%, and 0.00% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(g)  Annualized.

(h)  Effective August 6, 2018, the investment adviser reduced the advisory fee paid by the Fund and agreed to increase the expense reimbursements it provides to the Fund by contractually limiting the Fund's total expenses (other than certain expenses noted in the Notes to Financial Statements) to 0.98% for Class I shares. Prior to August 6, 2018, the expense limitation had been 1.25%.

(i)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 0.98% (annualized), 0.98%, 0.98%, 1.02%, 1.25%, and 1.25% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
75


Water Island Credit Opportunities Fund – Class A

Selected Per Share Data and Ratios for a Share Outstanding Throughout the Periods Presented:

 Six Months
Ended
November 30,
2021
 

Year Ended May 31,

 

 

(Unaudited)

 

2021

 

2020

 

2019

 

2018

 2017 
Net asset value,
beginning of period
 

$

10.12

  

$

9.60

  

$

9.65

  

$

9.73

  

$

9.66

  

$

9.67

  
Income (loss) from
investment
operations
 
Net investment
income(a)
  

0.09

   

0.22

   

0.23

   

0.31

   

0.17

   

0.23

(b)

 
Net realized and
unrealized gains
(losses) on
investments and
foreign currencies
  

   

0.54

   

0.01

(c)

  

(0.08

)

  

0.14

   

0.02

  
Total from investment
operations
  

0.09

   

0.76

   

0.24

   

0.23

   

0.31

   

0.25

  

Less distributions

 
From net
investment
income
  

(0.15

)

  

(0.24

)

  

(0.29

)

  

(0.31

)

  

(0.24

)

  

(0.26

)

 

Total distributions

  

(0.15

)

  

(0.24

)

  

(0.29

)

  

(0.31

)

  

(0.24

)

  

(0.26

)

 
Net asset value,
end of period
 

$

10.06

  

$

10.12

  

$

9.60

  

$

9.65

  

$

9.73

  

$

9.66

  

Total return(d)(e)

  

0.87

%(f)

  

8.02

%

  

2.56

%

  

2.45

%

  

3.10

%

  

2.58

%

 
Net assets, end of
period (in 000s)
 

$

108

  

$

97

  

$

88

  

$

121

  

$

153

  

$

107

  
RATIOS TO AVERAGE
NET ASSETS:
 

Gross expenses(g)

  

1.63

%(h)

  

1.77

%

  

1.96

%

  

2.10

%(i)

  

2.27

%

  

1.96

%(b)

 
Net expenses after
advisory fees
waived and
expenses
reimbursed(g)(j)
  

1.31

%(h)

  

1.32

%

  

1.35

%

  

1.58

%(i)

  

1.95

%

  

1.66

%

 
Net investment
income
  

1.76

%(h)

  

2.21

%

  

2.37

%

  

3.24

%(i)

  

1.81

%

  

2.35

%(b)

 
Portfolio turnover
rate
  

79

%(f)

  

147

%

  

175

%

  

221

%

  

314

%

  

211

%

 

See Notes to Financial Statements.

www.arbitragefunds.com | 1-800-295-4485
76


  Financial Highlights

(a)  Per share amounts were calculated using average shares outstanding for the period.

(b)  Includes a non-recurring refund by the custodian for overbilling of prior years' out-of-pocket fees. This amounted to less than $0.01 per share and is less than 0.005% of average net assets.

(c)  The amount shown for a share outstanding throughout the period may not correlate with the Statement of Operations for the period due to timing of sales and redemptions of Fund shares in relation to income earned and/or fluctuating market value of the investments of the Fund.

(d)  Total return is a measure of the change in the value of an investment in the Fund over the periods covered, which assumes any dividends or capital gains distributions are reinvested in shares of the Fund. Returns shown do not reflect the deduction of taxes a shareholder would pay on Fund distributions or the redemption of Fund shares or the imposition of any sales load.

(e)  Total return excludes sales charges, if any, and would be lower for the period presented if it reflected these charges.

(f)  Not annualized.

(g)  Dividend expense totaled 0.01% (annualized), 0.01%, 0.07%, 0.29%, 0.42%, and 0.16% of average net assets for the six months ended November 30, 2021, and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively. Interest rebate expense and line of credit interest expense totaled 0.07% (annualized), 0.08%, 0.05%, 0.01%, 0.03%, and 0.00% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

(h)  Annualized.

(i)  Effective August 6, 2018, the investment adviser reduced the advisory fee paid by the Fund and agreed to increase the expense reimbursements it provides to the Fund by contractually limiting the Fund's total expenses (other than certain expenses noted in the Notes to Financial Statements) to 1.23% for Class A shares. Prior to August 6, 2018, the expense limitation had been 1.50%.

(j)  Excluding dividend and interest expenses, the Fund's net expenses after advisory fees waived and expenses reimbursed would have been 1.23% (annualized), 1.23%, 1.23%, 1.28%, 1.50%, and 1.50% of average net assets for the six months ended November 30, 2021 and the years ended May 31, 2021, 2020, 2019, 2018 and 2017, respectively.

See Notes to Financial Statements.

Semi-Annual Report | November 30, 2021
77


The Arbitrage Funds  Notes to Financial Statements

November 30, 2021 (Unaudited)

1. ORGANIZATION

The Arbitrage Funds (the "Trust") is a Delaware statutory trust, which was organized on December 22, 1999 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company issuing its shares in series. Each series represents a distinct portfolio with its own investment objective and policies. The three series presently authorized are the Arbitrage Fund (the "Arbitrage Fund"), the Water Island Event-Driven Fund (the "Event-Driven Fund") and the Water Island Credit Opportunities Fund (the "Credit Opportunities Fund"), each a "Fund" and collectively the "Funds". The Arbitrage Fund and the Credit Opportunities Fund are each a diversified series of the Trust. The Event-Driven Fund is a non-diversified series of the Trust. The Funds' investments are managed by Water Island Capital, LLC (the "Adviser").

  

Commencement of Operations

 

Fund

 

Class R shares

 

Class I shares

 

Class C shares

 

Class A shares

 

Arbitrage Fund

 

September 18, 2000

 

October 17, 2003

 

June 1, 2012

 

June 1, 2013

 

Event-Driven Fund

 

October 1, 2010

 

October 1, 2010

 

N/A

 

June 1, 2013

 
Credit Opportunities
Fund
 

October 1, 2012

 

October 1, 2012

 

N/A

 

June 1, 2013

 

The investment objective of the Arbitrage Fund is to seek to achieve capital growth by engaging in merger arbitrage. The investment objective of the Event-Driven Fund is to seek to achieve capital growth by investing in companies that are impacted by corporate events such as mergers, acquisitions, asset sales, restructurings, refinancings, recapitalizations, reorganizations, or other special situations. The investment objective of the Credit Opportunities Fund is to seek to provide current income and capital growth by investing primarily in debt securities impacted by catalysts and events such as mergers, acquisitions, debt maturities, refinancings, regulatory changes, recapitalizations, reorganizations, restructurings, and other special situations.

The Arbitrage Fund's four classes of shares, Class R, Class I, Class C and Class A, and the Event-Driven Fund's and Credit Opportunities Fund's three classes of shares, Class R, Class I and Class A, represent interests in the same portfolio of investments and have the same rights, but differ primarily in the expenses to which they are subject and the investment eligibility requirements. Class R shares, Class C shares and Class A shares are subject to an annual distribution and servicing fee of up to 0.25%, 1.00% and 0.25%, respectively, of each Fund's average daily net assets attributable to Class R shares, Class C shares and Class A shares, respectively, whereas Class I shares are not subject to any distribution and servicing fees. Class C shares are also subject to a 1.00% contingent deferred sales charge on all purchases redeemed within 12 months of purchase. Class A shares of the Arbitrage Fund are sold subject to a maximum front-end sales load equal to 2.75% of the offering price and are also subject to a 1.00% contingent deferred sales load on purchases at or above $250,000, purchased without a front-end sales charge and redeemed within 18 months of purchase. Class A shares of the 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 $250,000 purchased without a front-end sales charge and redeemed within 18 months of purchase.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies followed by the Funds. These policies are in conformity with U.S. generally accepted accounting principles ("GAAP"). The Funds are considered investment companies for financial reporting purposes under GAAP and Accounting Standards Codification Topic 946 — Financial Services — Investment Companies.

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In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions which are affected by reference rate reform if certain criteria are met. Such provisions are elective and apply to all entities as of March 12, 2020 through December 31, 2022, subject to meeting certain criteria, that have transactions that reference the London Interbank Offered Rate ("LIBOR") or another reference rate that are discontinued because of reference rate reform. ASU 2020-04 had no impact on the Funds during the current reporting period.

In October 2020, FASB issued Accounting Standards Update No. 2020-08 ("ASU 2020-08"), "Receivables — Nonrefundable Fees and Other Costs (Codification Improvements Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities". ASU 2020-08 is an update of ASU No. 2017-08, which amends the amortization period of certain purchased callable debt securities held at a premium. ASU 2020-08 updates the amortization period for callable debt securities to be amortized to the next call date. For purposes of this update, the next call date is the first date when a call option at a specified price becomes exercisable. Once that date has passed, the next call date is when the next call option at a specified price becomes exercisable, if applicable. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. ASU 2020-08 had no impact on the Funds during the current reporting period.

In July 2017, the Financial Conduct Authority, the United Kingdom's financial regulatory body, announced that after 2021 it will cease its active encouragement of banks to provide quotations needed to sustain the LIBOR rate, which means that the LIBOR rate may no longer be published after 2021. The elimination of London Inter-Bank Offered Rate (LIBOR), among other "inter-bank offered" reference rates, may adversely affect the interest rates on, and value of, certain Fund investments for which the value is tied to LIBOR. The U.K. Financial Conduct Authority and the ICE Benchmark Administration have announced that most LIBOR settings will no longer be published after December 31, 2021 and a majority of U.S. dollar LIBOR settings will cease publication after June 30, 2023. It's possible that a subset of LIBOR settings will be published after these dates on a "synthetic" basis, but any such publications would be considered non-representative of the underlying market. Markets are slowly developing in response to these new reference rates. Uncertainty related to the liquidity impact of the change in rates, and how to appropriately adjust these rates at the time of transition, poses risks for the Funds. These risks are likely to persist until new reference rates and fallbacks for both legacy and new instruments and contracts are commercially accepted, and market practices become settled. Alternatives to LIBOR have been established or are in development in most major currencies, including the Secured Overnight Financing Rate (SOFR) that is intended to replace U.S. dollar LIBOR.

Use of Estimates — The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

Valuation of Investments — The Funds' portfolio securities are valued as of the close of trading of the New York Stock Exchange ("NYSE") (normally 4:00 p.m., Eastern standard time). Common stocks, mutual funds 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

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The Arbitrage Funds  Notes to Financial Statements (continued)

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security is primarily traded. Redeemable securities issued by open-end investment companies are valued at the investment company's respective net asset value, with the exception of exchange-traded open-end investment companies, which are priced as common stocks. Market quotations of foreign securities from the principal markets in which they trade may not be reliable if events or circumstances that may affect the value of portfolio securities occur between the time of the market quotation and the close of trading on the NYSE. If a significant event that affects the valuation of a foreign security occurs between the close of a foreign security's primary exchange and the time the Funds calculate their net asset value ("NAV"), the Funds will fair value the foreign security to account for this discrepancy. Securities which are listed on an exchange but which are not traded on the valuation date will be valued at last bid if held long, and last ask if held short. Put and call options and securities traded in the over-the-counter market are valued at the mean of the most recent bid and ask prices. Foreign currency forward contracts are valued at the current day's interpolated foreign exchange rate, as calculated using the current day's spot rate, and the thirty, sixty, ninety and one-hundred eighty day forward rates provided by an independent source.

Debt securities are priced based upon an evaluated bid provided by independent, third-party pricing agents, if available. 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. Single name swap agreements are valued based on the underlying terms of the agreement. Other swap agreements (such as baskets of securities) are valued daily based on the terms of the swap agreement as provided by an independent third party or the counterparty. If a third-party valuation is not available, these other swap agreements are valued based on the valuation provided by the counterparty.

Other assets and securities for which no quotations are readily available are valued at fair value using methods determined in good faith by the Pricing Committee, which is under the supervision of the Board. Some of the more common reasons that may necessitate that a security be valued at fair value include: the security's trading has been halted or suspended; the security has been delisted from a national exchange; the security's primary trading market is temporarily closed at a time when under normal conditions it would be open; the security has been acquired through completion of a merger/tender or the security's primary pricing source is not able or willing to provide a price. Such methods of fair valuation may include, but are not limited to: multiple of earnings, multiple of book value, discount from market of a similar freely traded security, purchase price of a security, subsequent private transactions in the security or related securities, or a combination of these and other factors. Foreign securities are translated from the local currency into U.S. dollars using currency exchange rates supplied by a quotation service.

Fair Value Measurements — In accordance with the authoritative guidance on fair value measurements under GAAP, the Funds disclose fair value of their investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The objective of a fair value measurement is to determine the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Accordingly, the fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1) and the lowest priority

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The Arbitrage Funds  Notes to Financial Statements (continued)

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to unobservable inputs (Level 3). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1 — Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Funds have the ability to access at the measurement date;

Level 2 — Observable inputs other than quoted prices included in Level 1 that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and

Level 3 — Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing each Fund's own assumption about the assumptions a market participant would use in valuing the asset or liability, and would be based on the best information available.

Investments are classified within the level of the lowest significant input considered in determining fair value. Investments classified within Level 3, whose fair value measurement considers several inputs, may include Level 1 or Level 2 inputs as components of the overall fair value measurement. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

For the six months ended November 30, 2021, there were no significant changes to the Funds' fair value methodologies. Transfers for Level 3 securities, if any, are shown as part of the leveling table in each Fund's Portfolio of Investments.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, but not limited to, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is generally greatest for instruments categorized in Level 3. Due to the inherent uncertainty of valuation, the determination of values may differ significantly from values that would have been realized had a ready market for investments existed, and the differences could be material.

Unfunded Commitments — The Arbitrage Fund, Event-Driven Fund and the Credit Opportunities Fund invest in private investment in public entity (PIPE) agreements with sponsors of special purpose acquisition companies (SPACs). The Funds expect to fulfill these unfunded commitments through the use of liquid investments. As of November 30, 2021, the Fund's unfunded commitments are as follows:

Fund

 

Issuer

 

Shares

 Unfunded
Commitment
Amount
 Unfunded
Commitment
Value
 Unrealized
Appreciation/
Depreciation
 

Arbitrage Fund

 

Fast Acquisition Corp.

  

166,290

  

$

1,666,290

  

$

1,666,290

  

$

0

  

Event-Driven Fund

 

Fast Acquisition Corp.

  

28,196

  

$

281,960

  

$

281,960

  

$

0

  

Share Valuation and Redemption Fees — The net asset value per share of each class of shares of the Funds is calculated daily by dividing the total value of a Fund's assets attributable to that class, less liabilities attributable to that class, by the number of shares of that class outstanding. The offering price and redemption price per share of each class of each Fund is equal to the net asset value per share. The Trust does not impose a redemption fee on the sale of a Fund's shares.

Security Transactions — Security transactions are accounted for on trade date. Gains and losses on securities sold are determined on a specific identification basis.

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The Arbitrage Funds  Notes to Financial Statements (continued)

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Short Positions — The Funds may sell securities short for economic hedging purposes. Subsequent fluctuations in the market prices of securities sold short may require purchasing the securities at prices which may differ from the market value reflected on the Portfolio of Investments. The Funds are liable for any dividends and interest payable on securities while those securities are in a short position. As collateral for their short positions, the Funds are required under the 1940 Act to maintain assets consisting of cash, cash equivalents or liquid securities. The amount of the collateral is required to be adjusted daily to reflect changes in the value of the securities sold short. The Funds are charged an interest rebate expense by the prime broker on securities sold short. The interest rebate expense is charged for the duration of time that a security is sold short and is shown on the Statements of Operations.

Collateral — The Funds maintain a margin account with a broker that is used to hold proceeds received from short sales as well as daily mark-to-market adjustments. The balance is shown in the Statement of Assets and Liabilities as 'Deposits with brokers for securities sold short'. Further, both short sales and swap contracts require the Funds to maintain additional collateral with the broker/counterparty and to pledge assets or cash which is held in a segregated tri-party account. Securities pledged as collateral are designated in the Schedule of Investments and cash collateral as 'Segregated cash for collateral' in the Statement of Assets and Liabilities.

Derivative Instruments and Hedging Activities — The following discloses the Funds' use of derivative instruments and hedging activities.

The Funds' investment objectives not only permit the Funds to purchase investment securities, but they also allow certain Funds to enter into various types of derivative contracts, including, but not limited to, swap contracts, forward foreign currency exchange contracts, and purchased and written option contracts. In doing so, the Funds will employ strategies in differing combinations to permit them to increase, decrease, or change the level or types of exposure to market factors. Central to those strategies are features inherent to derivatives that make them more attractive for this purpose than equity or debt securities: they require little or no initial cash investment; they can focus exposure on only certain selected risk factors; and they may not require the ultimate receipt or delivery of the underlying security (or securities) to satisfy the contract. This may allow the Funds to pursue their objectives more quickly and efficiently than if they were to make direct purchases or sales of securities capable of effecting a similar response to market factors. The Funds may, but are not required to, seek to reduce their currency risk by hedging part or all of their exposure to various foreign currencies.

Market Risk Factors: In pursuit of their investment objectives, the Funds may seek to use derivatives to increase or decrease their exposure to the following market risk factors:

Equity Risk: Equity risk relates to the change in value of equity securities as they relate to increases or decreases in the general market. Investments in securities issued by small and medium capitalization companies tend to be less liquid and more volatile than stocks of companies with relatively large market capitalizations. To the extent a Fund invests in securities of small and medium capitalization companies, it may be more vulnerable to adverse business events than larger, more established companies.

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

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

yields, are subject to potentially greater fluctuations in value from changes in interest rates than obligations with shorter maturities.

Foreign Exchange Rate Risk: Foreign exchange rate risk relates to the change in the U.S. dollar value of a security held that is denominated in a foreign currency. The value of a foreign currency denominated security will decrease as the dollar appreciates against the currency, while the value of the foreign currency denominated security will increase as the dollar depreciates against the currency. Adverse changes in exchange rates may erode or reverse any gains produced by foreign currency denominated investments and may widen any losses.

Credit Risk: Credit risk relates to the ability of the issuer to meet interest and principal payments, or both, as they come due. In general, lower-grade, higher-yield bonds are subject to credit risk to a greater extent than lower-yield, higher-quality bonds.

The extent of the impact of the novel coronavirus ("COVID-19") outbreak on the financial performance of the Funds continues to depend on developments, including duration and spread of the outbreak, related advisories and restrictions, and the impact of COVID-19 on the financial markets and the overall economy, all of which are highly uncertain and cannot be predicted. Adverse market conditions may be prolonged and may not have the same impact on all types of securities. These disruptions could prevent a Fund from executing advantageous investment decisions in a timely manner and could negatively impact the Fund's ability to achieve its investment objective. If the financial markets and/or the overall economy continue to be impacted for an extended period of time, the Funds' results of operations may be materially adversely affected.

Risk of Investing in Derivatives: The Funds' use of derivatives can result in losses due to unanticipated changes in the market risk factors and the overall market. In instances where the Funds are using derivatives to decrease or hedge exposures to market risk factors for securities held by the Funds, there are also risks that those derivatives may not perform as expected, resulting in losses for the combined or hedged positions.

Derivatives may have little or no initial cash investment relative to their market value exposure and therefore can produce significant gains or losses in excess of their cost. This use of embedded leverage allows the Funds to increase their market value exposure relative to their net assets and can substantially increase the volatility of the Funds' performance.

Additional associated risks from investing in derivatives also exist and potentially could have significant effects on the valuation of the derivative instruments and the Funds. Typically, the associated risks are not the risks that the Funds are attempting to increase or decrease exposure to, per their investment objectives, but are the additional risks from investing in derivatives.

Examples of these associated risks are liquidity risk, which is the risk that the Funds will not be able to sell the derivative in the open market in a timely manner, and counterparty credit risk, which is the risk that the counterparty to a transaction will not fulfill its obligation to the Funds. Associated risks can be different for each type of derivative and are discussed by derivative type in the notes that follow.

Option Writing/Purchasing: Certain Funds may write or purchase option contracts to adjust risk and return of their overall investment positions. When a Fund writes or purchases an option, an amount equal to the premium received or paid by the Fund is recorded as a liability or an asset and is subsequently adjusted to the current market value of the option written or purchased. Premiums received or paid from writing or purchasing options that expire unexercised are treated

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

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.

Options held by the Funds at November 30, 2021 are disclosed in the Portfolio of Investments.

During the period ended November 30, 2021, the Funds engaged in option writing/purchasing to limit volatility and correlation and to create income and optionality. The maximum potential amount of future payments (undiscounted) that a fund as a writer of put options could be required to make is equal to the notional amount multiplied by the exercise price as shown in the Schedule of Investments.

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.

Foreign currency exchange contracts held by the Funds at November 30, 2021 are disclosed in the Portfolio of Investments.

During the period ended November 30, 2021, the Funds entered into foreign currency exchange contracts to hedge currency risk.

Warrants/Rights: Each Fund may purchase or otherwise receive warrants or rights. Warrants and rights generally give the holder the right to receive, upon exercise, a security of the issuer at a set price. The Funds typically use warrants and rights in a manner similar to their use of purchased options on securities, as described in the Options Writing/Purchasing section above. Risks associated with the use of warrants and rights are generally similar to risks associated with the use of purchased options. However, warrants and rights often do not have standardized terms, and may have longer maturities and may be less liquid than exchange-traded options. In addition, the terms of warrants or rights may limit each Fund's ability to exercise the warrants or rights at such times and in such quantities as each Fund would otherwise wish. Warrants and rights generally pay no dividends and confer no voting or other rights other than to purchase the underlying security.

Warrants/rights held by the Funds at November 30, 2021 are disclosed in the Portfolio of Investments.

During the period ended November 30, 2021, the Funds held warrants/rights as a result of receiving them from completed deals, and to participate in investment opportunities.

Swaps: Certain Funds may enter into interest rate, index, equity, total return and credit default swap agreements, for hedging and non-hedging purposes. These transactions would be entered into in an attempt to obtain a particular return when it is considered desirable to do so, possibly

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The Arbitrage Funds  Notes to Financial Statements (continued)

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at a lower cost to a Fund than if the Fund had invested directly in the asset that yielded the desired return. Swap agreements may be executed in a multilateral or other trade facility program, such as a registered exchange ("centrally cleared swaps") or may be privately negotiated in the over-the-counter market. The duration of a swap agreement typically ranges from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or "swapped" between the parties are generally calculated with respect to a "notional amount" (i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, a particular security, in a particular foreign currency, or in a "basket" of securities representing a particular index). In a centrally cleared swap, immediately following execution of the swap agreement, the swap agreement is novated to a central counterparty (the "CCP") and the Fund's counterparty on the swap agreement becomes the CCP.

Total return swap agreements are contracts in which one party agrees to make periodic payments based on the change in market value of underlying assets, which may include a specified security, basket of securities, defined portfolios of bonds, loans and mortgages, or securities indexes during the specified period in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying assets or indices. Total return swap agreements may be used to obtain exposure to a security or market index without owning or taking physical custody of such security or component securities of a market index. Total return swap agreements may effectively add leverage to a Fund's portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on the notional amount of the swap. Total return swaps are a mechanism for the user to accept the economic benefits of asset ownership without utilizing the balance sheet. The other leg of the swap, usually an identified reference rate such as the Secured Overnight Financing Rate ("SOFR") or the federal funds rate, is spread to reflect the non-balance sheet nature of the product. Total return swaps can be designed with any underlying asset agreed upon between two parties. Typically no notional amounts are exchanged with total return swaps. Total return swap agreements entail the risk that a party will default on its payment obligations to a Fund thereunder. Swap agreements also entail the risk that a Fund will not be able to meet its obligation to the counterparty. Generally, a Fund will enter into total return swaps on a net basis (i.e., the two payment streams are netted out with the Fund receiving or paying, as the case may be, only the net amount of the two payments). The Funds will typically enter into agreements based on either long or short exposure to underlying equities. To help mitigate against default risk by the counterparties these agreements are reset monthly, with cashflows exchanged based on the change in the value of the underlying equity from either the opening price or the last reset price, netted against the interest leg of the swap.

Most swap agreements entered into by a Fund calculate the obligations of the parties to the agreement on a "net basis." Consequently, a Fund's current obligations (or rights) under a swap agreement will generally be equal only to the net present value of amounts to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the "net amount"). A Fund's current obligations under a swap agreement will be accrued daily (offset against amounts owed to the Fund), and any accrued but unpaid net amounts owed to a swap counterparty will be covered in accordance with applicable regulatory requirements to limit any potential leveraging of a Fund's portfolio. Any net amount accrued but not yet paid to a Fund by the counterparty under a swap agreement (i.e., the Fund's current rights under the swap agreement) is recorded as unrealized appreciation until the amount is paid to the Fund. The Fund's maximum risk of loss from counterparty credit risk is generally limited to the net payment to be received by the Fund and/or the termination value at the end of the

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

contract. Obligations under swap agreements so covered will not be construed to be "senior securities" for purposes of the Funds' investment restriction concerning senior securities.

Whether a Fund's use of swap agreements will be successful in furthering its investment objective will depend on management's ability to correctly predict whether certain types of investments are likely to produce greater returns than other investments. Swap agreements that cannot be terminated or sold within seven days may be considered to be illiquid investments. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Although centrally cleared swaps typically present less counterparty risk than non-centrally cleared swaps, a Fund that has entered into centrally cleared swaps is subject to the risk of the failure of the CCP. A Fund will enter into swap agreements only with counterparties that meet certain standards for creditworthiness (generally, such counterparties would have to be eligible counterparties under the terms of the Fund's repurchase agreement guidelines) or that are centrally cleared. Certain restrictions imposed on the Funds by the Internal Revenue Code of 1986, as amended (the "Code"), may limit a Fund's ability to use swap agreements. It is possible that developments in the swap market, including additional government regulation, could adversely affect a Fund's ability to terminate existing swap agreements or to realize amounts to be received under such agreements.

International Swaps and Derivatives Association, Inc. Master Agreements ("ISDA Master Agreements") govern over-the-counter financial derivative transactions entered into by a Fund and counterparty. The ISDA Master Agreements maintain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements.

Swap agreements held by the Funds at November 30, 2021 are disclosed in the Portfolio of Investments.

During the period ended November 30, 2021, the Arbitrage Fund, Event-Driven Fund and Credit Opportunities Fund entered into swap agreements to gain efficient exposure to underlying equities.

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

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The Arbitrage Funds  Notes to Financial Statements (continued)

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posted by the Funds or any counterparty on the Statement of Assets and Liabilities. The fair value of derivative instruments for the Funds as of November 30, 2021, 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

 
Forward Foreign
Currency Exchange
Contracts
               
               
               
 Unrealized
appreciation on
forward foreign
currency
exchange
contracts
 

$

7,436,358

  Unrealized
depreciation on
forward foreign
currency
exchange
contracts
 

$

1,817,659

  
Equity Contracts
(purchased
option contracts)
               
 Investments:
at fair value of
unaffiliated
investments
  

6,503,528

     

  
Equity Contracts
(written option
contracts)
    

  Written options,
at value
  

35,457

  
    

$

13,939,886

    

$

1,853,116

  
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

 
Forward Foreign
Currency Exchange
Contracts
               
               
 Unrealized
appreciation on
forward foreign
currency exchange
contracts
 

$

450,525

  Unrealized
depreciation on
forward foreign
currency exchange
contracts
 

$

135,909

  
Equity Contracts
(purchased
option contracts)
               
 Investments:
at fair value of
unaffiliated
investments
  

728,478

     

  
Equity Contracts
(written option
contracts)
    

  Written options,
at value
  

4,135

  
  

$

1,179,003

    

$

140,044

  

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (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

 

Credit Opportunities Fund

 
Forward Foreign
Currency Exchange
Contracts
               
               
 Unrealized
appreciation on
forward foreign
currency exchange
contracts
 

$

6,179

  Unrealized
depreciation on
forward foreign
currency exchange
contracts
 

$

4,766

  
Equity Contracts
(purchased
option contracts)
               
 Investments:
at fair value of
unaffiliated
investments
  

264,900

     

  
Equity Contracts
(written option
contracts)
    

  Written options,
at value
  

77,750

  
  

$

271,079

    

$

82,516

  

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

The effect of derivative instruments on the Funds' Statement of Operations for the six months ended November 30, 2021, was as follows:

Derivatives Not
Accounted For As
Hedging Instruments
 Location Of Gains/(Loss) On
Derivatives Recognized In Income
 Realized
Gain/(Loss)
On Derivatives
Recognized In
Income
 Change in
Unrealized
Gain/(Loss)
On Derivatives
Recognized In
Income
 

Arbitrage Fund

 
Forward Foreign
Currency Exchange
Contracts
               
               
 Net realized gains (losses) from:
Forward currency contracts / Net
change in unrealized appreciation
(depreciation) on: Forward currency
contracts
 

$

1,693,012

  

$

7,765,608

  
Swap Contracts
               
               
               
 Net realized gains (losses) from:
Swap contracts / Net change in
unrealized appreciation
(depreciation) on: Swap contracts
  

(18,225,236

)

  

  
Equity Contracts
(purchased option
contracts)
               
               
 Net realized gains (losses) from:
Purchased option contracts / Net
change in unrealized appreciation
(depreciation) on: Purchased option
contracts
  

2,599,996

   

2,773,530

  
Equity Contracts
(written option
contracts)
               
               
 Net realized gains (losses) from:
Written option contracts / Net
change in unrealized appreciation
(depreciation) on: Written option
contracts
  

1,202,383

   

180,868

  
    

$

(12,729,845

)

 

$

10,720,006

  

Semi-Annual Report | November 30, 2021
89


The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

Derivatives Not
Accounted For As
Hedging Instruments
 Location Of Gains/(Loss) On
Derivatives Recognized In Income
 Realized
Gain/(Loss)
On Derivatives
Recognized In
Income
 Change in
Unrealized
Gain/(Loss)
On Derivatives
Recognized In
Income
 

Event-Driven Fund

 
Forward Foreign
Currency Exchange
Contracts
               
               
 Net realized gains (losses) from:
Forward currency contracts / Net
change in unrealized appreciation
(depreciation) on: Forward currency
contracts
 

$

219,121

  

$

530,566

  
Swap Contracts
               
               
               
 Net realized gains (losses) from:
Swap contracts / Net change in
unrealized appreciation
(depreciation) on: Swap contracts
  

(1,725,274

)

  

  
Equity Contracts
(purchased option
contracts)
               
               
 Net realized gains (losses) from:
Purchased option contracts / Net
change in unrealized appreciation
(depreciation) on: Purchased option
contracts
  

236,178

   

324,214

  
Equity Contracts
(written option
contracts)
               
               
 Net realized gains (losses) from:
Written option contracts / Net
change in unrealized appreciation
(depreciation) on: Written option
contracts
  

122,078

   

35,466

  
    

$

(1,147,897

)

 

$

890,246

  

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

Derivatives Not
Accounted For As
Hedging Instruments
 Location Of Gains/(Loss) On
Derivatives Recognized In Income
 Realized
Gain/(Loss)
On Derivatives
Recognized In
Income
 Change in
Unrealized
Gain/(Loss)
On Derivatives
Recognized In
Income
 

Credit Opportunities Fund

 
Forward Foreign
Currency Exchange
Contracts
               
               
 Net realized gains (losses) from:
Forward currency contracts / Net
change in unrealized appreciation
(depreciation) on: Forward currency
contracts
 

$

454

  

$

13,092

  
Swap Contracts
               
               
               
 Net realized gains (losses) from:
Swap contracts / Net change in
unrealized appreciation
(depreciation) on: Swap contracts
  

(60,620

)

  

  
Equity Contracts
(purchased option
contracts)
               
               
 Net realized gains (losses) from:
Purchased option contracts / Net
change in unrealized appreciation
(depreciation) on: Purchased option
contracts
  

53,621

   

(95,999

)

 
Equity Contracts
(written option
contracts)
               
               
 Net realized gains (losses) from:
Written option contracts / Net
change in unrealized appreciation
(depreciation) on: Written option
contracts
  

51,341

   

27,522

  
    

$

44,796

  

$

(55,385

)

 

Volume of derivative instruments held by the Funds during the six months ended November 30, 2021, was as follows:

Derivative Type

 

Unit of Measurement

 

Monthly Average

 

Arbitrage Fund

 

Swap Contracts

 

Notional Quantity

 

$

419,785,376

  
Forward Foreign Currency Exchange
Contracts
 Net Contracts to Deliver/(Receive)
               
  

(131,899,905

)

 

Purchased Option Contracts

 

Contracts

  

16,250

  

Written Option Contracts

 

Contracts

  

(947

)

 

Derivative Type

 

Unit of Measurement

 

Monthly Average

 

Event-Driven Fund

 

Swap Contracts

 

Notional Quantity

 

$

36,615,268

  
Forward Foreign Currency Exchange
Contracts
 Net Contracts to Deliver/(Receive)
               
  

(8,783,591

)

 

Purchased Option Contracts

 

Contracts

  

1,451

  

Written Option Contracts

 

Contracts

  

(104

)

 

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91


The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

Derivative Type

 

Unit of Measurement

 

Monthly Average

 

Credit Opportunities Fund

 

Swap Contracts

 

Notional Quantity

 

$

6,012,090

  
Forward Foreign Currency Exchange
Contracts
 Net Contracts to Deliver/(Receive)
               
  

(263,830

)

 

Purchased Option Contracts

 

Contracts

  

1,039

  

Written Option Contracts

 

Contracts

  

(152

)

 

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 Funds held financial instruments such as equity swaps that are subject to enforceable netting arrangements or other similar agreements as of November 30, 2021. At November 30, 2021, there was no unrealized appreciation or depreciation on these instruments held by the Funds. All other derivative contracts held by the Funds were not subject to netting agreements.

Investment Income — Interest income, adjusted for amortization of premium and accretion of discount, is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date, net of any non-reclaimable tax withholdings. Payment-in-kind securities have the option at each interest payment date of making interest payments in cash or additional debt securities. Any interest accrued on payment-in-kind securities is recorded as interest income on an accrual basis. Distributions from real estate investment trusts ("REITs") may be characterized as ordinary income, net capital gain, or a return of capital to the Funds. The proper characterization of REIT distributions is generally not known until after the end of each calendar year. As such, estimates are used in reporting the character of income and distributions for financial statement purposes when information is not available.

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 daily and paid monthly, and net capital gain distributions, if any, are declared and paid at least annually to shareholders of the Credit Opportunities Fund.

Cash — The Funds may invest a portion of their assets in cash or cash items. These cash items and other high-quality debt securities may include money market instruments, such as securities issued by the U.S. Government and its agencies, bankers' acceptances, commercial paper, bank certificates of deposit and investment companies that invest primarily in such instruments. As of November 30, 2021, cash held by the Funds represented cash held at a third-party custodian.

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

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

specific class are allocated daily to each class of shares based upon the proportionate share of total net assets of each Fund.

Federal Income Tax — It is the Funds' policy to continue to comply with the special provisions of Subchapter M of the Code, as amended, applicable to regulated investment companies. As provided therein, in any fiscal year in which a fund so qualifies and distributes at least 90% of its taxable net income, a fund (but not the shareholders) will be relieved of Federal income tax on the income distributed. Accordingly, no provision for income taxes has been made.

As of and during the six months ended November 30, 2021, the Funds did not have a liability for any unrecognized tax benefits. The Funds recognize interest and, if applicable, penalties for any uncertain tax positions. Interest and penalty expense will be recorded as a component of interest or other tax expense. No interest or penalties were recorded during the six months ended November 30, 2021. 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, 2021, cost of purchases and proceeds from sales and maturities of investment securities, excluding short-term investments, U.S. government securities, equity swap contracts, purchased and written option contracts and securities sold short, were as follows:

  

Arbitrage Fund

 

Event-Driven Fund

 Credit
Opportunities Fund
 

Purchases

 

$

1,713,421,605

  

$

130,998,476

  

$

117,545,740

  

Sales and Maturities

  

1,406,874,558

   

127,835,577

   

89,286,895

  

During the six months ended November 30, 2021, cost of purchases and proceeds from sales and maturities of U.S. government securities for the Credit Opportunities Fund were as follows:

  

Credit Opportunities Fund

 

Purchases

 

$

279,348

  

Sales

  

0

  

4. LINE OF CREDIT

The Trust, on behalf of the Funds, entered into an agreement which enables the Funds to participate in a $100,000,000 unsecured uncommitted revolving line of credit (the "Uncommitted Line") with State Street Bank and Trust Company (the "Custodian"). Borrowings under the Uncommitted Line are made solely to temporarily finance the purchase or sale of securities or to finance the redemption of the shares of an investor of the Funds. The Uncommitted Line has an upfront fee of $30,000, is held available on a discretionary demand basis and may be terminated by the Custodian or the Trust at any time for any or no reason. Such fees are included in the custodian bank and service fees on the Statements of Operations. Interest on the Uncommitted Line is charged to the Funds based on their borrowing at a rate equal to the higher of (a) the federal funds rate plus 1.35% and (b) the overnight bank funding rate plus 1.35%. For purposes of calculating the effective interest rate, if the federal funds rate or the overnight bank funding rate shall be less than zero, then such rate shall be deemed to be zero.

Semi-Annual Report | November 30, 2021
93


The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

For the six months ended November 30, 2021, the Arbitrage Fund, the Event-Driven Fund and the Credit Opportunities Fund had average borrowings of $8,500,000, $4,042,424 and $3,131,579, respectively, over a period of 6 days, 66 days and 19 days, respectively, at a weighted average interest rate of 1.46%, 1.44% and 1.43%, respectively. Interest expense on the line of credit for the Arbitrage Fund, the Event-Driven Fund and the Credit Opportunities Fund during the six months ended November 30, 2021 is shown as line of credit interest expense on the Statements of Operations. The Arbitrage Fund and the Credit Opportunities Fund had no outstanding borrowings at November 30, 2021. The Event-Driven Fund had outstanding borrowings of $7,500,000 at November 30, 2021.

5. ADVISORY FEES, ADMINISTRATION FEES AND OTHER AGREEMENTS

Investment Advisory Agreement

The Funds' investments are managed by the Adviser according to the terms of Investment Advisory Agreements. Under each of the Investment Advisory Agreements, fees are computed and accrued daily and paid monthly. 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, 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% on its average daily net assets in excess of $500 million. Effective November 1, 2019, the Event-Driven Fund reduced the annual investment advisory fee to 1.10% based on the Event-Driven Fund's average daily net assets. Prior to November 1, 2019, under the Investment Advisory Agreement between the Adviser and the Event-Driven Fund dated September 27, 2010, the Event-Driven Fund paid the Adviser an annual fee of 1.25% based on the Event-Driven Fund's average daily net assets. Effective August 6, 2018, the Credit Opportunities Fund reduced the annual investment advisory fee to 0.95% on the first $250 million, 0.90% on the next $500 million, and 0.85% on its average daily net assets in excess of $750 million. Prior to August 6, 2018, under the Investment Advisory Agreement between the Adviser and the Credit Opportunities Fund dated October 1, 2012, the Credit Opportunities Fund paid an annual fee of 1.00% on the amount of the Credit Opportunities Fund's average daily net assets.

Under an Amended and Restated Expense Waiver and Reimbursement Agreement for each of Arbitrage Fund, Event-Driven Fund and Credit Opportunities Fund, the Adviser has contractually agreed to waive its advisory fee and/or reimburse the Funds' other expenses to the extent that total operating expenses (exclusive of taxes, interest, dividends on short positions, brokerage commissions, acquired fund fees and expenses and other costs incurred in connection with the purchase or sale of portfolio securities) exceed the annual rate of the Funds' average daily net assets attributable to each share class as shown in the table below. The agreement remains in effect until September 30, 2022, unless terminated earlier by the Board of Trustees.

  

Arbitrage Fund

 

Event-Driven Fund

 

Credit Opportunities Fund

 

Class R

  

1.69

%

  

1.69

%

  

1.23

%

 

Class I

  

1.44

%

  

1.44

%

  

0.98

%

 

Class C

  

2.44

%

  

N/A

   

N/A

  

Class A

  

1.69

%

  

1.69

%

  

1.23

%

 

The Adviser agreed not to charge the Arbitrage Fund an advisory fee on the portion of its assets invested in the Event-Driven Fund. This resulted in $464,918 of advisory fees being waived during the six months ended November 30, 2021.

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

For the six months ended November 30, 2021, 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 1.00%, 1.08% and 0.63%, respectively.

The Adviser can recapture, with the exception of the advisory fees waived related to Arbitrage Fund's investment in the Event-Driven Fund, any waived amount from a Fund pursuant to the Amended and Restated Expense Waiver and Reimbursement Agreements if such recapture does not cause the Fund to exceed the expense limitations in effect at the time the amounts were waived, the recapture does not cause the Fund to exceed the current expense limitation, and the recapture is done within three years after the date on which the expense was waived. During the six months ended November 30, 2021, the Adviser did not recapture any fees or expenses from the Funds.

As of November 30, 2021, the balances of waived expenses that are eligible for potential recapture for each Fund are as follows:

  Expiring
May 31, 2022
 Expiring
May 31, 2023
 Expiring
May 31, 2024
 

Total

 

Event-Driven Fund

 

Class R

 

$

150,425

  

$

72,714

  

$

7,526

  

$

230,665

  

Class I

  

392,244

   

279,224

   

94,924

   

766,392

  

Class A

  

3,225

   

2,112

   

706

   

6,043

  

Credit Opportunities Fund

 

Class R

 

$

35,953

  

$

46,492

  

$

14,935

  

$

97,380

  

Class I

  

244,066

   

305,422

   

327,225

   

876,713

  

Class A

  

740

   

1,505

   

386

   

2,631

  

Administration Agreement

State Street Bank & Trust Company serves as the Trust's administrator pursuant to an Administration Agreement with the Trust.

Distribution Agreement

ALPS Distributors, Inc. (the "Distributor") serves as the Funds' distributor. The Distributor acts as an agent for the Funds and the distributor of their shares. The Funds have adopted, with respect to their Class R, Class C shares and Class A shares, as applicable, 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 the 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, 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

Semi-Annual Report | November 30, 2021
95


The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

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, 2021, the Arbitrage Fund's Class R shares and Class A shares incurred $123,674 and $47,875 in distribution expenses, respectively, and Class C shares incurred $90,308 in distribution and shareholder support expenses, all of which were used to compensate broker-dealers. During the six months ended November 30, 2021, the Event-Driven Fund's Class R shares and Class A shares incurred $12,127 and $1,704 in distribution expenses, respectively, all of which were used to compensate broker-dealers. During the six months ended November 30, 2021, the Credit Opportunities Fund's Class R shares and Class A shares incurred $11,120 and $124 in distribution expenses, respectively, all of which were used to compensate broker-dealers.

Chief Compliance Officer

Certain officers of the Trust are also officers of the Adviser. The Chief Compliance Officer ("CCO") of the Trust also serves as the CCO of the Adviser. Information related to the CCO Fees can be found in the Funds' Statements of Operations.

Chief Financial Officer

Foreside Management Services, LLC provides Chief Financial Officer ("CFO") services to the Trust. Foreside Management Services, LLC is compensated by the Trust under a Fund CFO/Treasurer Agreement.

Transfer Agent And Shareholder Services Agreement

DST Systems, Inc. ("DST") is the Funds' transfer agent, and per an agency agreement, maintains the records of each shareholder's account, answers shareholders' inquiries concerning their accounts, processes purchases and redemptions of the Funds shares, acts as dividend and distribution disbursing agent and performs other shareholder service functions.

6. AFFILIATED ISSUER TRANSACTIONS

A summary of affiliated transactions for the Arbitrage Fund for the six months ended November 30, 2021 follows:

Affiliated
Issuer
 Beginning
Value
as of
May 31,
2021
 Purchases
at
Cost
 Proceeds
from
Sales
 Net
Realized
Gain/
(Loss)
on
Sales
 Change
in
Unrealized
Appreciation/
Depreciation
 Ending
Value
as of
November 30,
2021
 Shares
as of
November 30,
2021
 Dividend
Income
 Capital
Gain
Distributions
 
Water Island
Event-Driven
Fund
 

$

75,829,593

  

$

  

$

  

$

  

$

(3,038,468

)

 

$

72,791,125

   

6,605,365

  

$

  

$

  

At November 30, 2021, Arbitrage Fund, an affiliated fund, owned 56.70% of Event-Driven Fund's shares.

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

7. CAPITAL SHARE TRANSACTIONS

Proceeds and payments on capital shares as shown in the Statement of Changes in Net Assets are the result of the following capital share transactions for the periods shown:

  Six Months Ended
November 30, 2021
(Unaudited)
 Year Ended
May 31, 2021
 

Arbitrage Fund - Class R

 

Shares

 

Value

 

Shares

 

Value

 

Proceeds from shares sold

  

1,106,889

  

$

14,305,255

   

2,414,150

  

$

31,424,837

  
Shares issued in reinvestment of
distributions
  

   

   

447,203

   

5,652,646

  

Payments for shares redeemed

  

(895,219

)

  

(11,501,201

)

  

(2,962,158

)

  

(38,713,791

)

 

Net increase/(decrease)

  

211,670

  

$

2,804,054

   

(100,805

)

 

$

(1,636,308

)

 

Arbitrage Fund - Class I

 

Proceeds from shares sold

  

16,579,573

  

$

222,155,507

   

40,521,797

  

$

546,153,766

  
Shares issued in reinvestment of
distributions
  

   

   

4,521,559

   

59,232,426

  

Payments for shares redeemed

  

(11,009,209

)

  

(147,076,435

)

  

(30,859,800

)

  

(420,193,242

)

 

Net increase

  

5,570,364

  

$

75,079,072

   

14,183,556

  

$

185,192,950

  

Arbitrage Fund - Class C

 

Proceeds from shares sold

  

154,249

  

$

1,854,594

   

349,823

  

$

4,280,666

  
Shares issued in reinvestment of
distributions
  

   

   

81,448

   

965,971

  

Payments for shares redeemed

  

(160,303

)

  

(1,928,367

)

  

(568,832

)

  

(7,020,954

)

 

Net decrease

  

(6,054

)

 

$

(73,773

)

  

(137,561

)

 

$

(1,774,317

)

 

Arbitrage Fund - Class A

 

Proceeds from shares sold

  

941,609

  

$

12,142,039

   

1,499,981

  

$

19,505,801

  
Shares issued in reinvestment of
distributions
  

   

   

79,963

   

1,008,335

  

Payments for shares redeemed

  

(267,830

)

  

(3,435,673

)

  

(450,557

)

  

(5,872,949

)

 

Net increase

  

673,779

  

$

8,706,366

   

1,129,387

  

$

14,641,187

  

Semi-Annual Report | November 30, 2021
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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

  Six Months Ended
November 30, 2021
(Unaudited)
 Year Ended
May 31, 2021
 

Event-Driven Fund - Class R

 

Shares

 

Value

 

Shares

 

Value

 

Proceeds from shares sold

  

39,200

  

$

436,442

   

360,644

  

$

3,964,990

  

Payments for shares redeemed

  

(78,148

)

  

(868,413

)

  

(243,218

)

  

(2,630,326

)

 

Net increase/(decrease)

  

(38,948

)

 

$

(431,971

)

  

117,426

  

$

1,334,664

  

Event-Driven Fund - Class I

 

Proceeds from shares sold

  

909,030

  

$

10,226,897

   

2,077,590

  

$

23,076,347

  
Shares issued in reinvestment of
distributions
  

   

   

22,338

   

242,147

  

Payments for shares redeemed

  

(1,224,299

)

  

(13,672,262

)

  

(1,050,674

)

  

(11,144,686

)

 

Net increase/(decrease)

  

(315,269

)

 

$

(3,445,365

)

  

1,049,254

  

$

12,173,808

  

Event-Driven Fund - Class C(a)

 

Proceeds from shares sold

  

  

$

   

5,355

  

$

57,250

  

Payments for shares redeemed

  

   

   

(43,315

)

  

(471,565

)

 

Net increase/(decrease)

  

  

$

   

(37,960

)

 

$

(414,315

)

 

Event-Driven Fund - Class A

 

Proceeds from shares sold

  

95,938

  

$

1,055,599

   

169,784

  

$

1,833,944

  
Shares issued in reinvestment of
distributions
  

   

   

139

   

1,490

  

Payments for shares redeemed

  

(8,494

)

  

(94,872

)

  

(82,907

)

  

(889,387

)

 

Net increase

  

87,444

  

$

960,727

   

87,016

  

$

946,047

  

(a)  Effective April 27, 2021, Class C shares of the Event-Driven Fund were converted to Class I shares of the Fund, and Class C was abolished.

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The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

  Six Months Ended
November 30, 2021
(Unaudited)
 Year Ended
May 31, 2021
 

Credit Opportunities Fund - Class R

 

Shares

 

Value

 

Shares

 

Value

 

Proceeds from shares sold

  

259,971

  

$

2,637,804

   

608,398

  

$

6,154,299

  
Shares issued in reinvestment of
distributions
  

12,713

   

128,760

   

6,834

   

68,562

  

Payments for shares redeemed

  

(59,801

)

  

(606,835

)

  

(252,856

)

  

(2,494,718

)

 

Net increase

  

212,883

  

$

2,159,729

   

362,376

  

$

3,728,143

  

Credit Opportunities Fund - Class I

 

Proceeds from shares sold

  

2,833,540

  

$

28,606,218

   

5,413,326

  

$

54,158,839

  
Shares issued in reinvestment of
distributions
  

166,529

   

1,679,019

   

187,212

   

1,864,921

  

Payments for shares redeemed

  

(679,852

)

  

(6,857,169

)

  

(1,760,287

)

  

(17,509,853

)

 

Net increase

  

2,320,217

  

$

23,428,068

   

3,840,251

  

$

38,513,907

  

Credit Opportunities Fund - Class C(a)

 
Shares issued in reinvestment of
distributions
  

  

$

   

1,055

  

$

10,467

  

Payments for shares redeemed

  

   

   

(69,621

)

  

(705,444

)

 

Net increase/(decrease)

  

  

$

   

(68,566

)

 

$

(694,977

)

 

Credit Opportunities Fund - Class A

 

Proceeds from shares sold

  

957

  

$

9,675

   

1,919

  

$

19,348

  
Shares issued in reinvestment of
distributions
  

142

   

1,436

   

207

   

2,060

  

Payments for shares redeemed

  

   

   

(1,648

)

  

(16,282

)

 

Net increase

  

1,099

  

$

11,111

   

478

  

$

5,126

  

(a)  Effective April 27, 2021, Class C shares of the Credit Opportunities Fund were converted to Class I shares of the Fund, and Class C was abolished.

8. FOREIGN CURRENCY TRANSLATION

Amounts denominated in or expected to settle in foreign currencies are translated to U.S. dollars based on exchange rates on the basis outlined below:

A. The market values of investment securities and other assets and liabilities are translated at the closing rate of exchange each day.

B. Purchases and sales of investment securities and income and expenses are translated at the rate of exchange prevailing on the respective dates of such transactions.

C. The Funds do not isolate that portion of the results of operations caused by changes in foreign exchange rates on investments from those caused by changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gains or losses on investments. Reported net realized foreign exchange gains or losses arise from 1) purchases and sales of foreign currencies; 2) currency gains or losses realized between the trade and settlement dates on security transactions; and 3) the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Funds' books, and the U.S. dollar equivalent of the amounts actually received or paid. Reported net unrealized foreign exchange gains and losses

Semi-Annual Report | November 30, 2021
99


The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

arise from changes in the value of assets and liabilities, other than investment securities, resulting from changes in exchange rates.

9. CONTINGENCIES AND COMMITMENTS

The Funds indemnify the Trust's officers and trustees for certain liabilities that might arise from their performance of their duties to the Funds. Additionally, in the normal course of business, the Funds enter into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risk of loss to be remote.

10. SECURITIES LENDING

To generate additional income, the Funds may, from time to time, lend portfolio securities to broker-dealers, banks or institutional borrowers of securities. At the time of the loan, the Funds must receive from the borrower 102% collateral in the form of cash or U.S. government securities. This collateral must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Funds. During the time portfolio securities are on loan, the borrower pays the Funds any dividends or interest paid on such securities.

Loans are subject to termination by the Funds or the borrower at any time. While the Funds do not have the right to vote securities on loan, they have the right to terminate the loan and regain the right to vote if that is considered important with respect to the investment. In the event the borrower defaults in its obligation to the Fund, the Funds bear the risk of delay in the recovery of portfolio securities and the risk of loss of rights in the collateral.

The Funds may participate in a securities lending program under which the Funds' custodian, State Street Bank and Trust Company (the "Custodian") acting as securities lending agent, is authorized to lend Fund portfolio securities to qualified brokers/dealers and financial institutions that post appropriate collateral. The value of securities loaned will not exceed one-third of the value of the total assets of the Fund making the loan. The Custodian has agreed to indemnify the Fund in case of default of any security borrower.

Securities on loan are fully collateralized and the collateral was equal to or exceeded the securities on loan. Cash collateral is invested in the State Street Institutional U.S. Government Money Market Fund, Premier Class. The Custodian receives a portion of the interest earned on any reinvested collateral. Income received by the Funds in securities lending transactions during the six months ended November 30, 2021, if any, is net of fees retained by the securities lending agent and is reflected as securities lending income in the Statement of Operations. The Funds did not participate in securities lending during the six months ended November 30, 2021.

11. FEDERAL TAX INFORMATION

In order to avoid imposition of the excise tax applicable to regulated investment companies, it is each Fund's intention to declare as dividends in each calendar year at least 98.0% of its net investment income (earned during the calendar year) and 98.2% of its net realized capital gains (earned during the twelve months ended October 31) plus undistributed amounts from prior years.

The amount of distributions from net investment income and net realized gains, if any, are determined in accordance with Federal income tax regulations which may differ from accounting principles generally accepted in the United States of America. These "book/tax" differences are

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100


The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

either temporary or permanent in nature and permanent differences are charged or credited to undistributed net investment income (loss), accumulated net realized gain (loss) or paid-in capital as appropriate in the period that the differences arise.

Permanent differences between the Funds' financial statement and income tax reporting requirements are primarily attributable to gains and losses on certain foreign currency related transactions, short sale related dividend expense, investments in passive foreign investment companies, investments in swaps, ordinary loss netting to reduce short-term capital gains, convertible bonds, non-deductible excise tax activity and partnership basis adjustments. These have no effect on the Funds' net assets or net asset value per share.

Fund

 Distributable
Earnings
(Accumulated Loss)
 

Paid-in Capital

 

Arbitrage Fund

 

$

722

  

$

(722

)

 

Event-Driven Fund

  

57

   

(57

)

 

Credit Opportunities Fund

  

   

  

The tax character of dividends and distributions declared and paid during the years ended May 31, 2021 and May 31, 2020 was as follows:

Fund

 Year
Ended
 Ordinary
Income
 Long-Term
Capital Gains*
 Total
Distributions
 

Arbitrage Fund

 

5/31/2021

 

$

85,958,483

  

$

239

  

$

85,958,722

  
  

5/31/2020

  

21,844,119

   

12,763,361

   

34,607,480

  

Event-Driven Fund

 

5/31/2021

 

$

252,179

  

$

  

$

252,179

  
  

5/31/2020

  

519,956

   

   

519,956

  

Credit Opportunities Fund

 

5/31/2021

 

$

1,949,287

  

$

  

$

1,949,287

  
  

5/31/2020

  

1,899,815

   

   

1,899,815

  

*  The Funds designate these distributions as long-term capital gains dividends per IRC code section 852(b)(3)(C).

As of May 31, 2021, the components of distributable earnings on a tax basis were as follows:

  Arbitrage
Fund
 

Event-Driven Fund

 Credit
Opportunities
Fund
 

Undistributed ordinary income

 

$

  

$

  

$

4,211

  

Accumulated capital gains/losses

  

8,434,598

   

   

  

Unrealized appreciation/(depreciation)

  

77,633,386

   

5,094,016

   

770,318

  
Capital loss carryover and late year
ordinary loss deferrals
  

(15,244,266

)

  

(43,310,926

)

  

(545,014

)

 
Total distributable earnings (accumulated
loss)
 

$

70,823,718

  

$

(38,216,910

)

 

$

229,515

  

Semi-Annual Report | November 30, 2021
101


The Arbitrage Funds  Notes to Financial Statements (continued)

November 30, 2021 (Unaudited)

As of November 30, 2021, the cost and aggregate gross unrealized appreciation/(depreciation) of long security positions, short security positions and derivative instruments for federal income tax purposes were as follows:

Fund

 Gross
Appreciation
(excess of value
over tax cost)
 Gross
Depreciation
(excess of tax
cost over value)
 Net Unrealized
Appreciation
 Aggregate Cost
of Investments
for Income Tax
Purposes
 

Arbitrage Fund

 

$

114,166,370

  

$

(92,282,729

)

 

$

21,883,641

  

$

1,399,558,797

  

Event-Driven Fund

  

11,356,537

   

(10,555,569

)

  

800,968

   

113,104,032

  

Credit Opportunities Fund

  

4,596,959

   

(3,545,640

)

  

1,051,319

   

122,770,832

  

The differences between book-basis and tax-basis net unrealized appreciation/(depreciation) for the Funds are attributable to dividends related to short securities, swap mark to market, wash sales, convertible bonds, straddle loss deferrals, partnership basis adjustments and forward contracts mark to market.

Capital Losses

As of May 31, 2021, the Event-Driven Fund had $31,098,748 of short term and $8,536,588 of long term capital loss carryforwards and the Credit Opportunities Fund had $223,478 of short term and $321,536 of long term capital loss carryforwards which may reduce the Funds' taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Code and thus may reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Funds of any liability for federal tax.

The Event-Driven Fund utilized $11,939,757 of capital loss carryforwards and the Credit Opportunities Fund utilized $1,323,768 of capital loss carryforwards during the year ended May 31, 2021.

Late Year Losses

The Arbitrage Fund and Event-Driven Fund elected to defer to the period ending May 31, 2022 losses in the amount of $15,244,266 and $3,675,590, respectively.

12. SUBSEQUENT EVENTS

Management has evaluated subsequent events for the Funds through the date the financial statements were issued, and has concluded that there are no recognized or non-recognized subsequent events relevant for financial statement disclosure.

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102


The Arbitrage Funds  Disclosure of Fund Expenses

November 30, 2021 (Unaudited)

As a shareholder of a mutual fund you incur two types of costs: transaction costs, including sales charges (loads) on some share classes, and operating expenses. Your investment is affected by these ongoing costs, which include (among others) costs for portfolio management, administrative services, distribution (12b-1) expenses, redemption fees and shareholder reports like this one. It is important for you to understand the impact of these costs on your investment returns.

Operating expenses such as these are deducted from a mutual fund's gross income and directly reduce its final investment return. These expenses are expressed as a percentage of a mutual fund's average net assets; this percentage is known as a mutual fund's expense ratio.

The following examples use the expense ratio and are intended to help you understand the ongoing costs (in dollars) of investing in your Fund and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period.

The table on the following page illustrates your Fund's cost in two ways:

Actual Fund Return. The section helps you to estimate the actual expenses after fee waivers that your Fund incurred over the period. The "Expenses Paid During Period" column shows the actual dollar ex