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Merger Arbitrage Today Offering Consistency in Uncertain Markets a Differentiated Return Stream

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Merger Arbitrage Today Offering Consistency in Uncertain Markets a Differentiated Return Stream Ψ The Arbitrage Funds advised by water island capital Merger Arbitrage Today Offering Consistency in Uncertain Markets A Differentiated Return Stream In Times of Equity Market Stress Merger Arbitrage is a time-tested strategy that has historically provided returns 100% uncorrelated to broader swings in the market. During times of market stress, the Percentage of time strategy may provide an important source of diversification for an investor’s portfolio. Merger Arbitrage outperformed Stocks average return average return in months Stocks in months stocks are down in years stocks are down were down. 5% 3.29% Source: Morningstar; Date range: 1/1/10-12/31/19. 0% -0.25% -3.28% -5% -4.38% Merger Arbitrage Stocks Source: Morningstar. Date Range: 1/1/10-12/31/19. Past performance does not guarantee future results. “Merger Arbitrage” represented by HFRI Merger Arbitrage. “Stocks” represented by S&P 500. Index returns are for illustrative purposes only and do not represent actual performance. S&P 500 returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. Greater Levels of Volatility Because returns are closely tied to the outcome of specific, short-term events, rather -21% than overall market direction, volatility can offer attractive entry points. It can also lead to the re-pricing of risk, allowing for greater return potential. Merger Arbitrage VIX five-year average relative to its historic performance has historically been better than Stocks when market volatility increases. average. sum of daily returns on days when the vix is above or below its average level VIX Avg/Historical Avg 120% 108% -20% 2019 100% -13% 2018 80% 40% -42% 2017 20% 8% 5% -17% 2016 0% -13% 2015 -20% -40% Source: CBOE; Water Island Capital. -60% -54% Date range: 1/1/90-12/31/19. VIX < Avg (61% of Days) VIX > Avg (39% of Days) Merger Arbitrage Stocks Source: Morningstar, Bloomberg. Date Range: 1/1/15-12/31/19. Average VIX level over the period was 15.1. Past performance does not guarantee future results. Index returns are for illustrative purposes only and do not represent actual performance. S&P 500 index returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. “Merger Arbitrage” represented by HFRX Merger Arbitrage (in lieu of HFRI Merger Arbitrage, due to availability of daily returns). “Stocks” represented by S&P 500. Potential Benefits for Your Portfolio Diversifier/Risk Reducer The strategy can act as a diversifier in both credit and equity portfolios, potentially change in sharpe ratio with 20% merger reducing overall portfolio volatility and enhancing returns. arbitrage allocation historical risk/return profile with Merger Arbitrage Stocks 12% 80% Bonds 40% 20% Balanced Portfolio 40% 10% 1.2 20% 100% 1.0 8% 80% Return 20% 0.8 50% Merger Arbitrage 50% 0.6 6% Stocks Bonds 0.4 100% 4% 0.2 2% 4% 6% 8% 10% 12% 14% 16% Risk 0.0 Stocks Balanced Bonds Source: Morningstar. Date range: 1/1/90-12/31/19. Allocations are for illustration only and are not indicative of any recommendation or investment. Portfolio Source: Morningstar. Date range: 1/1/90-12/31/19. Balanced Fixed Income Alternative Absolute Return portfolio is 50% Stocks and 50% Bonds. Merger Arbitrage has a similar risk- The strategy has historically preserved reward profile to fixed income, but capital and generated absolute returns utilizes a different component of the in bull, bear, and full market cycles. average return capital structure. It has historically in down quarters benefitted from rising interest rates, Merger Arbitrage Stocks Merger Arbitrage allowing it to provide a natural hedge Stocks during periods when fixed income Bull 1/90 – 3/00 12.8% 18.0% Bonds typically declines. Bear 4/00 – 9/02 5.2% -20.6% 6% 4% ten worst-performing quarters for bonds Full Cycle 1/90 – 9/02 11.2% 9.2% 2% Bull 10/02 – 9/07 8.1% 15.5% Merger Arbitrage Bonds 0% 6% Bear 10/07 – 2/09 -3.5% -38.9% -2% 4% Full Cycle 10/02 – 2/09 5.4% 0.3% -4% 2% -6% 0% Source: Morningstar. Date range: 1/1/90-2/28/09. Periods represent full market cycles since HFRI Merger Arbitrage inception. -8% -2% Quarters Quarters -4% Stocks Bonds Q4 Q1 Q2 Q2 Q1 Q2 Q1 Q4 Q1 Q2 Down Down '16 '94 '04 '13 '96 '15 '18 '10 '92 '94 Source: Morningstar. Date range: Source: Morningstar. Date range: 1/1/90-12/31/19. 1/1/90-12/31/19. Past performance does not guarantee future results. “Stocks” represented by S&P 500. “Bonds” represented by BbgBarc Agg. “Merger Arbitrage” represented by HFRI Merger Arbitrage. Index returns are for illustrative purposes only and do not represent actual performance. S&P 500 and BbgBarc Agg index returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged. One cannot invest directly in an index. glossary Bloomberg Barclays US Aggregate Bond Index (“BbgBarc Agg”): The Bloomberg Barclays US Aggregate Bond Index covers the US investment grade fixed rate bond market. Bear Market: A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. Bull Market: A financial market characterized by optimism and investor confidence, in which prices are rising or are expected to rise, with expectations that strong results will continue. Chicago Board Options Exchange (CBOE) Volatility Index (“VIX”): The CBOE Volatility Index, which tracks the market’s expectation of 30-day volatility, is a widely used measure of market risk and is often referred to as the “investor fear gauge.” Correlation: A measure of how two securities move in relation to each other, ranging from -1 to +1. A correlation of 0 means the relationship between the two securities is completely random, while +1 indicates a perfect positive relationship and -1 indicates a perfect inverse relationship. HFRI ED: Merger Arbitrage Index (“HFRI Merger Arbitrage”): A subset of the HFRI Event-Driven Index, this index includes strategies which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction. Constituents report on a monthly basis. Inception: 12/29/1989. HFRX ED: Merger Arbitrage Index (“HFRX Merger Arbitrage”): A subset of the HFRX Event-Driven Index, this index includes strategies which employ an investment process primarily focused on opportunities in equity and equity related instruments of companies which are currently engaged in a corporate transaction. Constituents report on a daily basis. Inception: 1/30/1998. Sharpe Ratio: A measure of risk-adjusted performance, calculated by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. Standard & Poor’s 500 Total Return Index (“S&P 500”): The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic equity market. S&P 500 Total Return is adjusted for the reinvestment of dividends. Standard Deviation: Represents the degree of variation of returns around the average return, commonly used as a measure of risk. important information An investor should consider the investment objectives, risks, charges and expenses of The Arbitrage Funds (the “Funds”) carefully before investing. The current prospectus contains this and other information about the Funds. To obtain a prospectus, please call (800) 295-4485 or visit our website at http://arbitragefunds.com. Please read the prospectus carefully before investing. There is no guarantee the Funds will meet their stated objectives. Information contained in this paper is the opinion of the author and is not intended to be investment advice. RISKS: The Funds use investment techniques and strategies with risks that are different from the risks ordinarily associated with equity investments. Such risks include active management risk; concentration risk; convertible security risk; counterparty risk; credit risk; currency risk; derivatives risk; event-driven risk; foreign securities risk (in that the securities of foreign issuers may be less liquid and more volatile than securities of comparable US issuers); hedging transaction risk; high portfolio turnover (which may increase the fund’s brokerage costs, which would reduce performance); interest rate risk; investment company and ETF risk; large shareholder transaction risk; leverage risk; market risk; merger arbitrage risk (in that the proposed reorganizations in which the fund invests may be renegotiated or terminated, in which case the fund may realize losses); options risk; short sale risk; small and medium capitalization securities risk; special situations risk; temporary investment/cash management risk; total return swap risk; and when-issued securities risk. Risks may increase volatility and may increase costs and lower performance. Foreign investing involves special risks such as currency fluctuations and political uncertainty. Distributed by ALPS Distributors Inc., which is not affiliated with the Advisor or any other affiliate. [ARB001599 2021-03-01].
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