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To Our Shareholders,
The Sarbanes-Oxley Act requires a Fund's principal executive and financial officers to certify
the entire contents of the semi-annual and annual shareholder reports in a filing with the
Securities and Exchange Commission on Form N-CSR. This certification would cover the portfolio
manager's commentary and subjective opinions if they are attached to or a part of the financial
statements. Many of these comments and opinions would be difficult or impossible to certify.
Because we do not want our portfolio managers to eliminate their opinions and/or restrict their
commentary to historical facts, we have separated their commentary from the financial statements
and investment portfolio.
Merger arbitrage is a highly specialized investment approach generally designed to profit from the successful completion of proposed mergers, takeovers, tender offers and leveraged buyouts. Broadly speaking, an investor purchases the stock of a company in the process of being acquired by another company in anticipation of capturing the spread between the current market price and the acquisition price. A "stub" refers to a small stake in a target company division or subsidiary that is not purchased by an acquirer in a merger, takeover or leveraged buyout. The arbitrageur may buy the stub, and if the acquiring company is successful in boosting the target company?s appeal, the shares will benefit from a boost in price and the arbitrageur will profit. A spin-off occurs when an independent company is created from an existing part of another company through a distribution of new shares. An arbitrageur may benefit from the share price differential in the same manner as in traditional merger arbitrage if, upon completion of the spin-off, the separate securities trade for more in the aggregate than the former single security. Finally, when a company makes the decision to liquidate, or sell all of its assets, it is often worth more in liquidation than as an ongoing entity. An arbitrageur benefits when the company is able to distribute more than the price at which the stock is trading at the time the arbitrageur acquires its position. In order to minimize market exposure and volatility of such merger arbitrage strategies, the Fund may utilize hedging strategies, such as short selling and the use of options and futures. The Fund may hold a significant portion of its assets in liquid money market securities, which may include affiliated or unaffiliated money market mutual funds. |
