(PUB) Investing 2015

Morningstar Analyst Rating

04-16-15

„

Morningstar Pillars

Process

Performance

People

Parent

Price

Positive

Morningstar Analyst Rating

Morningstar evaluates mutual funds based on five key pillars, which

its analysts believe lead to funds that are more likely to outperform

over the long term on a risk-adjusted basis.

Analyst Rating Spectrum

Œ „ ´ˇ ¨

Pillar Spectrum

Positive

Negative

Neutral

NAV

15.85

15.63

16.01

15.83

15.59

15.78

15.54

14.32

15.02

15.62

14.67

15.42

Total Return %

1.41

1.43

3.61

1.66

3.41

8.52

-2.26

2.96

10.98

0.81

2.71

+/-BC Agg Bnd

0.17

-4.54

5.63

-0.60

-6.18

-3.13

2.59

-7.50

-4.01

6.65

-1.62

-1.63

+/-3Mth T-Bill

-19.59

1.40

3.55

3.52

1.60

3.27

8.36

-3.77

-1.81

5.92

-2.53

1.28

Income Return %

0.00

2.47

1.96

1.66

0.53

0.00

2.01

2.37

0.76

0.06

0.01

Capital Return %

1.41

-1.04

1.65

1.95

1.13

3.41

8.52

-4.27

0.59

10.22

0.75

2.70

Total Rtn % Rank Cat

Income $

0.00

0.40

0.31

0.26

0.08

0.00

0.30

0.37

0.11

0.01

0.00

Capital Gains $

0.00

0.21

0.08

0.06

0.37

0.29

0.00

0.06

0.69

0.55

0.87

0.20

Expense Ratio %

1.23

1.26

1.27

1.34

1.41

1.54

1.47

1.40

1.37

1.36

1.37

Income Ratio %

2.06

0.22

-0.34

-1.13

-1.28

-2.49

-0.09

0.83

0.43

-0.35

-0.68

Turnover Rate %

137

194

240

192

318

300

335

369

312

257

Net Assets $mil

4,011

4,067

4,836

4,420

5,024

3,913

2,262

1,277

1,606

1,526

1,260

1,651

Performance

04-30-15

1st Qtr

2nd Qtr

3rd Qtr

4th Qtr

Total

2011

2012

2013

2014

2015

2.41 0.50

-4.00 2.90

1.66

1.09 0.06

1.08 1.34

3.61

0.25 0.06

1.89 1.37

3.61

0.50 2.36

-0.85 -0.56

1.43

1.41

. . . .

Trailing

Total

+/- BC +/- 3Mth %Rank Growth of

Return% Agg Bnd

T-Bill

Cat

$10,000

3 Mo

6 Mo

1 Yr

3 Yr Avg

5 Yr Avg

10 Yr Avg

15 Yr Avg

1.73 2.57

-8.39

20 10,173

2.09 0.03 -20.63

23 10,209

1.90 -2.56 -40.58

34 10,190

2.88 0.28

-9.95

22 10,889

2.76 -1.36

-5.73

24 11,458

3.66 -1.09

-5.99

23 14,326

3.66 -1.99

-0.01

62 17,146

Tax Analysis

Tax-Adj Rtn% %Rank Cat Tax-Cost Rat %Rank Cat

3 Yr (estimated)

5 Yr (estimated)

10 Yr (estimated)

1.72

1.12

1.74

0.99

2.46

1.15

Potential Capital Gain Exposure: -1% of assets

Rating and Risk

Time Load-Adj

Morningstar

Period Return % Rtn vs Cat

Risk vs Cat

Risk-Adj Rating

1 Yr

1.90

3 Yr

2.88

+Avg

-Avg

5 Yr

2.76

+Avg

-Avg

10 Yr

3.66

+Avg

-Avg

Incept

6.57

Other Measures

Standard Index

Best Fit Index

BC Agg Bnd

Alpha

2.8

1.6

Beta

0.00

0.13

R-Squared

Standard Deviation

2.48

Mean

2.88

Sharpe Ratio

1.14

Morningstar’s Take

by A.J. D’Asaro 04-16-15

The Merger Fund continues to excel despite a

significant increase in assets.

Thanks to its successful track record, this

merger-arbitrage fund tripled in size since the 2008

financial crisis, from $1.6 billion in mid-2009 up to a

whopping $5.0 billion by late 2011, where it has

remained fairly stable. The asset growth, combined

with sluggish postcrisis deal flow, induced managers

Roy Behren and Michael Shannon to make gradual

changes in its strategy, such as increasing the fund’s

average number of holdings from 50 to 80 deals. Even

with its growth, the fund is the top performer of the

market-neutral category’s four merger-arbitrage

medalists over the past three years, earning 2.99%

annualized with a 2.5% standard deviation (as of

March 2015). Its results also far exceed the category’s

1.46% returns and 3.6% standard deviation.

Behren and Shannon became co-portfolio managers

in 2007, after working on the investment team for more

than 10 years. Over the years, they have spearheaded

Merger’s effort to evolve its strategy to accommodate

a larger asset base. The current process is more

systematic, to enable real-time analysis of an

increased number of deals. The fund also hired senior

event-driven analyst Steven Tan (2012) and options

portfolio manager Mike Corigliano (2014) to bolster its

ranks. Management also retains outside legal counsel

and industry consultants to help understand the most

complex mergers. In addition, the fund has expanded

beyond plain-vanilla merger arbitrage to other

corporate reorganizations in about 15% of the

portfolio, a move that has expanded the fund’s

opportunity set but leaves the fund’s market-neutral

risk profile unchanged.

Because of size, it is sensitive to available deal

flow in the marketplace. From 2011 to 2013, it

remained 80%-90% invested, but if deal flow dropped

precipitously, it might hold cash. In 2014, however,

deal flow reached levels not seen since 2007, which

bodes well for the fund’s capacity in the near term.

With the investor share class priced at 1.23%, this

fund is one of the best in the market-neutral category.

Address:

Merger Fund

Valhalla, NY 10595

800-343-8959

Web Address:

www.mergerfund.com

Inception:

01-31-89

Advisor:

Westchester Capital Management LLC

Subadvisor:

None

NTF Plans:

Fidelity Retail-NTF, CommonWealth NTF

Minimum Purchase:

$2000

Add: $0 IRA: $2000

Min Auto Inv Plan:

$2000

Add: $100

Sales Fees:

No-load,

Management Fee:

1.00%

Actual Fees:

Mgt:1.00% Dist:0.18%

Expense Projections:

3Yr:$522

5Yr:$910 10Yr:$1997

Income Distribution:

Annually

Data through April 30, 2015

Merger Investor

Ticker

Status Yield Total Assets

Mstar Category

MERFX Open

2.5% $5,250 mil

Market Neutral

47% 39% 46% 53% 52% 48% 50% 57%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 04-15

Historical Profile

Return

Risk

Rating

Above Avg

Below Avg

Above Avg

Investment Style

Equity

Stock %

Manager Change

Partial Manager Change

Growth of $10,000

Investment Values of

Fund

Investment Values of

BC Agg Bnd

Performance Quartile

(within Category)

History

10.0

12.0

14.0

16.0

Portfolio Analysis

12-31-14

Share change since 09-14 Total Stocks:110 Sector

PE Tot Ret% % Assets

Fidelityfi Instl MM Fds G

. . .

5.51

Invesco Short Term Inv L

. . .

5.51

Time Warner Cable Inc

Comm Svs 22.0 3.26 4.35

Covidien PLC

Hlth care

. .

4.09

Allergan Inc

Hlth care

. .

3.99

TRW Automotive Holdings

Cnsmr Cyc 42.4 2.15 3.01

Goldman Sachs FS Money M

. . .

2.77

American International G

Finan Svs 10.7 0.72 2.66

Vivendi Sa Swap (Jpm)

. . .

2.65

Directv

Comm Svs 16.8 4.62 2.62

Lamar Advertising Co Cla

Real Est

21.8 9.32 2.28

Family Dollar Stores Inc

Cnsmr Def 38.3 -1.35 2.15

Huntsman Corp

Basic Mat 20.5 1.73 2.05

Hess Corp

Energy

14.0 4.51 1.95

Sirius XM Holdings Inc

Cnsmr Cyc 44.8 12.86 1.85

Tokyo Electron Ltd ADR

Technology 21.7 -28.46 1.81

Sigma-Aldrich Corp

Basic Mat 33.3 1.37 1.79

General Motors Co

Cnsmr Cyc 16.3 1.29 1.70

Directv Swap (Jpm)

. . .

1.69

T-Mobile US Inc

Comm Svs 87.0 26.35 1.67

Current Investment Style

Market Cap %

Giant

7.9

Large

51.2

Mid

36.5

Small

4.3

Micro

0.1

Avg $mil:

20,004

Value Blnd Growth

Large Mid Small

Value Measures

Rel Category

Price/Earnings

Price/Book

Price/Sales

Price/Cash Flow

Dividend Yield %

19.45

1.85

1.18

7.46

1.43

1.28

0.99

1.15

1.12

0.79

Growth Measures

% Rel Category

Long-Term Erngs

Book Value

Sales

Cash Flow

Historical Erngs

10.65

7.17

-2.66

7.99

-2.67

1.00

1.99

NMF

1.64

NMF

Profitability

% Rel Category

Return on Equity

Return on Assets

Net Margin

16.22

5.70

10.34

1.00

0.90

0.93

Sector

Weightings

% of

Stocks

Rel BC

Agg Bnd High

3 Year

Low

Cyclical 39.62

BasicMat 9.44

12 1

CnsmrCyc16.67

20 1

FinanSvs 7.27

16 3

Real Est 6.24

6 0

Sensitive 40.81

CommSrvs15.55

18 6

Energy 14.09

23 8

Industrl

4.68

20 2

Technlgy 6.49

21 4

Defensive19.56

CnsmrDef 4.42

15 1

Hlthcare 15.14

20 8

Utilities 0.00

5 0

Composition - Net

(% of Stock)

Cash 34.1

Stocks 59.0

Bonds 1.6

Other

5.3

Foreign 11.5

timely. Pastperformance is no guarantee of future results.Accessupdated reportsat

To order reprints, call 312-696-6100.

mfb.morningstar.com.

Mutual Funds