N-Q 1 merger-nq.htm QUARTERLY NOTICE OF PORTFOLIO HOLDINGS





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


 
FORM N-Q
 
 
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY
 



Investment Company Act file number 811-03445



The Merger Fund
(Exact name of registrant as specified in charter)


100 Summit Lake Drive
Valhalla, New York  10595
(Address of principal executive offices) (Zip code)



Roy Behren and Michael T. Shannon
The Merger Fund
100 Summit Lake Drive
Valhalla, New York  10595
(Name and address of agent for service)



Registrant's telephone number, including area code: 1-800-343-8959



Date of fiscal year end: December 31, 2017



Date of reporting period:  March 31, 2017


 

Item 1. Schedule of Investments.
 
The Merger Fund
     
SCHEDULE OF INVESTMENTS
     
March 31, 2017 (Unaudited)
     
 
 
     
Shares
   
Value
 
LONG INVESTMENTS - 102.20%
           
COMMON STOCKS - 79.83%
           
AEROSPACE & DEFENSE- 3.91%
           
B/E Aerospace, Inc.
   
1,495,439
   
$
95,872,594
 
DigitalGlobe, Inc. (a)
   
459,456
     
15,047,184
 
             
110,919,778
 
ALTERNATIVE CARRIERS - 2.32%
               
Level 3 Communications, Inc. (a)
   
1,150,154
     
65,811,812
 
APPLICATION SOFTWARE - 3.08%
               
Mobileye NV (a)(b)
   
1,425,648
     
87,534,787
 
ASSET MANAGEMENT & CUSTODY BANKS - 1.01%
               
Fortress Investment Group LLC Class A
   
3,597,024
     
28,596,341
 
CABLE & SATELLITE - 0.58%
               
Liberty Media Corporation-Liberty SiriusXM Class A (a)
   
424,485
     
16,520,956
 
CASINOS & GAMING - 0.20%
               
Isle of Capri Casinos, Inc. (a)
   
219,187
     
5,777,769
 
DATA PROCESSING & OUTSOURCED SERVICES - 0.30%
               
DH Corporation (b)
   
455,368
     
8,642,695
 
DIVERSIFIED CHEMICALS - 3.44%
               
E. I. du Pont de Nemours and Company (e)
   
1,118,682
     
89,863,725
 
Huntsman Corporation (e)
   
314,005
     
7,705,683
 
             
97,569,408
 
DRUG RETAIL - 0.16%
               
Rite Aid Corporation (a)
   
1,051,260
     
4,467,855
 
FERTILIZERS & AGRICULTURAL CHEMICALS - 3.31%
               
Syngenta AG - ADR
   
1,062,013
     
93,988,150
 
HEALTH CARE FACILITIES - 3.04%
               
VCA, Inc. (a)
   
941,687
     
86,164,361
 
HOUSEWARES & SPECIALTIES - 4.48%
               
Jarden Corporation (a)(d)(g)(j)
   
2,025,678
     
127,198,601
 
INTERNET SOFTWARE & SERVICES - 5.96%
               
Yahoo!, Inc. (a)
   
3,646,536
     
169,235,736
 
MOVIES & ENTERTAINMENT - 5.35%
               
Time Warner, Inc. (e)
   
1,555,209
     
151,959,471
 
MULTI-LINE INSURANCE - 2.69%
               
American International Group, Inc. (e)
   
1,222,900
     
76,345,647
 
OIL & GAS EQUIPMENT & SERVICES - 2.23%
               
Baker Hughes, Inc. (e)
   
1,058,799
     
63,337,356
 
OIL & GAS REFINING & MARKETING - 0.03%
               
Showa Shell Sekiyu K.K. (b)
   
93,792
     
949,462
 
OIL & GAS STORAGE & TRANSPORTATION - 3.87%
               
Columbia Pipeline Group, Inc. (a)(d)(g)(j)
   
2,276,354
     
58,513,224
 
Energy Transfer Partners LP
   
758,015
     
27,682,708
 
ONEOK Partners LP
   
435,817
     
23,529,760
 
             
109,725,692
 
PACKAGED FOODS & MEATS - 4.77%
               
Mead Johnson Nutrition Company
   
1,131,330
     
100,778,876
 
The WhiteWave Foods Company (a)
   
618,205
     
34,712,211
 
             
135,491,087
 
PAPER PACKAGING - 1.32%
               
Sealed Air Corporation (e)
   
859,000
     
37,435,220
 
REGIONAL BANKS - 2.07%
               
Cascade Bancorp (a)
   
157,841
     
1,216,954
 
PrivateBancorp, Inc.
   
969,551
     
57,562,243
 
             
58,779,197
 
 

REITs - 0.34%
               
Starwood Property Trust, Inc.
   
424,863
     
9,593,407
 
SEMICONDUCTORS - 5.09%
               
NXP Semiconductors NV (a)(b)(e)
   
1,396,523
     
144,540,131
 
SPECIAL PURPOSE ACQUISITION COMPANY - 0.14%
               
KLR Energy Acquisition Corporation Class A (a)(f)
   
395,952
     
4,086,225
 
SPECIALTY CHEMICALS - 6.76%
               
Ashland Global Holdings, Inc. (e)
   
385,400
     
47,716,374
 
Chemtura Corporation (a)
   
2,183,148
     
72,917,143
 
The Valspar Corporation (e)
   
642,956
     
71,329,539
 
             
191,963,056
 
SYSTEMS SOFTWARE - 1.11%
               
Dell Technologies, Inc. Class V (a)
   
491,088
     
31,468,919
 
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS - 3.27%
               
Hewlett Packard Enterprise Company (e)
   
3,916,000
     
92,809,200
 
THRIFTS & MORTGAGE FINANCE - 2.36%
               
EverBank Financial Corporation
   
3,446,435
     
67,136,554
 
TOBACCO - 6.64%
               
Reynolds American, Inc.
   
2,991,586
     
188,529,750
 
TOTAL COMMON STOCKS (Cost $2,143,042,887)
           
2,266,578,623
 
                 
CONTINGENT VALUE RIGHTS - 0.08%
               
Casa Ley, S.A. de C.V. (a)(g)
   
1,713,496
     
651,128
 
Media General, Inc. (a)(g)
   
891,153
     
1,604,075
 
Property Development Centers LLC (a)(g)
   
1,713,496
     
34,270
 
TOTAL CONTINGENT VALUE RIGHTS (Cost $431,892)
           
2,289,473
 
                 
     
Principal Amount
         
BANK LOANS - 0.55% (f)
               
Bass Pro Group LLC
 
$
16,112,000
         
  6.150%, 12/16/2023
           
15,507,800
 
TOTAL BANK LOANS (Cost $16,011,300)
           
15,507,800
 
                 
CORPORATE BONDS - 5.55% (f)
               
Alere, Inc.
               
  6.500%, 6/15/2020
   
4,496,000
     
4,552,200
 
CEB, Inc.
               
  5.625%, 6/15/2023 (i)
   
544,000
     
592,280
 
Clayton Williams Energy, Inc.
               
  7.750%, 4/1/2019
   
22,727,000
     
22,834,953
 
CST Brands, Inc.
               
  5.000%, 5/1/2023
   
4,667,000
     
4,842,012
 
Energy Future Intermediate Holding Company LLC
               
  11.000%, 10/1/2021 (h)
   
10,065,404
     
11,701,032
 
FairPoint Communications, Inc.
               
  8.750%, 8/15/2019 (i)
   
13,596,000
     
14,026,313
 
Level 3 Financing, Inc.
               
  4.762%, 1/15/2018 (k)
   
11,870,000
     
11,936,769
 
Lloyds Bank plc
               
  6.850%, 7/17/2027 (b)(k)
   
19,784,000
     
20,383,455
 
Northern Tier Energy LLC / Northern Tier Finance Corporation
               
  7.125%, 11/15/2020
   
4,453,000
     
4,653,385
 
Rite Aid Corporation
               
  6.125%, 4/1/2023 (i)
   
3,991,000
     
3,971,045
 
Surgical Care Affiliates, Inc.
               
  6.000%, 4/1/2023 (i)
   
21,067,000
     
22,699,693
 
Western Refining, Inc.
               
  6.250%, 4/1/2021
   
11,876,000
     
12,284,238
 
The WhiteWave Foods Company
               
  5.375%, 10/1/2022
   
21,239,000
     
23,150,510
 
TOTAL CORPORATE BONDS (Cost $156,770,297)
           
157,627,885
 
                 
 

     
Contracts (100 shares per contract)
         
PURCHASED CALL OPTIONS - 0.00%
               
Mead Johnson Nutrition Company
               
Expiration: January 2019, Exercise Price: $90.00
   
480
     
14,400
 
SPDR S&P 500 ETF Trust
               
Expiration: May 2017, Exercise Price: $250.00
   
781
     
8,591
 
             
22,991
 
PURCHASED PUT OPTIONS - 0.18%
               
Alibaba Group Holding Ltd. - ADR
               
Expiration: April 2017, Exercise Price: $90.00
   
155
     
465
 
American International Group, Inc.
               
Expiration: May 2017, Exercise Price: $55.00
   
2,761
     
60,742
 
Expiration: May 2017, Exercise Price: $57.50
   
602
     
25,886
 
Expiration: May 2017, Exercise Price: $62.50
   
8,865
     
1,591,267
 
Ashland Global Holdings, Inc.
               
Expiration: April 2017, Exercise Price: $100.00
   
3,854
     
7,708
 
Expiration: May 2017, Exercise Price: $105.00
   
3,854
     
119,474
 
AT&T, Inc.
               
Expiration: October 2017, Exercise Price: $37.00
   
6,593
     
520,847
 
Baker Hughes, Inc.
               
Expiration: April 2017, Exercise Price: $52.50
   
10,588
     
79,410
 
E. I. du Pont de Nemours and Company
               
Expiration: May 2017, Exercise Price: $70.00
   
3,497
     
129,389
 
Expiration: May 2017, Exercise Price: $72.50
   
1,935
     
98,685
 
Expiration: July 2017, Exercise Price: $72.50
   
964
     
106,040
 
Hewlett Packard Enterprise Company
               
Expiration: May 2017, Exercise Price: $17.00
   
14,216
     
28,432
 
Expiration: May 2017, Exercise Price: $19.00
   
18,545
     
129,815
 
Expiration: May 2017, Exercise Price: $20.00
   
6,399
     
47,993
 
Huntsman Corporation
               
Expiration: August 2017, Exercise Price: $17.00
   
3,140
     
47,100
 
Sealed Air Corporation
               
Expiration: May 2017, Exercise Price: $38.00
   
8,590
     
236,225
 
SPDR S&P 500 ETF Trust
               
Expiration: April 2017, Exercise Price: $235.00
   
2,634
     
412,221
 
Expiration: April 2017, Exercise Price: $236.00
   
6,638
     
1,297,729
 
VanEck Vectors Semiconductor ETF
               
Expiration: May 2017, Exercise Price: $72.00
   
1,160
     
40,600
 
             
4,980,028
 
TOTAL PURCHASED OPTIONS (Cost $9,250,133)
           
5,003,019
 
                 
     
Principal Amount
         
ESCROW NOTES - 0.05%
               
AMR Corporation (a)(d)(g)
 
$
1,243,406
     
1,454,785
 
TOTAL ESCROW NOTES (Cost $679,556)
           
1,454,785
 
                 
     
Shares
         
SHORT-TERM INVESTMENTS - 15.96%
               
First American Government Obligations Fund, Institutional Share Class, 0.61% (c)(e)
   
139,137,000
     
139,137,000
 
First American Treasury Obligations Fund, Institutional Share Class, 0.60% (c)
   
35,705,563
     
35,705,563
 
Morgan Stanley Institutional Liquidity Funds - Government Portfolio, Institutional Share Class, 0.60% (c)(e)
   
139,137,000
     
139,137,000
 
The Government & Agency Portfolio, Institutional Share Class, 0.61% (c)(e)
   
139,137,000
     
139,137,000
 
TOTAL SHORT-TERM INVESTMENTS (Cost $453,116,563)
           
453,116,563
 
TOTAL LONG INVESTMENTS (Cost $2,779,302,628) - 102.20%
           
2,901,578,148
 
                 
SHORT INVESTMENTS - (14.25)%
               
COMMON STOCKS - (13.52)%
               
AEROSPACE & DEFENSE - (1.60)%
               
MacDonald, Dettwiler and Associates Ltd. (b)(f)
   
(73,513
)
   
(3,856,125
)
Rockwell Collins, Inc.
   
(428,839
)
   
(41,665,997
)
             
(45,522,122
)
AIRLINES - (0.10)%
               
American Airlines Group, Inc.
   
(65,211
)
   
(2,758,425
)
CABLE & SATELLITE - (0.72)%
               
Sirius XM Holdings, Inc.
   
(3,969,431
)
   
(20,442,570
)
CASINOS & GAMING - (0.10)%
               
Eldorado Resorts, Inc.
   
(150,791
)
   
(2,853,720
)
CONSTUCTION MACHINERY & HEAVY TRUCKS - (0.18)%
               
Joy Global, Inc.
   
(181,174
)
   
(5,118,165
)
DIVERSIFIED BANKS - (0.52)%
               
Canadian Imperial Bank of Commerce (b)
   
(171,379
)
   
(14,774,584
)
 

DIVERSIFIED CHEMICALS - (1.10)%
               
The Dow Chemical Company
   
(490,186
)
   
(31,146,418
)
INTEGRATED TELECOMMUNICATION SERVICES - (0.78)%
               
AT&T, Inc.
   
(282,199
)
   
(11,725,368
)
CenturyLink, Inc.
   
(439,433
)
   
(10,357,436
)
             
(22,082,804
)
INTERNET SOFTWARE & SERVICES - (4.91)%
               
Alibaba Group Holding Ltd. - ADR
   
(1,293,858
)
   
(139,516,708
)
OIL & GAS REFINING & MARKETING - (0.06)%
               
Idemitsu Kosan Company, Ltd. (b)
   
(46,809
)
   
(1,627,152
)
OIL & GAS STORAGE & TRANSPORTATION - (1.82)%
               
ONEOK, Inc.
   
(429,264
)
   
(23,798,396
)
Sunoco Logistics Partners LP
   
(1,136,988
)
   
(27,765,247
)
             
(51,563,643
)
REGIONAL BANKS - (0.03)%
               
First Interstate BancSystem, Inc. Class A
   
(23,461
)
   
(930,229
)
SOFTWARE - (1.43)%
               
VMware, Inc. Class A
   
(440,523
)
   
(40,589,789
)
TOBACCO - (0.17)%
               
British American Tobacco plc - ADR
   
(74,730
)
   
(4,956,094
)
TOTAL COMMON STOCKS (Proceeds $322,040,282)
           
(383,882,423
)
                 
     
Principal Amount
         
U.S. GOVERNMENT NOTES/BONDS - (0.73)%
               
United States Treasury Note/Bond
               
  1.875%, 2/28/2022 (f)
 
$
(20,758,000
)
   
(20,713,806
)
TOTAL U.S. GOVERNMENT NOTES/BONDS
               
(Proceeds $20,702,051)
           
(20,713,806
)
TOTAL SHORT INVESTMENTS
               
(Proceeds $342,742,333) - (14.25)%
           
(404,596,229
)
TOTAL NET INVESTMENTS
               
  (Cost $2,436,560,295) - 87.95%
           
2,496,981,919
 
OTHER ASSETS IN EXCESS OF LIABILITIES - 12.05%
           
342,045,371
 
TOTAL NET ASSETS - 100.00%
         
$
2,839,027,290
 

 
ADR
- American Depository Receipt
 
ETF
- Exchange-Traded Fund
 
plc
- Public Limited Company
 
REITs
- Real Estate Investment Trusts
 
(a)
Non-income producing security.
 
(b)
Foreign security.
 
(c)
The rate quoted is the annualized seven-day yield as of March 31, 2017.
 
(d)
Security fair valued by the Valuation Group in good faith in accordance with the policies adopted by the Board of Trustees.
 
(e)
All or a portion of the shares have been committed as collateral for open securities sold short, written option contracts,
   
swap contacts, and forward currency exchange contracts.
 
(f)
Level 2 Security. Please see footnote (m) on the schedule of investments for more information.
 
(g)
Level 3 Security. Please see footnote (m) on the schedule of investments for more information.
 
(h)
Default or other conditions exist and the security is not presently accruing income.
 
(i)
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 March 31, 2017, these
   
securities represent 1.45% of total net assets.
 
(j)
Restricted security. Please see footnote (m) on the schedule of investments for more information. As of March 31, 2017, these
   
securities represented 6.54% of total net assets.
 
(k)
The coupon rate shown on variable rate securities represents the rates as of March 31, 2017.
 
(l)
The cost basis of long investments for federal income tax purposes at March 31, 2017 was as follows*:
 
 
Cost of long investments
 
$
2,779,302,628
 
 
Long investment gross unrealized appreciation
 
$
144,008,227
 
 
Long investment gross unrealized depreciation
   
(21,732,707
)
 
Long investment net unrealized appreciation
 
$
122,275,520
 
 
   
*Because tax adjustments are calculated annually at the end of the Fund’s fiscal year, the above table does not reflect tax adjustments for the current fiscal year. For the previous fiscal year’s federal income tax information, please refer to the Notes to Financial Statements section in the Fund’s most recent annual report.
 
     
     
 

 
(m)
Investment Valuation
       
   
The following is a summary of the Fund’s pricing procedures. It is intended to be a general discussion and may not necessarily reflect all pricing procedures followed by the Fund.
 
             
   
Equity securities that trade on an exchange will typically be valued based on the last reported sale price. Securities listed on NASDAQ are typically valued using the NASDAQ Official Closing Price. The securities valued using quoted prices in active markets are classified as Level 1 investments. If, on a particular day, an exchange-listed security does not trade, then the mean between the closing bid and asked prices will typically be used to value the security. These securities are classified as Level 2 investments. Fixed income securities having a maturity of greater than 60 days are typically valued based on evaluations provided by a pricing vendor approved by the Board of Trustees of the Fund (the “Board” or “Trustees”). These are classified as Level 2 investments.
 
             
   
Exchange-traded options are typically valued at the higher of the intrinsic value of the option (i.e., what the Fund would pay or can receive upon the option being exercised) or the last reported composite sale price when such sale falls between the bid and asked prices. When the last sale of an exchange-traded option is outside the bid and asked prices, the Fund will typically value the option at the higher of the intrinsic value of the option or the mean between the highest end of day option bid price and the lowest end of day option ask price. Options for which there is an active market are classified as Level 1 investments, but options not listed on an exchange are classified as Level 2 investments. Investments in United States government securities (other than short-term securities) are valued at the mean between the 4:00 PM New York time bid and asked prices supplied by a third party vendor. Investments in registered open-end investment companies, including money market funds, are typically valued at their reported NAV per share. Short-term fixed-income securities having a maturity of less than 60 days are valued at market quotations or based on valuations supplied by a third party pricing service. If a reliable price from a third party pricing service is unavailable, amortized cost may be used if it is determined that the instrument’s amortized cost value represents approximately the fair value of the security. Forward currency contracts are valued daily at the prevailing forward exchange rate. These securities are generally classified as Level 2. Total return swap prices are determined using the same methods as would be used to price the underlying security. These securities are generally classified as Level 2.
 
             
   
The Fund typically fair values securities and assets for which (a) market quotations are not readily available or (b) market quotations are believed to be unrepresentative of market value. For example, a Fund may fair value a security that primarily trades on an exchange that closes before which the security primarily trades but before the NYSE closes. Fair valuations are determined in good faith by the Valuation Group (the “Valuation Group”), a committee comprised of persons who are officers of the Fund or representatives of the Adviser, acting pursuant to procedures adopted by the Board. When fair-value pricing is employed, the prices of securities used by the Fund to calculate its NAV may differ from quoted or published prices for the same securities. In addition, due to the subjective nature of fair-value pricing, it is possible that the value determined for a particular asset may be materially different from the value realized upon such asset’s sales. These securities are generally classified as Level 2 or 3 depending on the inputs as described below.
 
             
   
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determination. Various inputs are used in determining the value of the Fund’s investments. These inputs are summarized in the three broad levels listed below:
 
             
   
Level 1 — Quoted prices in active markets for identical securities.
       
   
Level 2 — Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
 
   
Level 3 — Significant unobservable inputs are those inputs that reflect the applicable Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.
 
             
   
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.
 
             
   
The following tables provide the fair value measurements of applicable Fund assets and liabilities by level within the fair value hierarchy for the Fund as of March 31, 2017. These assets and liabilities are measured on a recurring basis.
 
 
                           
 
Investments at Fair Value
 
Level 1
   
Level 2
   
Level 3
   
Total
 
 
Assets
                       
 
Common Stocks*
 
$
2,076,780,573
   
$
4,086,225
   
$
185,711,825
   
$
2,266,578,623
 
 
Contingent Value Rights
   
-
     
-
     
2,289,473
     
2,289,473
 
 
Bank Loans
   
-
     
15,507,800
             
15,507,800
 
 
Corporate Bonds
   
-
     
157,627,885
     
-
     
157,627,885
 
 
Purchased Option Contracts
   
5,003,019
     
-
     
-
     
5,003,019
 
 
Escrow Notes
   
-
     
-
     
1,454,785
     
1,454,785
 
 
Short-Term Investments
   
453,116,563
     
-
     
-
     
453,116,563
 
 
Total
 
$
2,534,900,155
   
$
177,221,910
   
$
189,456,083
   
$
2,901,578,148
 
                                   
 
Liabilities
                               
 
Short Common Stock*
 
$
380,026,298
   
$
3,856,125
   
$
-
   
$
383,882,423
 
 
US Government Notes/Bonds
   
-
     
20,713,806
     
-
     
20,713,806
 
 
Written Option Contracts
   
27,604,583
     
-
     
-
     
27,604,583
 
 
Forward Currency Exchange Contracts**
   
-
     
1,437,140
     
-
     
1,437,140
 
 
Swap Contracts**
   
-
     
6,617,968
     
-
     
6,617,968
 
 
Total
 
$
407,630,881
   
$
32,625,039
   
$
-
   
$
440,255,920
 
                                   
 
 
Please refer to the Schedules of Investments to view long/short common stocks segregated by industry type.
     
 
** 
Swap contracts and forward currency exchange contracts are valued at the net unrealized appreciation (depreciation) on the instrument by counterparty.
           
   
The Level 2 securities are priced using inputs such as current yields, discount rates, credit quality, yields on comparable securities, trading volume, maturity date, market bid and asked prices, prices on comparable securities and other significant inputs. Level 3 securities are valued by brokers using broker quotes or such other pricing sources or data as are permitted by the Fund’s pricing procedures. At March 31, 2017, the value of these securities was $189,456,083. The inputs for these securities are not readily available or cannot be reasonably estimated and are generally those inputs as described in footnote (m). The appropriateness of fair values for these securities is monitored by the Valuation Group on an ongoing basis.

For the three months ended March 31, 2017, the Fund transferred $4,086,225 from Level 1 to Level 2 due to decreased market activity. There were no transfers into or out of Level 3 investments during the period. Transfers are recorded at the end of the reporting period.
           
   
Level 3 Reconciliation Disclosure
     
   
The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value.
 

 
Description
 
Common Stock
   
Contingent
Value Rights
   
Escrow Notes
   
Total Investment
 
 
Balance as of December 31, 2016
 
$
185,723,846
   
$
930,150
   
$
1,678,598
   
$
188,332,594
 
 
Purchases on Investments
   
-
     
1,604,075
     
-
     
1,604,075
 
 
(Sales) of Investments
   
-
     
(244,752
)
   
-
     
(244,752
)
 
Transfers Into Level 3
   
-
     
-
     
-
     
-
 
 
(Transfer Out) of Level 3
   
-
     
-
     
-
     
-
 
 
Change in Unrealized Depreciation
   
(12,021
)
   
-
     
(223,813
)
   
(235,834
)
 
Balance as of March 31, 2017
 
$
185,711,825
   
$
2,289,473
   
$
1,454,785
   
$
189,456,083
 
                                   
The net change in unrealized appreciation (depreciation) on investments related to Level 3 securities held by the Fund at March 31, 2017 totals $(235,834).

Significant unobservable valuation inputs monitored by the Valuation Group under the supervision of the Board of Trustees for material Level 3 investments as of March 31, 2017 are as follows:
 
Description
 
Fair Value at
March 31, 2017
 
Valuation Technique
 
Unobservable Input
Common Stock
 
$
127,198,601
 
Discounted Cash Flow Model
 
Discount Rates
Terminal Value
Cash Flow Projections
Common Stock
 
$
58,513,224
 
Discounted Cash Flow Model
 
Discount Rates
Terminal Value
Cash Flow Projections
 
   
The table above does not include certain Level 3 investments that are valued by brokers and pricing services. At March 31, 2017, the value of these investments was $3,744,258. The inputs for these investments are not readily available or cannot be reasonably estimated and are generally those inputs described in footnote (m).
     
 
(n)
Disclosures about Derivative Instruments and Hedging Activities at March 31, 2017.
     
   
The Fund has adopted authoritative standards regarding disclosure about derivatives and hedging activities. Fair values of derivative instruments as of March 31, 2017 are as follows:

     
Asset Derivatives
   
   
Liability Derivatives
 
 
Derivatives
 
Description
   
Fair Value
   
Description
   
Fair Value
 
 
Equity Contracts:
                       
 
   Purchased Option Contracts
 
Schedule of Investments
   
$
5,003,019
     
N/A
   
$
-
 
 
   Written Option Contracts
   
N/A
     
-
   
Schedule of Options Written
     
27,604,583
 
 
Foreign Exchange Contracts:
                               
 
    Exchange Contracts
     Forward Currency
 
Schedule of Forward Currency Exchange Contracts
     
-
   
Schedule of Forward Currency Exchange Contracts
     
1,437,140
 
 
    Swap Contracts
 
Schedule of Swap Contracts
     
-
   
Schedule of Swap Contracts
     
6,617,968
 
 
Total
         
$
5,003,019
           
$
35,659,691
 
                                   

   
The Global Industry Classification Standard (GICS®) was developed by and/or is the exclusive property of MSCI, Inc. and Standard & Poor’s Financial Services LLC (“S&P”). GICS is a service mark of MSCI and S&P and has been licensed for use by U.S. Bancorp Fund Services, LLC.

 

The Merger Fund
 
SCHEDULE OF OPTIONS WRITTEN
 
March 31, 2017 (Unaudited)
 
   
   
Contracts (100 Shares per contract)
   
Value
 
CALL OPTIONS WRITTEN
           
American International Group, Inc.
           
Expiration: May 2017, Exercise Price: $62.50
   
3,320
   
$
604,240
 
Expiration: May 2017, Exercise Price: $65.00
   
5,498
     
415,099
 
Ashland Global Holdings, Inc.
               
Expiration: May 2017, Exercise Price: $125.00
   
3,854
     
1,194,740
 
AT&T, Inc.
               
Expiration: October 2017, Exercise Price: $40.00
   
761
     
176,552
 
Expiration: October 2017, Exercise Price: $41.00
   
7,968
     
1,374,480
 
Baker Hughes, Inc.
               
Expiration: April 2017, Exercise Price: $57.50
   
6,035
     
1,674,712
 
Expiration: April 2017, Exercise Price: $60.00
   
4,553
     
500,830
 
CenturyLink, Inc.
               
Expiration: April 2017, Exercise Price: $22.00
   
5
     
788
 
Expiration: April 2017, Exercise Price: $23.00
   
22
     
1,804
 
Expiration: April 2017, Exercise Price: $24.00
   
2,538
     
58,374
 
Expiration: July 2017, Exercise Price: $23.00
   
8,430
     
1,154,910
 
The Dow Chemical Company
               
Expiration: June 2017, Exercise Price: $62.50
   
4,483
     
1,273,172
 
E. I. du Pont de Nemours and Company
               
Expiration: May 2017, Exercise Price: $80.00
   
2,150
     
566,525
 
Expiration: July 2017, Exercise Price: $80.00
   
1,071
     
404,838
 
Hewlett Packard Enterprise Company
               
Expiration: May 2017, Exercise Price: $21.00
   
14,216
     
4,264,800
 
Expiration: May 2017, Exercise Price: $22.00
   
24,944
     
4,988,800
 
Huntsman Corporation
               
Expiration: August 2017, Exercise Price: $21.00
   
3,140
     
1,350,200
 
NXP Semiconductors NV
               
Expiration: December 2017, Exercise Price: $105.00
   
753
     
338,850
 
Rockwell Collins, Inc.
               
Expiration: April 2017, Exercise Price: $95.00
   
336
     
106,680
 
Sealed Air Corporation
               
Expiration: May 2017, Exercise Price: $42.00
   
8,590
     
2,276,350
 
SPDR S&P 500 ETF Trust
               
Expiration: May 2017, Exercise Price: $243.00
   
1,879
     
139,046
 
Time Warner, Inc.
               
Expiration: April 2017, Exercise Price: $90.00
   
3,182
     
2,561,510
 
Expiration: April 2017, Exercise Price: $95.00
   
3,131
     
1,001,920
 
The Valspar Corporation
               
Expiration: April 2017, Exercise Price: $105.00
   
1,073
     
643,800
 
             
27,073,020
 
PUT OPTIONS WRITTEN
               
Alibaba Group Holding Ltd.
               
Expiration: May 2017, Exercise Price: $105.00
   
155
     
43,090
 
SPDR S&P 500 ETF Trust
               
Expiration: April 2017, Exercise Price: $229.00
   
1,963
     
96,187
 
Expiration: April 2017, Exercise Price: $230.00
   
6,638
     
378,366
 
VanEck Vectors Semiconductor ETF
               
Expiration: May 2017, Exercise Price: $65.00
   
1,160
     
13,920
 
             
531,563
 
TOTAL OPTIONS WRITTEN
               
(Premiums received $27,169,840)
         
$
27,604,583
 
                 
ETF - Exchange Traded Fund
               

 

 
The Merger Fund
           
SCHEDULE OF FORWARD CURRENCY EXCHANGE CONTRACTS*
           
March 31, 2017 (Unaudited)
           
                               
Unrealized
 
Settlement
          
USD Value at
            
USD Value at
   
Appreciation
 
Date
 
Currency to be Delivered
 
March 31, 2017
   
Currency to be Received
 
March 31, 2017
   
(Depreciation)**
 
8/15/2017
   
37,319,578
 
CAD
 
$
28,119,529
     
27,880,995
 
USD
 
$
27,880,995
   
$
(238,534
)
12/20/2017
   
101,202,748
 
GBP
   
127,738,829
     
126,540,223
 
USD
   
126,540,223
     
(1,198,606
)
               
$
155,858,358
              
$
154,421,218
   
$
(1,437,140
)

CAD 
- Canadian Dollar
GBP 
- British Pound
USD 
- U.S. Dollar
JPMorgan Chase & Co., Inc. is the counterparty for all open forward currency exchange contracts held by the Fund as of March 31, 2017.
** 
Unrealized appreciation is a receivable and unrealized depreciation is a payable.
 

 

The Merger Fund
SCHEDULE OF SWAP CONTRACTS
March 31, 2017 (Unaudited)
 
  Security   Shares    
Notional Amount
   
Unrealized
Appreciation (Depreciation)*
  Counterparty
LONG TOTAL RETURN SWAP CONTRACTS           
3/31/2017
Actelion Ltd.- ADR
   
11,053
   
$
3,127,745
   
$
(59,519
)
JPM
3/30/2018
Actelion Ltd.- ADR (New Line)
   
284,440
     
77,362,783
     
2,770,666
 
JPM
12/20/2017
Allied World Assurance Company Holdings AG
   
617,320
     
32,742,460
     
(32,178
)
BAML
3/13/2018
DH Corporation
   
1,001,290
     
18,721,969
     
266,294
 
BAML
2/14/2018
Reynolds American, Inc.
   
155,800
     
9,395,989
     
407,007
 
BAML
12/12/2017
Sky plc
   
9,414,209
     
115,276,527
     
(234,767
)
JPM
2/22/2018
Syngenta AG
   
53,662
     
22,830,510
     
880,009
 
BAML
2/3/2018
VCA, Inc.
   
98,607
     
8,942,111
     
61,699
 
BAML
                                  
SHORT TOTAL RETURN SWAP CONTRACTS
11/23/2017
British American Tobacco plc
   
(347,157
)
   
(18,693,530
)
   
(4,308,969
)
BAML
1/18/2018
British American Tobacco plc
   
(1,151,693
)
   
(69,693,093
)
   
(6,661,480
)
JPM
2/14/2018
British American Tobacco plc - ADR
   
(81,951
)
   
(5,082,836
)
   
(369,149
)
BAML
12/20/2017
Fairfax Financial Holdings Ltd.
   
(28,074
)
   
(13,111,353
)
   
293,270
 
BAML
                     
$
(6,987,117
)
 

ADR
-
American Depository Receipt
BAML
-
Bank of America Merrill Lynch & Co., Inc.
JPM
-
JPMorgan Chase & Co., Inc.
plc
-
Public Limited Company
*
 
Based on the net swap value held at each counterparty, unrealized appreciation is a receivable and unrealized depreciation is a payable.
 

Item 2. Controls and Procedures.
(a)
The Registrant’s President/Principal Executive Officer and Treasurer/Principal Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “1940 Act”)) (17 CFR 270.30a-3(c)) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rule 13a-15(b) or Rule 15d 15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(d)).

(b)
There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) (17 CFR 270.30a-3(d)) that occurred during the Registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.

 
Item 3. Exhibits.
 
Separate certifications for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)). Filed herewith.
 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


(Registrant)          The Merger Fund

By (Signature and Title)   /s/ Michael T. Shannon
Michael T. Shannon, Co-President

Date  May 25, 2017

By (Signature and Title)   /s/ Roy Behren
  Roy Behren, Co-President and Treasurer

Date  May 25, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By (Signature and Title)*   /s/ Michael T. Shannon
Michael T. Shannon, Co-President
 
Date  May 25, 2017

 
By (Signature and Title)*  /s/ Roy Behren
Roy Behren, Co-President and Treasurer

Date  May 25, 2017

 
* Print the name and title of each signing officer under his or her signature.