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, 2018



Date of reporting period:  September 30, 2018


Item 1. Schedule of Investments.
 
The Merger Fund
             
SCHEDULE OF INVESTMENTS
             
September 30, 2018 (Unaudited)
             
               
   
Shares
         
Value
 
LONG INVESTMENTS - 96.50%
                 
COMMON STOCKS - 58.17%
                 
AEROSPACE & DEFENSE - 7.25%
                 
KLX, Inc. (a)
   
723,687
         
$
45,433,070
 
Rockwell Collins, Inc. (e)
   
995,268
           
139,805,296
 
                   
185,238,366
 
BIOTECHNOLOGY - 0.89%
                     
Shire plc - ADR
   
124,970
           
22,653,312
 
BROADCASTING - 0.23%
                     
Discovery Communications, Inc. Class C (a)
   
199,782
           
5,909,552
 
BUILDING PRODUCTS - 1.07%
                     
USG Corporation
   
632,907
           
27,411,202
 
COMMUNICATIONS EQUIPMENT - 0.48%
                     
Mitel Networks Corporation (a)(b)
   
1,123,764
           
12,383,879
 
COPPER - 0.20%
                     
Nevsun Resources Ltd. (b)
   
1,131,212
           
5,011,269
 
DIVERSIFIED CHEMICALS - 3.44%
                     
DowDuPont, Inc. (e)
   
781,588
           
50,263,924
 
Huntsman Corporation (e)
   
1,379,969
           
37,576,556
 
                   
87,840,480
 
DRUG RETAIL - 0.01%
                     
Rite Aid Corporation (a)(e)
   
125,668
           
160,855
 
ELECTRONIC EQUIPMENT & INSTRUMENTS - 1.56%
                     
Orbotech Ltd. (a)(b)
   
670,900
           
39,878,296
 
HEALTH CARE EQUIPMENT & SUPPLIES - 0.97%
                     
NxStage Medical, Inc. (a)
   
888,199
           
24,771,870
 
HEALTH CARE SERVICES - 3.98%
                     
Envision Healthcare Corporation (a)(e)
   
646,414
           
29,560,512
 
Express Scripts Holding Company (a)(e)
   
757,889
           
72,007,034
 
                   
101,567,546
 
HOTELS, RESORTS & CRUISE LINES - 0.21%
                     
Marriott Vacations Worldwide Corporation
   
48,701
           
5,442,335
 
INTEGRATED TELECOMMUNICATION SERVICES - 0.61%
                     
AT&T, Inc. (e)
   
466,409
           
15,662,014
 
MANAGED HEALTH CARE - 5.81%
                     
Aetna, Inc. (e)
   
731,401
           
148,364,693
 
MOVIES & ENTERTAINMENT - 7.21%
                     
Twenty-First Century Fox, Inc. Class A
   
197,595
           
9,154,576
 
Twenty-First Century Fox, Inc. Class B (e)
   
3,821,897
           
175,119,321
 
                   
184,273,897
 
OIL & GAS DRILLING - 1.38%
                     
Ocean Rig UDW, Inc. Class A (a)(b)(e)
   
1,015,428
           
35,154,117
 
OIL & GAS REFINING & MARKETING - 4.64%
                     
Andeavor (f)
   
782,963
           
118,540,598
 
OIL & GAS STORAGE & TRANSPORTATION - 3.02%
                     
Columbia Pipeline Group, Inc. (a)(d)(g)(i)
   
2,276,354
           
59,500,138
 
Enbridge Energy Partners LP
   
226,867
           
2,493,268
 
Energy Transfer Partners LP
   
564,270
           
12,560,650
 
Spectra Energy Partners LP
   
69,313
           
2,475,167
 
                   
77,029,223
 
PACKAGED FOODS & MEATS - 2.89%
                     
Pinnacle Foods, Inc. (e)
   
1,140,630
           
73,924,230
 
PAPER PRODUCTS - 0.29%
                     
KapStone Paper and Packaging Corporation (e)
   
218,992
           
7,426,019
 
PROPERTY & CASUALTY INSURANCE - 1.39%
                     
Aspen Insurance Holdings Ltd. (b)
   
846,609
           
35,388,256
 
REITs - 2.69%
                     
Brookfield Property REIT, Inc. Class A
   
609,927
           
12,765,772
 
Forest City Realty Trust, Inc. Class A
   
86,849
           
2,179,041
 
Gateway Lifestyle Holdings Pty Ltd. (b)
   
984,664
           
1,594,356
 
Gramercy Property Trust
   
1,904,597
           
52,262,142
 
                   
68,801,311
 
 

RESEARCH & CONSULTING SERVICES - 0.13%
                     
The Dun & Bradstreet Corporation
   
23,516
           
3,351,265
 
SEMICONDUCTORS - 2.82%
                     
Integrated Device Technology, Inc. (a)
   
269,096
           
12,650,203
 
NXP Semiconductors NV (b)(e)
   
693,866
           
59,325,543
 
                   
71,975,746
 
SPECIAL PURPOSE ACQUISITION COMPANIES - 3.27%
                     
Avista Healthcare Public Acquisition Corporation Class A (a)(b)
   
662,154
           
6,707,620
 
Black Ridge Acquisition Corporation (a)(f)
   
286,249
           
2,810,965
 
Churchill Capital Corporation (a)
   
148,613
           
1,505,450
 
Constellation Alpha Capital Corporation (a)(b)
   
733,713
           
7,425,176
 
Draper Oakwood Technology Acquisition, Inc. Class A (a)(f)
   
63,087
           
643,488
 
Easterly Acquisition Corporation (a)
   
371,587
           
3,883,084
 
Gordon Pointe Acquisition Corporation (a)(f)
   
136,363
           
1,346,585
 
Haymaker Acquisition Corporation Class A (a)
   
277,300
           
2,706,309
 
Hennessy Capital Acquisition Corporation III (a)
   
162,728
           
1,658,198
 
Industrea Acquisition Corporation Class A (a)
   
990,600
           
10,104,120
 
Kayne Anderson Acquisition Corporation Class A (a)
   
345,144
           
3,506,663
 
Legacy Acquisition Corporation Class A (a)
   
247,158
           
2,400,053
 
Longevity Acquisition Corporation (a)(b)
   
119,999
           
1,228,790
 
Modern Media Acquisition Corporation (a)
   
477,700
           
4,824,770
 
Mudrick Capital Acquisition Corporation Class A (a)(f)
   
428,413
           
4,162,032
 
Pensare Acquisition Corporation (a)
   
708,822
           
7,059,867
 
Pure Acquisition Corporation (a)
   
687,660
           
6,673,740
 
Thunder Bridge Acquisition Ltd. (a)(b)(f)
   
338,801
           
3,442,218
 
Tiberius Acquisition Corporation (a)(f)
   
311,172
           
3,009,033
 
TKK Symphony Acquisition Corporation (a)(b)
   
399,444
           
3,794,718
 
Twelve Seas Investment Company (a)(b)(f)
   
467,667
           
4,517,663
 
                   
83,410,542
 
SYSTEMS SOFTWARE - 1.73%
                     
CA, Inc.
   
79,476
           
3,508,866
 
Dell Technologies, Inc. Class V (a)
   
419,443
           
40,736,304
 
                   
44,245,170
 
TOTAL COMMON STOCKS (Cost $1,477,526,457)
                 
1,485,816,043
 
                       
CLOSED-END FUNDS - 10.23% (a)(e)
                     
Altaba, Inc.
   
3,835,068
           
261,244,832
 
TOTAL CLOSED-END FUNDS (Cost $230,684,515)
                 
261,244,832
 
                       
PREFERRED STOCKS - 0.12%
                     
Colony Capital, Inc., 8.750%, Series E
   
18,334
           
469,717
 
NuStar Logistics LP, 9.073% (3 Month LIBOR + 6.734%), 1/15/2043 (j)
   
102,561
           
2,589,665
 
TOTAL PREFERRED STOCKS (Cost $3,059,356)
                 
3,059,382
 
                       
CONTINGENT VALUE RIGHTS - 0.00% (a)(e)(g)
                     
Media General, Inc.
   
891,153
           
26,735
 
TOTAL CONTINGENT VALUE RIGHTS (Cost $0)
                 
26,735
 
                       
RIGHTS - 0.02% (a)(f)
                     
Black Ridge Acquisition Corporation
   
286,249
           
108,774
 
Modern Media Acquisition Corporation
   
477,700
           
207,776
 
Pensare Acquisition Corporation
   
708,822
           
318,403
 
TOTAL RIGHTS (Cost $589,349)
                 
634,953
 
                       
WARRANTS - 0.07% (a)(f)
                     
Black Ridge Acquisition Corporation
   
286,249
           
125,950
 
ConvergeOne Holdings, Inc.
   
142,444
           
197,997
 
Federal Street Acquisition Corporation
   
64,360
           
93,322
 
Modern Media Acquisition Corporation
   
238,850
           
137,339
 
Mudrick Capital Acquisition Corporation Class A
   
428,413
           
282,753
 
Pensare Acquisition Corporation
   
354,411
           
184,294
 
Pure Acquisition Corporation
   
343,830
           
464,170
 
Tiberius Acquisition Corporation
   
311,172
           
183,591
 
TOTAL WARRANTS (Cost $1,351,116)
                 
1,669,416
 
                       
 

   
Principal Value
               
CORPORATE BONDS - 9.64% (f)
                     
Ardagh Packaging Finance plc / Ardagh Holdings MP USA, Inc.
                     
7.250%, 5/15/2024 (b)(h)
 
$
8,779,000
           
9,217,950
 
BlueLine Rental Finance Corporation / BlueLine Rental LLC
                     
9.250%, 3/15/2024 (h)
   
24,509,000
           
25,780,404
 
BMC Software Finance, Inc.
                     
8.125%, 7/15/2021 (h)
   
9,845,000
           
10,074,881
 
Dynegy, Inc.
                     
5.875%, 6/1/2023
   
15,354,000
           
15,826,135
 
EIG Investors Corporation
                     
10.875%, 2/1/2024
   
7,238,000
           
7,934,657
 
Envision Healthcare Corporation
                     
5.625%, 7/15/2022
   
23,689,000
           
24,368,874
 
6.250%, 12/1/2024 (h)
   
8,746,000
           
9,445,680
 
LifePoint Health, Inc.
                     
5.875%, 12/1/2023
   
6,410,000
           
6,706,463
 
5.375%, 5/1/2024
   
21,240,000
           
22,169,250
 
Nationstar Mortgage LLC / Nationstar Capital Corporation
                     
6.500%, 7/1/2021
   
2,935,000
           
2,945,859
 
6.500%, 6/1/2022
   
1,939,000
           
1,940,212
 
Rent-A-Center, Inc.
                     
6.625%, 11/15/2020
   
7,517,000
           
7,535,793
 
4.750%, 5/1/2021
   
12,832,000
           
12,832,000
 
Rite Aid Corporation
                     
6.125%, 4/1/2023 (h)
   
10,117,000
           
9,117,946
 
Spectrum Brands Holdings, Inc.
                     
7.750%, 1/15/2022
   
16,785,000
           
17,322,120
 
SUPERVALU, Inc.
                     
6.750%, 6/1/2021
   
8,585,000
           
8,778,163
 
7.750%, 11/15/2022
   
4,424,000
           
4,617,550
 
T-Mobile USA, Inc.
                     
6.500%, 1/15/2024
   
9,842,000
           
10,247,983
 
Tribune Media Company
                     
5.875%, 7/15/2022
   
2,033,000
           
2,086,366
 
Unitymedia GmbH
                     
6.125%, 1/15/2025 (b)(h)
   
14,621,000
           
15,425,155
 
Unitymedia Hessen GmbH & Company KG / Unitymedia NRW GmbH
                     
5.000%, 1/15/2025 (b)(h)
   
7,192,000
           
7,338,645
 
Xerium Technologies, Inc.
                     
9.500%, 8/15/2021
   
13,882,000
           
14,614,276
 
TOTAL CORPORATE BONDS (Cost $246,760,766)
                 
246,326,362
 
                       
 

  Contracts (100
shares per contract)
Notional
Amount
         
PURCHASED CALL OPTIONS - 0.02%
                     
SPDR S&P 500 ETF Trust
                     
Expiration: November 2018, Exercise Price: $295.00
   
1,918
   
$
55,760,096
     
452,648
 
                     
452,648
 
PURCHASED PUT OPTIONS - 0.13%
                       
AT&T, Inc.
                       
Expiration: October 2018, Exercise Price: $32.00
   
676
     
2,270,008
     
10,140
 
Cisco Systems, Inc.
                       
Expiration: November 2018, Exercise Price: $44.00
   
906
     
4,407,690
     
28,992
 
Conagra Brands, Inc.
                       
Expiration: December 2018, Exercise Price: $31.00
   
242
     
822,074
     
10,285
 
DowDuPont, Inc.
                       
Expiration: October 2018, Exercise Price: $62.50
   
7,032
     
45,222,792
     
428,952
 
Expiration: November 2018, Exercise Price: $65.00
   
268
     
1,723,508
     
65,124
 
HP, Inc.
                       
Expiration: November 2018, Exercise Price: $23.00
   
864
     
2,226,528
     
10,368
 
Huntsman Corporation
                       
Expiration: November 2018, Exercise Price: $27.00
   
13,339
     
36,322,097
     
1,533,985
 
Marriott Vacations Worldwide Corporation
                       
Expiration: October 2018, Exercise Price: $95.00
   
487
     
5,442,225
     
6,088
 
Shire plc - ADR
                       
Expiration: October 2018, Exercise Price: $160.00
   
326
     
5,909,402
     
10,595
 
SPDR S&P 500 ETF Trust
                       
Expiration: October 2018, Exercise Price: $285.00
   
5,954
     
173,094,688
     
583,492
 
VanEck Vectors Semiconductor ETF
                       
Expiration: October 2018, Exercise Price: $107.00
   
1,433
     
15,254,285
     
323,858
 
The Walt Disney Company
                       
Expiration: January 2019, Exercise Price: $95.00
   
5,872
     
68,667,168
     
205,520
 
                     
3,217,399
 
TOTAL PURCHASED OPTIONS (Cost $5,306,471)
                   
3,670,047
 
                         
  Principal Amount          
ESCROW NOTES - 0.08% (a)(d)(g)
                       
AMR Corporation
 
$
1,243,406
             
1,927,279
 
T-Mobile USA, Inc.
   
7,594,000
             
 
TOTAL ESCROW NOTES (Cost $679,555)
                   
1,927,279
 
                         
   
Shares
                 
SHORT-TERM INVESTMENTS - 18.02%
                       
MONEY MARKET FUNDS - 16.09% (c)
                       
First American Government Obligations Fund, Institutional Share Class, 1.94%
   
37,007,826
             
37,007,826
 
The Government & Agency Portfolio, Institutional Share Class, 1.97%
   
124,678,000
             
124,678,000
 
JPMorgan U.S. Government Money Market Fund, Institutional Share Class, 1.96%
   
124,678,000
             
124,678,000
 
Morgan Stanley Institutional Liquidity Fund - Government Portfolio, Institutional Share Class, 1.92%
   
124,678,000
             
124,678,000
 
                     
411,041,826
 
  Principal Amount          
U.S. TREASURY BILLS - 1.93% (e)(f)
                       
United States Treasury Bills
                       
1.90%, 10/11/2018
 
$
300,000
             
299,830
 
1.93%, 10/25/2018
   
9,790,000
             
9,776,473
 
1.97%, 11/8/2018
   
6,900,000
             
6,884,942
 
2.02%, 11/29/2018
   
8,600,000
             
8,570,208
 
2.03%, 12/6/2018
   
300,000
             
298,832
 
2.03%, 1/3/2019
   
600,000
             
596,608
 
2.07%, 1/17/2019
   
1,200,000
             
1,192,143
 
2.13%, 1/31/2019
   
1,900,000
             
1,885,714
 
2.15%, 2/7/2019
   
2,600,000
             
2,578,991
 
2.15%, 2/14/2019
   
750,000
             
743,625
 
2.18%, 2/28/2019
   
15,640,000
             
15,491,827
 
2.23%, 3/7/2019
   
570,000
             
564,345
 
2.29%, 3/28/2019
   
465,000
             
459,712
 
                     
49,343,250
 
TOTAL SHORT-TERM INVESTMENTS (Cost $460,399,417)
                   
460,385,076
 
TOTAL LONG INVESTMENTS (Cost $2,426,357,002) - 96.50%
                   
2,464,760,125
 
 

   
Shares
                 
SHORT INVESTMENTS - (23.38)%
                       
COMMON STOCKS - (23.28)%
                       
AEROSPACE & DEFENSE - (1.91)%
                       
United Technologies Corporation
   
(349,263
)
           
(48,830,460
)
AIRLINES - (0.11)%
                       
American Airlines Group, Inc.
   
(65,211
)
           
(2,695,171
)
BROADCASTING - (0.25)%
                       
Discovery Communications, Inc. Class A
   
(199,783
)
           
(6,393,056
)
DRUG RETAIL - (1.89)%
                       
CVS Health Corporation
   
(612,766
)
           
(48,236,939
)
INTERNET & DIRECT MARKETING RETAIL - (8.68)%
                       
Alibaba Group Holding Ltd. - ADR
   
(1,345,174
)
           
(221,630,868
)
MANAGED HEALTH CARE - (1.50)%
                       
Cigna Corporation
   
(184,471
)
           
(38,416,086
)
MOVIES & ENTERTAINMENT - (0.40)%
                       
The Walt Disney Company
   
(88,228
)
           
(10,317,382
)
OIL & GAS DRILLING - (0.89)%
                       
Transocean Ltd. (b)
   
(1,637,684
)
           
(22,845,692
)
OIL & GAS REFINING & MARKETING - (4.05)%
                       
Marathon Petroleum Corporation (f)
   
(1,283,602
)
           
(103,432,649
)
OIL & GAS STORAGE & TRANSPORTATION - (0.69)%
                       
Enbridge, Inc. (b)
   
(153,007
)
           
(4,940,596
)
Energy Transfer Equity LP
   
(722,266
)
           
(12,589,096
)
                     
(17,529,692
)
PACKAGED FOODS & MEATS - (0.95)%
                       
Conagra Brands, Inc.
   
(716,598
)
           
(24,342,834
)
REITs - (0.41)%
                       
Brookfield Property Partners LP (b)
   
(497,186
)
           
(10,386,216
)
SEMICONDUCTORS - (0.67)%
                       
KLA-Tencor Corporation
   
(167,725
)
           
(17,059,310
)
SYSTEMS SOFTWARE - (0.88)%
                       
VMware, Inc. Class A
   
(144,617
)
           
(22,568,929
)
TOTAL COMMON STOCKS  (Proceeds $492,056,850)
                   
(594,685,284
)
                         
PRIVATE PLACEMENTS - (0.10)% (g)
                       
Twenty-First Century Fox, Inc. Class A
   
(79,923
)
           
(2,397,690
)
TOTAL PRIVATE PLACEMENTS ( Proceeds $2,393,694)
                   
(2,397,690
)
                         
TOTAL SHORT INVESTMENTS
                       
  (Proceeds $494,450,544) - (23.38)%
                   
(597,082,974
)
TOTAL NET INVESTMENTS
                       
  (Cost $1,931,906,458) - 73.12%
                   
1,867,677,151
 
OTHER ASSETS IN EXCESS OF LIABILITIES - 26.88%
                   
686,592,369
 
TOTAL NET ASSETS - 100.00%
                 
$
2,554,269,520
 

 
ADR
- American Depository Receipt
 
ETF
- Exchange-Traded Fund
 
LIBOR
- London Interbank Offered Rate
 
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 September 30, 2018.
 
(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 contracts, and forward currency exchange contracts.
 
(f)
Level 2 Security. Please see footnote (l) on the Schedule of Investments for more information.
 
(g)
Level 3 Security. Please see footnote (l) on the Schedule of Investments for more information.
 
(h)
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 September 30, 2018, these securities represent 3.38% of total net assets.
 
(i)
Restricted security. The Fund may own investment securities that have other legal or contractual limitations, and thus are restricted as to resale. These securities are valued by the Valuation Group under the supervision of the Board of Trustees. As of September 30, 2018, this common stock had a cost of $57,736,820 and its market value represented 2.33% of total net assets. The Fund's adviser perfected its appraisal rights over this security as of 6/20/2016. Please see footnote (l) on the Schedule of Investments for more information.
 
(j)
The coupon rate shown on variable rate securities represents the rate as of September 30, 2018.
 
(k)
As of September 30, 2018, the components of accumulated earnings (losses) for income tax purposes were as follows*:
 
 
 
Total Portfolio
 
Tax Cost (1)
 $     1,923,022,561
 
 
 
 
 
 
 
Gross unrealized appreciation
           127,406,130
 
Gross unrealized depreciation
         (184,874,829)
 
Net unrealized depreciation
 $        (57,468,699)
 
 
 
(1) Tax cost represents tax on investments, net of proceeds on securities sold short and premiums on written options.
       
 
*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 the Financial Statements section in the Fund's most recent annual report.
 
 
(l)
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, including common and preferred stocks, closed-end funds and ETFs, 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 an independent pricing vendor. Investments in United States government securities (other than short-term securities) are valued at the mean between the 4:00
p.m. New York time bid and asked prices supplied by a third party vendor. 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. These are classified as Level 2 investments.
 
 
 
 
Investments in Special Purpose Acquisition Companies, including their related units, shares, rights and warrants (each a "SPAC interest"), will typically be valued by reference
to the last reported transaction for the composite exchange. If, on a particular day, no reliable market transaction is readily available and reported for the composite exchange,
then the mean between the closing bid and asked prices on the composite exchange will be used to value the SPAC interest, or the SPAC interest will be fair valued in
accordance with the Fund's pricing procedures. These securities 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 and/or are fair valued in
accordance with the Fund's pricing procedures are classified as Level 2 investments.
 
 
Investments in registered open-end investment companies are typically valued at their reported net asset value ("NAV") per share. These securities are generally classified as
Level 1 investments. Forward currency contracts are valued daily at the prevailing forward exchange rate. These securities are generally classified as Level 2. In general, swap
prices are determined using the same methods as would be used to price the underlying security. When the underlying security is the subject of a completed corporate
reorganization for which the final deal terms are known, the swap is priced at the value of the consideration to be received by the Fund. The credit quality of counterparties
and collateral is monitored and the valuation of a swap may be adjusted if it is believed that the credit quality of the counterparty or collateral affects the market value of the
swap position. These securities are generally classified as Level 2 investments.
 
 
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, the Fund may fair value a security that primarily trades on an exchange that closes before the New York Stock Exchange ("NYSE") if a significant
event occurs after the close of the exchange on 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 Trust 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 sale. 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 September 30, 2018. These assets and liabilities are measured on a recurring basis.
 
 
Investments at Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Assets
 
 
 
 
 
 
 
 
 
Common Stocks*
 
 $1,287,843,323
 
 $ 138,472,582
 
 $ 59,500,138
 
 $1,485,816,043
 
Closed End Funds
 
      261,244,832
 
                       -
 
                     -
 
      261,244,832
 
Preferred Stock
 
          3,059,382
 
                       -
 
                     -
 
          3,059,382
 
Contingent Value Rights
 
                         -
 
                       -
 
           26,735
 
               26,735
 
Rights
 
                         -
 
           634,953
 
                     -
 
             634,953
 
Warrants
 
                         -
 
        1,669,416
 
                     -
 
          1,669,416
 
Corporate Bonds
 
                         -
 
    246,326,362
 
                     -
 
      246,326,362
 
Purchased Option Contracts
 
          3,670,047
 
                       -
 
                     -
 
          3,670,047
 
Escrow Notes
 
                         -
 
                       -
 
      1,927,279
 
          1,927,279
 
Short-Term Investments
 
      411,041,826
 
      49,343,250
 
                     -
 
      460,385,076
 
Forward Currency Exchange Contracts**
 
                         -
 
           857,378
 
                     -
 
             857,378
 
Swap Contracts**
 
                         -
 
        3,178,360
 
                     -
 
          3,178,360
 
Total
 
 $1,966,859,410
 
 $ 440,482,301
 
 $ 61,454,152
 
 $2,468,795,863
 
 
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Short Common Stock*
 
 $   491,252,635
 
 $ 103,432,649
 
 $                  -
 
 $   594,685,284
 
Private Placements
 
                       -
 
                     -
 
      2,397,690
 
          2,397,690
 
Written Option Contracts
 
          6,159,027
 
                       -
 
                     -
 
          6,159,027
 
Total
 
 $   497,411,662
 
 $ 103,432,649
 
 $   2,397,690
 
 $   603,242,001
 
 
*
Please refer to the Schedules of Investments to view long/short common stocks segregated by industry type.
 
**
Forward currency exchange contracts and swap 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 using broker quotes or such other pricing sources or data as are permitted by the Fund's pricing procedures. At September 30, 2018, the value of these assets and liabilities was $61,454,152 and $2,397,690, respectively. The inputs for these securities are not readily available or cannot be reasonably estimated and are generally those inputs as described in footnote (l). The appropriateness of fair values for these securities is monitored by the Valuation Group on an ongoing basis.

There were no transfers to Level 3 securities during the nine months ended September 30, 2018.
 
 
 
 
 
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
   
Private
Placements
   
Total
Investment
 
Balance as of December 31, 2017
 
$
58,982,517
   
$
991,436
   
$
1,989,450
   
$
-
   
$
61,963,403
 
Purchases on Investments*
   
-
     
-
     
-
**
   
(2,393,694
)
   
(2,393,694
)
(Sales) of Investments
   
-
     
-
     
-
     
-
     
-
 
Realized (Gain) Loss
   
-
     
(1,604,997
)
   
-
     
-
     
(1,604,997
)
Transfers Into Level 3
   
-
     
-
     
-
     
-
     
-
 
(Transfer Out) of Level 3
   
-
     
-
     
-
     
-
     
-
 
Change in Unrealized Appreciation (Depreciation)
   
517,621
     
640,296
     
(62,171
)
   
(3,996
)
   
1,091,750
 
Balance as of September 30, 2018
 
$
59,500,138
   
$
26,735
   
$
1,927,279
   
$
(2,397,690
)
 
$
59,056,462
 
 
                                       
* Includes receipts from corporate actions.
                                       
** Amount less than $0.50.
                                       
 
 
The net change in unrealized appreciation (depreciation) on investments related to Level 3 securities held by the Fund at September 30, 2018 totals $1,091,750.
 
 
 
 
 
Significant unobservable valuation inputs monitored by the Valuation Group under the supervision of the Board of Trustees for material Level 3 investments as of September 30, 2018 are as follows:
 
 
Description
 
Fair Value at
September 30, 2018
 
Valuation Technique
 
Unobservable Input
Common Stock
 
 $            59,500,138
 
Discounted Cash
Flow Model
 
Discount Rates/
Terminal Value/
Cash Flow Projections
Escrow Note          $                            - ** 
Projected Final
Distribution*
 
 Discount of Projected
Distribution
 
 
 
 
 
 
 
 
*The Level 3 security was received through a corporate action. The security is being kept open due to the potential of an additional distribution. Based on an evaluation of the likelihood of an additional distribution, the security is being priced at zero.
**Amount less than $.50.

 
The table above does not include certain Level 3 investments that are valued by brokers and pricing services. At September 30, 2018, the value of these assets and liabilities was $1,954,014 and $2,397,690, respectively. The inputs for these investments are not readily available or cannot be reasonably estimated and are generally those inputs described in footnote (l).
 
(m)
Disclosures about Derivative Instruments and Hedging Activities at September 30, 2018.
 
 
The Fund has adopted authoritative standards regarding disclosure about derivatives and hedging activities. Fair values of derivative instruments as of September 30, 2018 are as follows:
 
 
 
 Asset Derivatives
 
 Liability Derivatives
Derivatives
 
Description
 
Fair Value
 
Description
 
Fair Value
Equity Contracts:
 
 
 
 
 
 
 
 
   Purchased Option Contracts
 
 Schedule of Investments
 
 $  3,670,047
 
 N/A
 
 $                 -
   Written Option Contracts
 
 N/A
 
                    -
 
 Schedule of Written Options
 
     6,159,027
    Swap Contracts
 
 Schedule of Swap Contracts
 
     3,178,360
 
 Schedule of Swap Contracts
 
                    -
Foreign Exchange Contracts:
 
 
 
 
 
 
 
 
    Exchange Contracts
     Forward Currency
 
 Schedule of Forward
Currency Exchange
Contracts
 
        857,378
 
 Schedule of Forward Currency
Exchange Contracts
 
                    -
Total
 
 
 
 $  7,705,785
 
 
 
 $  6,159,027
 
 
 
 
 
 
 
 
 
 
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 WRITTEN OPTIONS
             
September 30, 2018 (Unaudited)
             
               
   
Contracts (100
shares per contract) 
 
Notional Amount
   
Value
 
WRITTEN CALL OPTIONS
             
AT&T, Inc.
                 
Expiration: October 2018, Exercise Price: $34.00
   
388
   
$
1,302,904
   
$
7,760
 
Conagra Brands, Inc.
                       
Expiration: December 2018, Exercise Price: $35.00
   
242
     
822,074
     
19,360
 
DowDuPont, Inc.
                       
Expiration: October 2018, Exercise Price: $67.50
   
6,251
     
40,200,181
     
150,024
 
Expiration: November 2018, Exercise Price: $70.00
   
268
     
1,723,508
     
10,452
 
Huntsman Corporation
                       
Expiration: November 2018, Exercise Price: $33.00
   
9,272
     
25,247,656
     
74,176
 
Marriott Vacations Worldwide Corporation
                       
Expiration: October 2018, Exercise Price: $105.00
   
487
     
5,442,225
     
382,295
 
NXP Semiconductors NV
                       
Expiration: October 2018, Exercise Price: $90.00
   
5,161
     
44,126,550
     
340,626
 
Shire plc - ADR
                       
Expiration: October 2018, Exercise Price: $170.00
   
362
     
6,561,974
     
425,350
 
SPDR S&P 500 ETF Trust
                       
Expiration: November 2018, Exercise Price: $287.00
   
1,918
     
55,760,096
     
1,435,623
 
The Walt Disney Company
                       
Expiration: January 2019, Exercise Price: $115.00
   
5,389
     
63,018,966
     
3,112,148
 
                     
5,957,814
 
WRITTEN PUT OPTIONS
                 
SPDR S&P 500 ETF Trust
                       
Expiration: October 2018, Exercise Price: $275.00
   
5,094
     
148,092,768
     
201,213
 
                     
201,213
 
TOTAL WRITTEN OPTIONS
                       
(Premiums received $8,883,897)
                 
$
6,159,027
 

ADR - American Depository Receipt
         
ETF - Exchange-Traded Fund
         
plc - Public Limited Company
         


The Merger Fund         
SCHEDULE OF FORWARD CURRENCY EXCHANGE CONTRACTS         
September 30, 2018 (Unaudited)         
                           
Unrealized
Settlement
           
USD Value at
       
USD Value at
 
Appreciation
Date
 
Counterparty
 
Currency to be Delivered
 
September 30, 2018
 
Currency to be Received
 
September 30, 2018
 
(Depreciation)*
11/7/2018
 
JPM
 
7,534,935
AUD
 
 $                          5,448,195
 
5,479,481
USD
 
 $                          5,479,481
 
 $                        31,286
11/7/2018
 
JPM
 
5,414,605
USD
 
5,414,605
 
7,534,935
AUD
 
5,448,195
 
33,590
11/15/2018
 
JPM
 
2,136,563
AUD
 
1,544,948
 
1,570,267
USD
 
1,570,267
 
25,319
11/20/2018
 
JPM
 
4,627,904
AUD
 
3,346,557
 
3,415,148
USD
 
3,415,148
 
68,591
11/20/2018
 
JPM
 
14,459
USD
 
14,459
 
19,564
AUD
 
14,147
 
(312)
1/16/2019
 
JPM
 
6,275,567
CAD
 
4,870,185
 
4,846,417
USD
 
4,846,417
 
(23,768)
1/3/2019
 
JPM
 
38,656,585
EUR
 
45,270,149
 
44,653,381
USD
 
44,653,381
 
(616,768)
3/21/2019
 
JPM
 
18,820,988
EUR
 
22,188,482
 
22,364,369
USD
 
22,364,369
 
175,887
3/21/2019
 
JPM
 
12,028,504
USD
 
12,028,504
 
10,130,274
EUR
 
11,942,806
 
(85,698)
10/11/2018
 
JPM
 
75,172,366
GBP
 
98,036,753
 
99,872,969
USD
 
99,872,969
 
1,836,216
10/11/2018
 
JPM
 
98,623,719
USD
 
98,623,719
 
75,172,366
GBP
 
98,036,754
 
(586,965)
             
$                      296,786,556
       
$                      297,643,934
 
$                     857,378
         
AUD
- Australian Dollar
       
CAD
- Canadian Dollar
       
EUR
- Euro
     
GBP
- British Pound
       
JPM
- JPMorgan Chase & Co., Inc.
       
USD
- U.S. Dollar
       
*
 Net unrealized appreciation (depreciation) is a receivable (payable).
       


The Merger Fund
         
SCHEDULE OF SWAP CONTRACTS
         
September 30, 2018 (Unaudited)
         
                 
Unrealized
     Termination
Pay/Receive on
Financing
Payment
   Notional  
Appreciation
Counterparty
Security
 Date
Financing Rate
Rate
Frequency
Shares
Amount
 
(Depreciation)*
LONG TOTAL RETURN SWAP CONTRACTS
   
BAML
Andeavor
5/8/2019
Pay
0.750% +1 Month LIBOR
Monthly
117,537
$        16,506,707
 
$                          1,277,529
JPM
APN Outdoor Group Ltd.
8/22/2019
Pay
0.400% +3 Month LIBOR
Quarterly
318,890
             1,478,237
 
                                  53,717
JPM
Gateway Lifestyle Holdings Pty Ltd.
6/27/2019
Pay
0.400% +3 Month LIBOR
Quarterly
976,332
             1,721,694
 
                              (144,122)
BAML
Gemalto NV
5/31/2019
Pay
0.350% +1 Month LIBOR
Monthly
757,774
           44,231,268
 
                                (90,205)
JPM
Innogy SE
7/18/2019
Pay
0.400% +3 Month LIBOR
Quarterly
227,983
             9,735,645
 
                                442,286
BAML
Linde AG
2/22/2019
Pay
0.350% +1 Month LIBOR
Monthly
74,159
           16,700,251
 
                                829,267
BAML
Shire plc
6/29/2019
Pay
0.800% +1 Month LIBOR
Monthly
888,702
           51,140,228
 
                             2,472,552
JPM
Shire plc
10/1/2019
Pay
0.300% +3 Month LIBOR
Quarterly
42,525
             2,588,739
 
                                785,442
                   
SHORT TOTAL RETURN SWAP CONTRACTS
   
BAML
Brookfield Property Partners LP
3/28/2019
Pay
(4.500)% +1 Month LIBOR
Monthly
(112,741)
           (2,140,140)
 
                              (235,460)
BAML
Marathon Petroleum Corporation
5/8/2019
Receive
(0.400)% +1 Month LIBOR
Monthly
(186,824)
         (14,418,103)
 
                              (630,369)
BAML
Praxair, Inc.
2/5/2019
Receive
(0.400)% +1 Month LIBOR
Monthly
(114,557)
         (17,596,068)
 
                              (856,560)
BAML
Takeda Pharmaceutical Company Ltd.
6/29/2019
Receive
(0.750)% +1 Month LIBOR
Monthly
(846,701)
         (35,566,218)
 
                              (609,619)
JPM
Takeda Pharmaceutical Company Ltd.
8/17/2019
Receive
(0.400)% +3 Month LIBOR
Quarterly
(157,727)
           (6,618,634)
 
                              (116,098)
   
 $                          3,178,360
ADR
- American Depository Receipt        
BAML
- Bank of America Merrill Lynch & Co., Inc.
   
JPM
- JPMorgan Chase & Co., Inc.
   
LIBOR
- London Interbank Offered Rate        
plc
- Public Limited Company
   
*
Based on the net swap value held at each counterparty, unrealized appreciation (depreciation) is a receivable (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                                                   11/21/2018                                             

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

Date                                                   11/21/2018                                             


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                                                    11/21/2018                                               

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

Date                                                   11/21/2018                                               
 
* Print the name and title of each signing officer under his or her signature.