NOTE 1 - ORGANIZATION
The Merger Fund (the "Fund") is a no-load, open-end, non-diversified investment company organized as a trust
under the laws of the Commonwealth of Massachusetts on April 12, 1982, and registered under the Investment
Company Act of 1940 (the "1940 Act"), as amended. The Fund was formerly known as the Risk Portfolio of
The Ayco Fund. In January of 1989, the Fund's fundamental policies were amended to permit the Fund to
engage exclusively in merger arbitrage. At the same time, Westchester Capital Management, Inc. became the
Fund's investment adviser, and the Fund began to do business as The Merger Fund. Merger arbitrage is a highly
specialized investment approach generally designed to profit from the successful completion of proposed
mergers, takeovers, tender offers, leveraged buyouts, liquidations and other types of corporate reorganizations.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently followed by the Fund in the preparation
of its financial statements. These policies are in conformity with generally accepted accounting principles.
A. Investment Valuation
Investments in securities and commodities (including options) are valued at the last sales price on the securities or
commodities exchange on which such financial instruments are primarily traded. Securities not listed on an
exchange or securities for which there were no transactions are valued at the average of the current bid and
asked prices. Securities for which there are no such valuations are valued at fair value as determined in good faith
by management under the supervision of the Board of Trustees. The investment adviser reserves the right to value
securities, including options, at prices other than last-sale prices or the average of current bid and asked prices
when such prices are believed unrepresentative of fair market value as determined in good faith by the adviser.
Investments in United States government securities (other than sho