July 27, 2006 SemiAnnual Conference Call

1
July 27, 2006Semi-Annual Conference Call
2
Agenda
3
Performance Annual Returns
4
Performance Track Record Comparison
Performance of a 10,000 Investment on January 1,
2001 through June 30, 2006 versus SP 500
Standard and Poors 500 Index (SP 500) is a
capitalization-weighted index of 500 stocks
designed to measure performance of the broad
domestic economy.
5
Performance Track Record Comparison
Performance of a 10,000 Investment on January 1,
2001 through June 30, 2006 versus Lehman
Aggregate Index
The Lehman Aggregate Index is a benchmark index
made up of the Lehman Brothers Government/Corporat
e Bond Index, Mortgage-Backed Securities Index,
and Asset-Backed Securities Index, including
securities that are of investment-grade quality
or better, have at least one year to maturity,
and have an outstanding Par value of at least
100 million.
6
Performance Monthly Return Comparison, 2006 YTD
The performance data quoted represents past
performance. Past performance does not guarantee
future results. Investment return and principal
value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less
than their original cost. Current performance may
be higher or lower than performance discussed
within the presentation. Performance current to
the most recent month end is available at the
Funds website at http//thearbfund.com. Returns
shown above include the reinvestment of all
dividends and capital gains. Contractual fee
waivers are currently in effect. Without such fee
waivers, performance numbers would be reduced.
7
Performance - 2006 YTD Cumulative Returns
The performance data quoted represents past
performance. Past performance does not guarantee
future results. Investment return and principal
value will fluctuate so that an investor's
shares, when redeemed, may be worth more or less
than their original cost. Current performance may
be higher or lower than performance discussed
within the presentation. Performance current to
the most recent month end is available at the
Funds website at http//thearbfund.com. Returns
shown above include the reinvestment of all
dividends and capital gains. Contractual fee
waivers are currently in effect. Without such fee
waivers, performance numbers would be
reduced. Index returns do not reflect any
management fees, transaction costs or expenses.
Indexes are unmanaged and one cannot invest
directly in an index.
8
New Deals - First Half 2006

• 109 new deals invested in through first six
  months 2006

9
New Deals First Half 2006
Holdings subject to change.
10
New Deals First Half 2006
Holdings subject to change.
11
New Deals First Half 2006
Holdings subject to change.
12
New Deals First Half 2006
Holdings subject to change.
13
New Deals First Half 2006
Holdings subject to change.
14
The State of Corporate UnionsMA Highlights
Data Points, First Half 2006
15
Growth in Cash and Treasury Holdings(Source
Standard Poors)

• The rising cash and treasury holdings by
  corporations could bolster the already-rising
  wave of mergers and acquisitions, according to
  Howard Si Werblatt, senior index analyst at SP.

16
Fundraising by Buyout/Mezzanine Funds, 2002-2006
(Source Thomson Venture Economics)
17
Global MA Volume(Source Dealogic)
18
2005 Global MA Deal Value by Range(Source
Dealogic)
19
LBO Purchase Price/EBITDA Multiples(Source
Standard Poors LCD)
20
Average Debt Multiples of Highly Leveraged
Loans(Source Standard Poors LCD)
21
Visibility of Continued Dealflow(Source KPMG)

• Of 138 senior executives recently surveyed by
  KPMG, 88 are planning on an acquisition.
• These senior executives were asked to predict the
  top 3 industries for future MA activity

22
Short-Term Interest Rates vs. Merger Arbitrage
Returns
HFRI Merger Arb Index data from Hedge Fund
Research, Inc. The Hedge Fund Research, Inc.
(HFRI) merger arbitrage index is a
single-strategy index comprised of hedge funds
pursuing the merger arbitrage strategy that are
open for investment. 3-Month Treasury Bill Data
from Bloomberg.
23
Summary

• Fixed income alternative which benefits from
  rising short term rates
• Unique low volatility, market neutral strategy
  returning to peak levels compared with higher
  volatility, market driven alternatives such as
  commodities, REITs and junk/high yield bonds
• Record levels of dealflow in 2006
• Strong team in place to take advantage of
  domestic and overseas opportunities
• Proven 5 year track record
• Superior annualized return since inception vs.
• HFRI
• Public fund competitors
• Equity Markets

24
Q A

• How long will the merger boom last and what if
  dealflow slows?
• How would an increase in long-term interest rates
  affect the strategy?
• What other concerns are there that could affect
  the strategy?

25
Important Information

• An investor should consider the investment
  objectives, risks, charges and expenses of the
  Fund carefully before investing. The current
  prospectus contains this and other information
  about the Fund. To obtain a prospectus, please
  call 1-800-295-4485 or visit our website at
  http//www.thearbfund.com.
• We are making this presentation available to you
  for your information and education. Any
  references in this presentation to specific
  holdings are not to be considered recommendations
  by the Arbitrage Fund (the "Fund") or Water
  Island Capital (the "Advisor"), the Fund's
  advisor. All portfolio holdings are subject to
  change at any time. Any discussion of specific
  securities is intended to help readers understand
  the Advisor's investment management style with
  respect to Fund portfolio holdings, and should
  not be regarded as a recommendation of any
  security or of the Fund.
• Any performance data quoted represents past
  performance and the investment return and
  principal value of an investment in the Fund will
  fluctuate so that an investor's shares, when
  redeemed, may be worth more or less than their
  original cost. Current performance may be higher
  or lower than performance discussed within the
  presentation. Past performance does not guarantee
  future returns. Performance current to the most
  recent month end is available at the Fund's
  website at http//www.thearbfund.com.

26
Important Information

• In addition to the normal risks associated with
  investing, the Fund may realize losses if the
  proposed reorganizations in which the Fund
  invests are renegotiated or terminated. The
  Fund's investment strategy may result in high
  turnover rates, which may result in higher
  transaction costs and tax consequences of
  short-term gains. Leveraged funds are more
  volatile and have higher fees and expenses than
  funds that do not borrow money to purchase
  securities. The Fund may engage in options
  transactions and short sales. With short sales,
  you risk paying more for a security than you
  received from its sale. Options transactions
  involve special risks that may make it difficult
  or impossible to unwind a position when the Fund
  desires. The Fund's investments in foreign
  securities may be affected to a large degree by
  fluctuations in currency exchange rates or
  political or economic conditions in a particular
  country.
• The Arbitrage Fund is distributed by SEI
  Investments Distribution Co., which is not
  affiliated with the Advisor or any other
  affiliate.