Arrow
Dynamic Income Fund
|
Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Exchange Traded Fund
|
|
$
|
1,469,464
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,469,464
|
|
|
Mutual Fund
|
|
|
2,382,743
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,382,743
|
|
|
Money Market Fund
|
|
|
1,849,096
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,849,096
|
|
|
Open Swap Contracts *
|
|
|
—
|
|
|
|
5,450
|
|
|
|
—
|
|
|
|
5,450
|
|
|
Total
|
|
$
|
5,701,303
|
|
|
$
|
5,450
|
|
|
$
|
—
|
|
|
$
|
5,706,753
|
|
|
Liabilities
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Variation Margin-Open Short Futures Contracts *
|
|
$
|
7,437
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,437
|
|
|
Total
|
|
$
|
7,437
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,437
|
|
Arrow
Managed Futures Strategy Fund
|
Assets
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Exchange Traded Fund
|
|
$
|
47,731,540
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
47,731,540
|
|
|
Money Market Fund
|
|
|
4,913,576
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,913,576
|
|
|
Open Swap Contracts *
|
|
|
—
|
|
|
|
730,207
|
|
|
|
—
|
|
|
|
730,207
|
|
|
Total
|
|
$
|
52,645,116
|
|
|
$
|
730,207
|
|
|
$
|
—
|
|
|
$
|
53,375,323
|
|
|
Liabilities
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Open Swap Contracts *
|
|
$
|
—
|
|
|
$
|
1,545,248
|
|
|
$
|
—
|
|
|
$
|
1,545,248
|
|
|
Total
|
|
$
|
—
|
|
|
$
|
1,545,248
|
|
|
$
|
—
|
|
|
$
|
1,545,248
|
|
The
Funds did not hold any Level 3 securities at the end of the period.
|
|
*
|
Derivatives
instruments include cumulative net unrealized gain or loss on futures contracts and swaps open as of January 31, 2020.
|
See
Consolidated Portfolios of Investments for investments and derivatives segregated by industry, type and underlying exposure.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
Consolidation
of Subsidiaries – ADWAB Fund Limited (“ADB-CFC”), ADWAT Fund Limited (“ADT-CFC”), and Arrow MFT
Fund Limited (“AMFS-CFC”) – The Consolidated Portfolios of Investments, Consolidated Statements of Asset
and Liabilities, Consolidated Statements of Operations, Consolidated Statements of Changes in Net Assets and the Consolidated
Financial Highlights of ADBF, ADTF, and AMFSF include the accounts of ADB-CFC, ADT-CFC, and AMFS-CFC, respectively, which are
wholly-owned and controlled subsidiaries. ADIF’s prior years’ financial highlights were consolidated with Northern
Lights SPC (AAS-CFC). All inter-company accounts and transactions have been eliminated in consolidation.
The
Funds, except ADIF, may invest up to 25% of their total assets in a controlled foreign corporation (“CFC”), which
acts as an investment vehicle in order to effect certain investments consistent with the Funds’ investment objectives and
policies.
The
CFCs utilize commodity-based derivative products to facilitate the Funds’ pursuit of their investment objectives. In accordance
with their investment objectives and through their exposure to the aforementioned commodity-based derivative products, the Funds
may have increased or decreased exposure to one or more of the following risk factors defined below:
Commodity
Risk – The Funds’ exposure to the commodities markets may subject the Funds to greater volatility than investments in
traditional securities. The value of commodity-linked derivative instruments, commodity-based exchange traded trusts and commodity-based
exchange traded funds and notes may be affected by changes in overall market movements, commodity index volatility, changes in
interest rates, or sectors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease,
embargoes, tariffs, and international economic, political and regulatory developments.
Credit
Risk – There is a risk that issuers and counterparties will not make payments on securities and other investments held by
a Fund, resulting in losses to the Funds. In addition, the credit quality of securities held by a Fund may be lowered if an issuer’s
financial condition changes. Lower credit quality may lead to greater volatility in the price of a security and in shares of the
Fund. Lower credit quality also may affect liquidity and make it difficult for a Fund to sell the security. The Funds may invest,
directly or indirectly, in high yield fixed-income securities (also known as “junk bonds”), which are considered speculative
with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the obligations. This
means that, compared to issuers of higher rated securities, issuers of medium and lower rated securities are less likely to have
the capacity to pay interest and repay principal when due in the event of adverse business, financial or economic conditions and/or
may be in default or not current in the payment of interest or principal. The market values of medium- and lower-rated securities
tend to be more sensitive to company-specific developments and changes in economic conditions than higher-rated securities. The
companies that issue these securities often are highly leveraged, and their ability to service their debt obligations during an
economic downturn or periods of rising interest rates may be impaired. In addition, these companies may not have access to more
traditional methods of financing, and may be unable to repay debt at
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
maturity
by refinancing. The risk of loss due to default in payment of interest or principal by these issuers is significantly greater
than with higher-rated securities because medium- and lower-rated securities generally are unsecured and subordinated to senior
debt. Default, or the market’s perception that an issuer is likely to default, could reduce the value and liquidity of securities
held by a Fund. In addition, default may cause a Fund to incur expenses in seeking recovery of principal or interest on its portfolio
holdings.
Derivatives
Risk – The Funds may use derivatives (including swaps, structured notes, options, futures and options on futures) to enhance
returns or hedge against market declines. The Funds’ use of derivative instruments involves risks different from, or possibly
greater than, the risks associated with investing directly in securities and other traditional investments. These risks include
(i) the risk that the counterparty to a derivative transaction may not fulfill its contractual obligations; (ii) risk of mispricing
or improper valuation; and (iii) the risk that changes in the value of the derivative may not correlate perfectly with the underlying
asset, rate or index. These risks could cause a Fund to lose more than the principal amount invested. In addition, investments
in derivatives may involve leverage, which means a small percentage of assets invested in derivatives can have a disproportionately
large impact on the Funds.
Swap
Counterparty Credit Risk – The Funds are subject to credit risk on the amount the Funds expect to receive from swap agreement
counterparties. With certain exchange traded credit default swaps, there is minimal counterparty risk to a Fund in that the exchanges
clearinghouse, as counter party, guarantees against default.
Fixed
Income Risk – When a Fund invests in fixed income securities, the value of its investments in such securities will fluctuate
with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities owned
by a Fund. In general, the market price of debt securities with longer maturities will increase or decrease more in response to
changes in interest rates than shorter -term securities. Other risk factors include credit risk (the debtor may default) and prepayment
risk (the debtor may pay its obligation early, reducing the amount of interest payments). These risks could affect the value of
a particular investment by a Fund, possibly causing a Fund’s share price and total return to be reduced and fluctuate more than
other types of investments.
Portfolio
Turnover Risk – Portfolio turnover refers to the rate at which the securities held by the Funds are replaced. The higher the
rate, the higher the transactional and brokerage costs associated with the turnover, which may reduce the Funds return unless
the securities traded can be bought and sold without corresponding commission costs. Active trading of securities may also increase
a Fund’s realized capital gains or losses, which may affect the taxes you pay as a Fund shareholder.
Taxation
Risk – By investing in commodities indirectly through a CFC, the Funds will obtain exposure to the commodities markets within
the federal tax requirements that apply to the Funds. However, any income received from the CFC will be passed through to each
Fund as
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
ordinary
income, which may be taxed at less favorable rates than capital gains.
Wholly-Owned
Subsidiary Risk – Each CFC will not be registered under the 1940 Act and will not be subject to all of the investor protections
of the 1940 Act. Changes in the laws of the United States and/or the Cayman Islands, under which each Fund and CFC, respectively,
are organized, could result in the inability of each Fund and/or CFC to operate as described in the Prospectus and could negatively
affect each Fund and their shareholders. Your cost of investing in a Fund will be higher because you indirectly bear the expenses
of its CFC.
A
summary of the Funds’ investments in the CFCs are as follows:
|
|
|
|
|
CFC Net Assets at
|
|
|
% of Total Net Assets at
|
|
|
|
Inception Date of CFC
|
|
January 31, 2020
|
|
|
January 31, 2020
|
|
ADB-CFC
|
|
12/5/2012
|
|
$
|
1,729,622
|
|
|
2.00%
|
|
ADT-CFC
|
|
12/12/2011
|
|
|
2,886,386
|
|
|
2.61%
|
|
AMFS-CFC
|
|
7/23/2010
|
|
|
8,821,625
|
|
|
8.92%
|
Security
Transactions and Related Income – Security transactions are accounted for on the trade date. Interest income is recognized
on an accrual basis. Discounts are accreted and premiums are amortized on securities purchased over the lives of the respective
securities. Dividend income is recorded on the ex-dividend date. Realized gains or losses from sales of securities are determined
by comparing the identified cost of the security lot sold with the net sales proceeds.
Dividends
and Distributions to Shareholders – ADBF and ADTF intend to distribute substantially all of their net investment income
at least annually and net capital gain annually. AMFSF intends to distribute substantially all of its investment income at least
quarterly and net capital gain annually. ADIF intends to distribute substantially all of its investment income at least monthly
and net capital gain annually. Dividends from net investment income and distributions from net realized gains are determined in
accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are considered
either temporary (e.g., deferred losses) or permanent in nature. To the extent these differences are permanent in nature, such
amounts are reclassified within the composition of net assets based on their federal tax-basis treatment; temporary differences
do not require reclassification. Dividends and distributions to shareholders are recorded on the ex-dividend date.
Federal
Income Taxes – The Funds intend to continue to comply with the requirements of the Internal Revenue Code of 1986, as
amended, applicable to regulated investment companies and to distribute all of their taxable income to their shareholders. Therefore,
no provision for Federal income tax is required. The Funds recognize the tax benefits of uncertain tax positions only where the
position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed
the Funds’ tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to
uncertain tax positions taken on returns filed for open tax years July 31, 2016 – July 31, 2019, or expected to be taken
in the Funds’ July 31, 2020 tax returns. The Funds identify their major tax jurisdictions as U.S.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
Federal
and foreign jurisdictions where the Funds make significant investments. The Funds are not aware of any tax positions for which
it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months.
Foreign
Currency – The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets
and liabilities denominated in a foreign currency, and income receipts and expense payments are translated into U.S. dollars using
the prevailing exchange rate at the London market close. Purchases and sales of securities are translated into U.S. dollars at
the contractual currency rates established at the approximate time of the trade. Net realized gains and losses on foreign currency
transactions represent net gains and losses from currency realized between the trade and settlement dates on securities transactions
and the difference between income accrued versus income received. The effects of changes in foreign currency exchange rates on
investments in securities are included with the net realized and unrealized gain or loss on investment securities, if any.
Forward
Currency Contracts – As foreign securities are purchased, a Fund generally enters into forward currency exchange contracts
in order to hedge against foreign currency exchange rate risks. The market value of the contract fluctuates with changes in currency
exchange rates. The contract is marked-to-market daily and the change in market value is recorded by a Fund as an unrealized gain
or loss. As foreign securities are sold, a portion of the contract is generally closed and the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
Realized gains and losses from contract transactions are included as a component of net realized gains (losses) from foreign currency
transactions in the Consolidated Statements of Operations.
Futures
Contracts – Each Fund is subject to equity price risk, interest rate risk, and foreign currency exchange rate risk in
the normal course of pursuing their investment objectives. The Funds may purchase or sell futures contracts to gain exposure to,
or hedge against, changes in the value of equities, interest rates, foreign currencies or commodities. Initial margin deposits
required upon entering into futures contracts are satisfied by the segregation of specific securities or cash as collateral for
the account of the broker (the Funds’ agent in acquiring the futures position). During the period the futures contracts
are open, changes in the value of the contracts are recognized as unrealized gains or losses by “marking to market”
on a daily basis to reflect the market value of the contracts at the end of each day’s trading. Variation margin payments
are received or made depending upon whether unrealized gains or losses are incurred. When the contracts are closed, a Fund recognizes
a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Fund’s
basis in the contract. If a Fund is unable to liquidate a futures contract and/or enter into an offsetting closing transaction,
that Fund would continue to be subject to market risk with respect to the value of the contracts and continue to be required to
maintain the margin deposits on the futures contracts. Each Fund segregates liquid securities having a value at least equal to
the amount of the current obligation under any open futures contract. Risks may exceed amounts
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
recognized
in the Consolidated Statements of Assets and Liabilities. With futures, there is minimal counterparty credit risk to a Fund since
futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees
the futures against default.
Options
Transactions – Each Fund is subject to equity price risk in the normal course of pursuing its investment objective and
may purchase or sell options to help hedge against this risk.
Each
Fund may write call options only if it (i) owns an offsetting position in the underlying security or (ii) has an absolute or immediate
right to acquire that security without additional cash consideration or exchange of other securities held in its portfolio.
When
a Fund writes a call option, an amount equal to the premium received is included in the Consolidated Statement of Assets and Liabilities
as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option.
If an option expires on its stipulated expiration date or if a Fund enters into a closing purchase transaction, a gain or loss
is realized. If a written call option is exercised, a gain or loss is realized for the sale of the underlying security and the
proceeds from the sale are increased by the premium originally received. As writer of an option, a Fund has no control over whether
the option will be exercised and, as a result, retains the market risk of an unfavorable change in the price of the security underlying
the written option. When a Fund purchases an option, an amount equal to the premium paid by a Fund is recorded as an investment
and is subsequently adjusted to the current value of the option purchased. If an option expires on the stipulated expiration date
or if a Fund enters into a closing sale transaction, a gain or loss is realized. If a call option is exercised, the cost of the
security acquired is increased by the premium paid for the call. If a put option is exercised, a gain or loss is realized from
the sale of the underlying security, and the proceeds from such a sale are decreased by the premium originally paid. Written and
purchased options are non-income producing securities. With purchased options, there is minimal counterparty credit risk to the
Funds since these options are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded options,
guarantees against a possible default.
Structured
Notes – There are several risks associated with the use of structured notes. Structured notes are leveraged, thereby
providing an exposure to the underlying benchmark greater than the face amount and increasing the volatility of each note relative
to the change in the underlying linked financial instrument. A highly liquid secondary market may not exist for the structured
notes a Fund invests in, which may make it difficult for that Fund to sell the structured notes it holds at an acceptable price
or to accurately value them. In addition, structured notes are subject to the risk that the counterparty to the instrument, or
issuer, might not pay interest when due or repay principal at maturity of the obligation. Although the Funds will not invest in
any structured notes unless the Funds’ management believes that the issuer is creditworthy, a Fund does bear the risk of
loss of the amount expected to be received
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
in
the event of the default or bankruptcy of the issuer.
Swap
Agreements – The Funds may enter into swap agreements to manage their exposure to various risks. A total rate of return
swap agreement is a derivative contract in which one party (the receiver) receives the total return of a specific index or a specific
security on a notional amount of principal from a second party (the seller) in return for paying a funding cost, which is usually
quoted in relation to the London Inter-Bank Offered Rate (“LIBOR”). During the life of the agreement, there are periodic
exchanges of cash flows in which the index receiver pays the LIBOR-based interest on the notional principal amount and receives
(or pays if the total return is negative or spreads widen) the index total return on the notional principal amount. A credit default
swap is an agreement between a protection buyer and a protection seller whereby the buyer agrees to periodically pay the seller
a premium, generally expressed in terms of interest on a notional principal amount, over a specified period in exchange for receiving
compensation from the seller when an underlying reference debt obligation or index of reference debt obligations is subject to
one or more specified adverse credit events (such as bankruptcy, failure to pay, acceleration of indebtedness, restructuring,
or repudiation/ moratorium). A Fund will become a protection seller to take on credit risk in order to earn a premium. A Fund
will usually enter into swaps on a net basis, i.e., the two payment streams are netted out, with a Fund receiving or paying, as
the case may be, only the net amount of the two payments. Swaps are marked to market based upon quotations from market makers
and the change, if any, along with an accrual for periodic payments due or owed is recorded as unrealized gain or loss in the
Consolidated Statements of Operations. Net payments on swap agreements are included as part of realized gain/loss in the Consolidated
Statements of Operations. Entering into these agreements involves, to varying degrees, elements of credit and market risk in excess
of the amounts recognized in the Consolidated Statements of Assets and Liabilities. Such risks include the possibility that there
will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform,
that there may be unfavorable changes in the fluctuation of interest rates or the occurrence of adverse credit events on reference
debt obligations.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
Derivatives
Disclosure
Fair
Values of Derivative Instruments in ADBF as of January 31, 2020:
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
|
Contract Type/
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk Exposure
|
|
Balance Sheet Location
|
|
Value
|
|
|
Balance Sheet Location
|
|
Value
|
|
|
Financial Index Swap:
|
|
Unrealized appreciation on swap contracts
|
|
$
|
—
|
|
|
Unrealized depreciation on swap contracts
|
|
$
|
82,083
|
|
|
Commodity Index Swap:
|
|
Unrealized appreciation on swap contracts
|
|
|
39,641
|
|
|
Unrealized depreciation on swap contracts
|
|
|
—
|
|
|
Futures - Commodity contracts:
|
|
Variation margin - due from broker
|
|
|
42,750
|
|
|
Variation margin - due from broker
|
|
|
—
|
|
|
Purchased and Written Options
|
|
Investments Securities: Unaffiliated companies at value
|
|
|
55,100
|
|
|
Options written at value
|
|
|
1,643,000
|
|
|
|
|
|
|
$
|
137,491
|
|
|
|
|
$
|
1,725,083
|
|
Fair
Values of Derivative Instruments in ADTF as of January 31, 2020:
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Contract Type/
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk Exposure
|
|
Balance Sheet Location
|
|
Value
|
|
|
Balance Sheet Location
|
|
Value
|
|
|
Futures - Commodity contracts:
|
|
Variation margin - due from broker
|
|
$
|
144,210
|
|
|
Variation margin - due from broker
|
|
$
|
—
|
|
|
|
|
|
|
$
|
144,210
|
|
|
|
|
$
|
—
|
|
Fair
Values of Derivative Instruments in ADIF as of January 31, 2020:
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Contract Type/
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk Exposure
|
|
Balance Sheet Location
|
|
Value
|
|
|
Balance Sheet Location
|
|
Value
|
|
|
Futures - Interest contracts:
|
|
Variation margin - due from broker
|
|
|
|
|
|
Variation margin - due from broker
|
|
$
|
7,437
|
|
|
Credit Default Swap Contract:
|
|
Unrealized appreciation on swap contracts
|
|
|
5,450
|
|
|
Unrealized depreciation on swap contracts
|
|
|
—
|
|
|
|
|
|
|
$
|
5,450
|
|
|
|
|
$
|
7,437
|
|
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
Fair
Values of Derivative Instruments in AMFSF as of January 31, 2020:
|
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Contract Type/
|
|
|
|
|
|
|
|
|
|
|
|
Primary Risk Exposure
|
|
Balance Sheet Location
|
|
Value
|
|
|
Balance Sheet Location
|
|
Value
|
|
|
Financial Index Swap:
|
|
Unrealized appreciation on swap contracts
|
|
$
|
—
|
|
|
Unrealized depreciation on swap contracts
|
|
$
|
1,545,248
|
|
|
Commodity Index Swap:
|
|
Unrealized appreciation on swap contracts
|
|
|
730,207
|
|
|
Unrealized depreciation on swap contracts
|
|
|
—
|
|
|
|
|
|
|
$
|
730,207
|
|
|
|
|
$
|
1,545,248
|
|
The
amounts of realized and changes in unrealized gains and losses on derivative instruments during the year as disclosed in the Consolidated
Statements of Operations serve as indicators of the volume of derivative activity for the Funds.
The
effect of Derivative Instruments on the Consolidated Statements of Operations for the six months ended January 31, 2020:
|
ADBF
|
|
|
|
|
|
Commodity
|
|
|
Financial
|
|
|
Equity
|
|
|
|
|
|
Location
|
|
Contracts
|
|
|
Contracts
|
|
|
Contracts
|
|
|
Total
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$
|
364,987
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
364,987
|
|
|
Swap contracts
|
|
|
(254,438
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(254,438
|
)
|
|
Written Options
|
|
|
—
|
|
|
|
—
|
|
|
|
(533,400
|
)
|
|
|
(533,400
|
)
|
|
Total net realized gain (loss)
|
|
$
|
110,549
|
|
|
$
|
—
|
|
|
$
|
(533,400
|
)
|
|
$
|
(422,851
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$
|
(116,768
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(116,768
|
)
|
|
Swap contracts
|
|
|
60,698
|
|
|
|
(179,874
|
)
|
|
|
—
|
|
|
|
(119,176
|
)
|
|
Purchased Options
|
|
|
—
|
|
|
|
—
|
|
|
|
(254,500
|
)
|
|
|
(254,500
|
)
|
|
Written Options
|
|
|
—
|
|
|
|
—
|
|
|
|
(937,545
|
)
|
|
|
(937,545
|
)
|
|
Total net change in unrealized appreciation (depreciation)
|
|
$
|
(56,070
|
)
|
|
$
|
(179,874
|
)
|
|
|
(1,192,045
|
)
|
|
$
|
(1,427,989
|
)
|
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
ADTF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
|
|
|
|
|
|
|
|
|
Location
|
|
Contracts
|
|
|
Total
|
|
|
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$
|
(283,901
|
)
|
|
$
|
(283,901
|
)
|
|
|
|
|
|
Total net realized gain (loss)
|
|
$
|
(283,901
|
)
|
|
$
|
(283,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$
|
144,210
|
|
|
$
|
144,210
|
|
|
|
|
|
|
Total net change in unrealized appreciation (depreciation)
|
|
$
|
144,210
|
|
|
$
|
144,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADIF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
|
|
|
Location
|
|
Credit Contracts
|
|
|
Contracts
|
|
|
Total
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$
|
—
|
|
|
$
|
496,037
|
|
|
$
|
496,037
|
|
|
Swap contracts
|
|
|
(41,863
|
)
|
|
|
87,562
|
|
|
|
45,699
|
|
|
Total net realized gain (loss)
|
|
$
|
(41,863
|
)
|
|
$
|
583,599
|
|
|
$
|
541,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures contracts
|
|
$
|
—
|
|
|
$
|
(48,687
|
)
|
|
$
|
(48,687
|
)
|
|
Swap contracts
|
|
|
32,283
|
|
|
|
—
|
|
|
|
32,283
|
|
|
Total net change in unrealized appreciation (depreciation)
|
|
$
|
32,283
|
|
|
$
|
(48,687
|
)
|
|
$
|
(16,404
|
)
|
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
AMFSF
|
|
|
|
|
|
Commodity
|
|
|
Financial
|
|
|
|
|
|
Location
|
|
Contracts
|
|
|
Contracts
|
|
|
Total
|
|
|
Net realized gain (loss) on:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
|
$
|
(1,618,425
|
)
|
|
$
|
(3,475,426
|
)
|
|
$
|
(5,093,851
|
)
|
|
Total net realized gain (loss)
|
|
$
|
(1,618,425
|
)
|
|
$
|
(3,475,426
|
)
|
|
$
|
(5,093,851
|
)
|
|
Net change in unrealized appreciation (depreciation)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap contracts
|
|
$
|
1,105,495
|
|
|
$
|
(3,244,336
|
)
|
|
$
|
(2,138,841
|
)
|
|
Total net change in unrealized appreciation (depreciation)
|
|
$
|
1,105,495
|
|
|
$
|
(3,244,336
|
)
|
|
$
|
(2,138,841
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facility – The Funds have collectively entered into a $15 million secured Revolving Credit Agreement (the “Agreement”)
with MUFG Union Bank, National Association. Under the terms of the Agreement, each Fund may not exceed the limit on borrowing
money set forth in the Registration Statement of that Fund and the borrowing will be used only for temporary or emergency purposes
including the financing of redemptions. Interest is charged to each Fund based on the prevailing market rates in effect at the
time of the borrowing. The Funds will collateralize the borrowings with certain securities the Funds hold at the time of borrowing.
During
the six months ended January 31, 2020, the Funds did not incur any interest expense (including origination fees) related to the
borrowings. At January 31, 2020, there were no outstanding borrowings.
Expenses
– Expenses of the Trust that are directly identifiable to a specific fund are charged to that fund. Expenses, which
are not readily identifiable to a specific fund, are allocated in such a manner as deemed equitable (as determined by the Board),
taking into consideration the nature and type of expense and the relative sizes of the funds in the Trust.
Indemnification
– The Trust indemnifies its officers and trustees for certain liabilities that may arise from the performance of their
duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts that contain a variety of
representations and warranties and which provide general indemnities. The Trust’s maximum exposure under these arrangements
is unknown, as this would involve future claims that may be made against the Trust that have not yet occurred. However, based
on experience, the Trust expects the risk of loss due to these warranties and indemnities to be remote.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
|
|
3.
|
OFFSETTING
OF FINANCIAL ASSETS AND DERIVATIVE ASSETS
|
Each
Fund’s policy is to recognize a net asset or liability in the Consolidated Statements of Assets and Liabilities equal to
the unrealized appreciation or depreciation for futures and swaps contracts. During the six months ended January 31, 2020, each
Fund was subject to a master netting arrangement for the futures and swaps. The following table shows additional information regarding
the offsetting of assets and liabilities at January 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Statements of Assets & Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Offset in
|
|
|
Net Amounts of Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts of
|
|
|
the Statements of Assets
|
|
|
Presented in the Statements
|
|
|
Financial
|
|
|
Cash Collateral
|
|
|
|
|
|
|
|
Recognized Assets
|
|
|
& Liabilities
|
|
|
of Assets & Liabilities
|
|
|
Instruments
|
|
|
Received/(Pledged)
|
|
|
Net Amount
|
|
|
ADBF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts - Morgan Stanley
|
|
$
|
39,641
|
|
|
$
|
—
|
|
|
$
|
39,641
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
39,641
|
|
|
Purchased Options
|
|
|
55,100
|
|
|
|
—
|
|
|
|
55,100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
55,100
|
|
|
Future Contracts - Goldman Sachs
|
|
|
42,750
|
|
|
|
—
|
|
|
|
42,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,750
|
|
|
Total
|
|
$
|
137,491
|
|
|
$
|
—
|
|
|
$
|
137,491
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
137,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADTF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Contracts
|
|
$
|
144,210
|
|
|
$
|
—
|
|
|
$
|
144,210
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
144,210
|
|
|
Total
|
|
$
|
144,210
|
|
|
|
—
|
|
|
$
|
144,210
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
144,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADIF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps Contracts - Goldman Sachs
|
|
$
|
5,450
|
|
|
$
|
—
|
|
|
$
|
5,450
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,450
|
|
|
Total
|
|
$
|
5,450
|
|
|
|
—
|
|
|
$
|
5,450
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMFSF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swaps Contracts - Morgan Stanley
|
|
$
|
730,207
|
|
|
$
|
—
|
|
|
$
|
730,207
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
730,207
|
|
|
Total
|
|
$
|
730,207
|
|
|
$
|
—
|
|
|
$
|
730,207
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
730,207
|
|
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Not Offset in the
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Statements of Assets & Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts Offset in
|
|
|
Net Amounts of Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amounts of
|
|
|
the Statements of Assets
|
|
|
Presented in the Statements
|
|
|
Financial
|
|
|
Cash Collateral
|
|
|
|
|
|
Description
|
|
Recognized Liabilities
|
|
|
& Liabilities
|
|
|
of Assets & Liabilities
|
|
|
Instruments
|
|
|
Pledged (1)
|
|
|
Net Amount
|
|
|
ADBF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts- Morgan Stanley
|
|
$
|
82,083
|
|
|
$
|
—
|
|
|
$
|
82,083
|
|
|
$
|
—
|
|
|
$
|
21,057
|
|
|
$
|
—
|
|
|
Options Written
|
|
|
1,643,000
|
|
|
|
—
|
|
|
|
1,643,000
|
|
|
|
—
|
|
|
|
561,780
|
|
|
|
—
|
|
|
Total
|
|
$
|
1,725,083
|
|
|
$
|
—
|
|
|
$
|
1,725,083
|
|
|
$
|
—
|
|
|
$
|
582,837
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADIF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Futures Contracts - Goldman Sachs
|
|
$
|
7,437
|
|
|
$
|
—
|
|
|
$
|
7,437
|
|
|
$
|
—
|
|
|
$
|
26,833
|
|
|
$
|
—
|
|
|
Total
|
|
$
|
7,437
|
|
|
$
|
—
|
|
|
$
|
7,437
|
|
|
$
|
—
|
|
|
$
|
26,833
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMFSF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap Contracts - Morgan Stanley
|
|
$
|
1,545,248
|
|
|
$
|
—
|
|
|
$
|
1,545,248
|
|
|
$
|
—
|
|
|
$
|
1,545,248
|
|
|
$
|
—
|
|
|
Total
|
|
$
|
1,545,248
|
|
|
$
|
—
|
|
|
$
|
1,545,248
|
|
|
$
|
—
|
|
|
$
|
1,545,248
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Collateral
shown is limited to liability amount.
|
|
|
4.
|
INVESTMENT
TRANSACTIONS
|
For
the six months ended January 31, 2020, the cost of purchases and proceeds from sales of portfolio securities, other than short-term
investments, were as follows:
|
Portfolio
|
|
Purchases
|
|
|
Sales
|
|
|
ADBF
|
|
$
|
19,262,063
|
|
|
$
|
37,248,349
|
|
|
ADTF
|
|
|
82,065,126
|
|
|
|
103,808,309
|
|
|
ADIF
|
|
|
—
|
|
|
|
34,042,712
|
|
|
AMFSF
|
|
|
—
|
|
|
|
58,756,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
|
INVESTMENT
ADVISORY AGREEMENT AND TRANSACTIONS WITH RELATED PARTIES
|
The
business activities of the Funds are overseen by the Board, which is responsible for the overall management of the Funds. Arrow
Investment Advisors, LLC, serves as the Funds’ investment advisor.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
Pursuant
to an advisory agreement with the Trust, with respect to each Fund, the Advisor, under the oversight of the Board, directs the
daily operations of the Funds and supervises the performance of administrative and professional services provided by others. As
compensation for its services and the related expenses borne by the Advisor, the Funds pay the Advisor a fee, computed and accrued
daily and paid monthly, at an annual rate of 1.00% of ADBF and ADTF average daily net assets, 0.75% of ADIF average daily net
assets, and 0.85% of AMFSF average daily net assets.
Pursuant
to an exemptive order, ADBF, ADTF, ADIF and AMFSF each invested a portion of their assets in the other Arrow Funds. ADBF invested
in Arrow Dogs of the World ETF (DOGS), Arrow QVM ETF (QVM), Arrow DWA Country Rotation ETF (DWCR) and Arrow Reserve Capital Management
ETF (ARCM). ADTF, ADIF and AMFSF each invested in the ARCM. The Advisor has agreed to waive 0.05% of its advisory fee on the portion
of ADBF’s assets that are invested in the DWCR and QVM. The Advisor has agreed to waive 0.05% of its advisory fee on the
portion of ADBF, ADTF, ADIF and AMFSF’s assets that are invested in the ARCM. For the six months ended January 31, 2020, the Advisor waived $3,600,
$23, $772 and $11,954, in ADBF, ADTF, ADIF and AMFSF, respectively, pursuant to its agreement.
The
Board has adopted a Distribution Plan and Agreement (the “Plan”) pursuant to Rule 12b-1 under the 1940 Act with respect
to the Funds. The Plan provides that a monthly service and/or distribution fee is calculated by each Fund at an annual rate of
0.25% of its average daily net assets for Class A and an annual rate of 1.00% of its average daily net assets for Class C and
is paid to Archer Distributors, LLC (the “Distributor”) to provide compensation for ongoing shareholder servicing
and distribution-related activities or services and-or maintenance of the Funds’ shareholder accounts, not otherwise required
to be provided by the Advisor. The Plan is a compensation plan, which means that compensation is provided regardless of 12b-1
expenses incurred.
The
Distributor acts as the Funds’ principal underwriter in a continuous public offering of the Funds’ Class A and Class
C shares. The Distributor is an affiliate of the Advisor. For the six months ended January 31, 2020, the Distributor received
$25,583, of which $3,695 was retained in commissions.
Gemini
Fund Services, LLC (“GFS”) – GFS provides administration, fund accounting, and transfer agent services
to the Trust. Pursuant to separate servicing agreements with GFS, each Fund pays GFS customary fees for providing administration,
fund accounting and transfer agency services to the Fund. Certain officers of the Trust are also officers of GFS, and are not
paid any fees directly by the Trust for serving in such capacities.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
Blu
Giant, LLC (“Blu Giant”) – Blu Giant, an affiliate of GFS, provides EDGAR conversion
and filing services as well as print management services for each Fund on an ad-hoc basis. For the provision of these services,
Blu Giant receives customary fees from the Funds.
Effective
February 1, 2019, NorthStar Financial Services Group, LLC, the parent company of GFS and its affiliated companies including Northern
Lights Compliance Services, LLC (collectively, the “Gemini Companies”), sold its interest in the Gemini Companies
to a third party private equity firm that contemporaneously acquired Ultimus Fund Solutions, LLC (an independent mutual fund administration
firm) and its affiliates (collectively, the “Ultimus Companies”). As a result of these separate transactions, the
Gemini Companies and the Ultimus Companies are now indirectly owned through a common parent entity, The Ultimus Group, LLC.
The
Funds, except for ADIF, may assess a short-term redemption fee of 1.00% of the total redemption amount if a shareholder sells
their shares after holding them for less than 30 days. The redemption fee is paid directly to the specific Fund in which the short-term
redemption fee occurs. For the six months ended January 31, 2020, ADBF, ADTF, ADIF and AMFSF assessed $1, $5, $0, and $1,955 respectively,
in redemption fees.
|
|
7.
|
UNDERLYING
INVESTMENT IN OTHER INVESTMENT COMPANIES
|
ADBF,
ADTF, ADIF and AMFSF currently invest a portion of their assets in the Arrow Reserve Capital Management ETF (“ARCM”),
a Fund advised by the Advisor. ARCM is registered under the 1940 Act, as an open-end management investment company. ARCM’s
investment objective seeks to preserve capital while maximizing current income. ARCM’s securities valuation policies are
similar to the Funds’ policies. Each Fund may sell or redeem their investment in ARCM at any time if the Advisor determines
that it is in the best interest of each Fund and its shareholders to do so. Each Fund’s performance will be directly affected
by the performance of ARCM. The financial statements of ARCM, including the portfolio of investments, can be found at ARCM’s
website, www.arrowfunds.com, or the Securities and Exchange Commission’s website, www.sec.gov, and should be read
in conjunction with the Funds’ financial statements. As of January 31, 2020, ADBF owns 4.8%, ADTF owns 0.3%, ADIF owns 2.6%
and AMFSF owns 85.2% of ARCM. As of January 31, 2020, the percentage of ADBF, ADTF, ADIF and AMFSF’s net assets invested
in ARCM was 5.0%, 0.1%, 21.6% and 48.3%, respectively.
ADBF
currently invests a portion of its assets in the Arrow DWA Country Rotation ETF (“DWCR”), a fund advised by the Advisor.
DWCR is registered under the 1940 Act, as an open-end management investment company. DWCR’s investment objective seeks long
-term capital appreciation by tracking the investment results of the Dorsey Wright Country and Stock Momentum Index. DWCR’s
securities valuation policies are similar to ADBF’s policies. ADBF may sell or redeem its investment in DWCR at any time
if the Advisor determines that it is in the best interest of ADBF and its shareholders to do so. The performance of ADBF will
be
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
directly
affected by the performance of DWCR. The financial statements of DWCR, including the portfolio of investments, can be found at
DWCR’s website, www.arrowfunds.com, or the Securities and Exchange Commission’s website, www.sec.gov,
and should be read in conjunction with the ADBF financial statements. As of January 31, 2020, ADBF owns 79.8% of DWCR. As
of January 31, 2020, the percentage of ADBF’s net assets invested in DWCR was 14.6%.
ADBF
currently invests a portion of its assets in the Arrow Dogs of the World ETF (“DOGS”), a fund advised by the Advisor.
DOGS is registered under the 1940 Act, as an open-end management investment company. DOGS’s investment objective seeks long
-term capital appreciation by tracking the investment results of the AI Dogs of the World ex US Total Return Index. DOGS’s
securities valuation policies are similar to ADBF’s policies. ADBF may sell or redeem its investment in DOGS at any time
if the Advisor determines that it is in the best interest of ADBF and its shareholders to do so. The performance of ADBF will
be directly affected by the performance of DOGS. The financial statements of DOGS, including the portfolio of investments, can
be found at DOGS website, www.arrowfunds.com, or the Securities and Exchange Commission’s website, www.sec.gov,
and should be read in conjunction with the ADBF financial statements. As of January 31, 2020, ADBF owns 54.2% of DOGS. As
of January 31, 2020, the percentage of ADBF’s net assets invested in DOGS was 4.6%.
ADIF
currently invests a portion of its assets in the Fidelity Investments Money Market Fund - Government Portfolio - Class I (“Fidelity”).
Fidelity is registered under the 1940 Act as open-end management investment companies. ADIF may redeem its investment in Fidelity
at any time if the Advisor determines that it is in the best interest of AMFSF and its shareholders to do so. The performance
of ADIF will be directly affected by the performance of Fidelity. The financial statements of Fidelity, including their portfolios
of investments, can be found at the Securities and Exchange Commission’s website, www.sec.gov, and should be read in conjunction
with ADIF financial statements. As of January 31, 2020, the percentage of the Fund’s net assets invested in Fidelity Investments
Money Market Fund - Government Portfolio - Class I was 27.9%.
ADIF
currently invests a portion of its assets in the AlphaCentric Income Opportunities Fund – Class I (“AlphaCentric”).
AlphaCentric is registered under the 1940 Act as an open-end management investment company. ADIF may redeem its investment in
Fidelity at any time if the Advisor determines that it is in the best interest of ADIF and its shareholders to do so. The performance
of ADIF will be directly affected by the performance of Fidelity. The financial statements of Fidelity, including their portfolios
of investments, can be found at the Securities and Exchange Commission’s website, www.sec.gov, and should be read in conjunction
with AMFSF financial statements. As of January 31, 2020, the percentage of the Fund’s net assets invested in AlphaCentric
was 35.0%.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
8.
INVESTMENTS IN AFFILIATED COMPANIES
An
affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities or is under common control.
Companies which are affiliates of a Fund at January 31, 2020 are noted in the Funds’ Consolidated Portfolios of Investments.
Transactions during the six months ended January 31, 2020 with companies which are affiliates are as follows:
|
ADBF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Change in
|
|
|
|
|
|
|
|
|
|
|
Value
-
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
Unrealized
|
|
|
Shares
-
|
|
|
|
|
|
|
|
Beginning
of
|
|
|
|
|
|
Sales
|
|
|
Realized
|
|
|
Credited
to
|
|
|
Value
- End
|
|
|
Appreciation/
|
|
|
End
of
|
|
|
Cusip
|
|
|
Description
|
|
Period
|
|
|
Purchases
|
|
|
Proceeds
|
|
|
Gain/Loss
|
|
|
Income
|
|
|
of
Period
|
|
|
(Depreciation)
|
|
|
Period
|
|
|
|
042765776
|
|
|
Arrow Reserve
Capital Management ETF
|
|
$
|
3,233,052
|
|
|
$
|
—
|
|
|
$
|
(544,973
|
)
|
|
$
|
(1,077
|
)
|
|
$
|
33,202
|
|
|
$
|
2,683,790
|
|
|
$
|
(3,212
|
)
|
|
|
26,787
|
|
|
|
042765685
|
|
|
Arrow DWA Country Rotation
ETF
|
|
|
13,036,302
|
|
|
|
—
|
|
|
|
(5,553,936
|
)
|
|
|
(717,929
|
)
|
|
|
118,184
|
|
|
|
7,810,415
|
|
|
|
1,045,978
|
|
|
|
283,617
|
|
|
|
042765693
|
|
|
Arrow
Dogs of the World ETF
|
|
|
2,784,731
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,224
|
|
|
|
2,454,545
|
|
|
|
(330,186
|
)
|
|
|
54,497
|
|
|
|
|
|
|
|
|
$
|
19,054,085
|
|
|
$
|
—
|
|
|
$
|
(6,098,909
|
)
|
|
$
|
(719,006
|
)
|
|
$
|
159,610
|
|
|
$
|
12,948,750
|
|
|
$
|
712,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADTF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
in
|
|
|
|
|
|
|
|
|
|
|
Value -
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
Unrealized
|
|
|
Shares -
|
|
|
|
|
|
|
|
Beginning
of
|
|
|
|
|
|
Sales
|
|
|
Realized
|
|
|
Credited to
|
|
|
Value - End
|
|
|
Appreciation/
|
|
|
End of
|
|
|
Cusip
|
|
|
Description
|
|
Period
|
|
|
Purchases
|
|
|
Proceeds
|
|
|
Gain/
Loss
|
|
|
Income
|
|
|
of
Period
|
|
|
(Depreciation)
|
|
|
Period
|
|
|
|
042765776
|
|
|
Arrow Reserve Capital Management ETF
|
|
$
|
140,441
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,529
|
|
|
$
|
140,266
|
|
|
$
|
(175
|
)
|
|
|
1,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADIF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
in
|
|
|
|
|
|
|
|
|
|
|
Value -
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
Unrealized
|
|
|
Shares -
|
|
|
|
|
|
|
|
Beginning
of
|
|
|
|
|
|
Sales
|
|
|
Realized
|
|
|
Credited to
|
|
|
Value - End
|
|
|
Appreciation/
|
|
|
End of
|
|
|
Cusip
|
|
|
Description
|
|
Period
|
|
|
Purchases
|
|
|
Proceeds
|
|
|
Loss
|
|
|
Income
|
|
|
of
Period
|
|
|
(Depreciation)
|
|
|
Period
|
|
|
|
042765776
|
|
|
Arrow Reserve Capital Management ETF
|
|
$
|
7,490,198
|
|
|
$
|
—
|
|
|
$
|
(6,011,076
|
)
|
|
$
|
8,076
|
|
|
$
|
39,085
|
|
|
$
|
1,469,464
|
|
|
$
|
(17,734
|
)
|
|
|
14,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMFSF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
in
|
|
|
|
|
|
|
|
|
|
|
Value -
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
Unrealized
|
|
|
Shares -
|
|
|
|
|
|
|
|
Beginning
of
|
|
|
|
|
|
Sales
|
|
|
Realized
|
|
|
Credited to
|
|
|
Value - End
|
|
|
Appreciation/
|
|
|
End of
|
|
|
Cusip
|
|
|
Description
|
|
Period
|
|
|
Purchases
|
|
|
Proceeds
|
|
|
Gain/ Loss
|
|
|
Income
|
|
|
of Period
|
|
|
(Depreciation)
|
|
|
Period
|
|
|
|
042765776
|
|
|
Arrow Reserve Capital Management ETF
|
|
$
|
47,038,729
|
|
|
$
|
751,200
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
518,831
|
|
|
$
|
47,731,540
|
|
|
$
|
(58,389
|
)
|
|
|
476,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No
cross trades for the six months ended January 31, 2020 were executed by the Funds pursuant to procedures adopted by the Board
to ensure compliance with Rule 17a-7 under the 1940 Act (the “17a-7 Procedures”). In general, cross trading is the
buying or selling of portfolio securities between a Fund and other series of the Trust. The Board determines no less frequently
than quarterly that such transactions were effected in compliance with the 17a-7 Procedures.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
|
|
9.
|
DISTRIBUTIONS
TO SHAREHOLDERS AND TAX COMPONENTS OF CAPITAL
|
The
tax character of distributions paid for the years ended July 31, 2019 and July 31, 2018 was as follows:
|
For the year ended July 31, 2019:
|
|
|
|
|
|
Ordinary
|
|
|
Long-Term
|
|
|
|
|
|
|
|
Income
|
|
|
Capital Gains
|
|
|
Total
|
|
|
ADBF
|
|
$
|
1,340,380
|
|
|
$
|
4,902,460
|
|
|
$
|
6,242,840
|
|
|
ADTF
|
|
|
1,342,444
|
|
|
|
4,140,623
|
|
|
|
5,483,067
|
|
|
ADIF
|
|
|
583,553
|
|
|
|
—
|
|
|
|
583,553
|
|
|
AMFSF
|
|
|
15,702,286
|
|
|
|
—
|
|
|
|
15,702,286
|
|
|
For the year ended July 31, 2018:
|
|
|
|
|
|
Ordinary
|
|
|
Long-Term
|
|
|
Return of
|
|
|
|
|
|
|
|
Income
|
|
|
Capital Gains
|
|
|
Capital
|
|
|
Total
|
|
|
ADBF
|
|
$
|
—
|
|
|
$
|
7,624,669
|
|
|
$
|
—
|
|
|
$
|
7,624,669
|
|
|
ADTF
|
|
|
12,976,177
|
|
|
|
3,892,456
|
|
|
|
—
|
|
|
|
16,868,633
|
|
|
ADIF
|
|
|
3,698,230
|
|
|
|
197,221
|
|
|
|
410,152
|
|
|
|
4,305,603
|
|
|
AMFSF
|
|
|
3,325,067
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,325,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of July 31, 2019, the components of accumulated earnings/ (deficit) on a tax basis were as follows:
|
|
|
Undistributed
|
|
|
Undistributed
|
|
|
Post October Loss
|
|
|
Capital Loss
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
|
Ordinary
|
|
|
Long-Term
|
|
|
and
|
|
|
Carry
|
|
|
Book/Tax
|
|
|
Unrealized
|
|
|
Accumulated
|
|
|
|
|
Income
|
|
|
Capital Gains
|
|
|
Late Year Loss
|
|
|
Forwards
|
|
|
Differences
|
|
|
Appreciation
|
|
|
Earnings/(Deficits)
|
|
|
ADBF
|
|
$
|
498,846
|
|
|
$
|
431,566
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
148,473
|
|
|
$
|
3,391,107
|
|
|
$
|
4,469,992
|
|
|
ADTF
|
|
|
184,573
|
|
|
|
6,340,492
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,211,441
|
|
|
|
13,736,506
|
|
|
ADIF
|
|
|
330,259
|
|
|
|
—
|
|
|
|
(1,526,675
|
)
|
|
|
(101,214
|
)
|
|
|
—
|
|
|
|
38,117
|
|
|
|
(1,259,513
|
)
|
|
AMFSF
|
|
|
12,343,239
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(893,225
|
)
|
|
|
(375,288
|
)
|
|
|
36,915
|
|
|
|
11,111,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
difference between book basis and tax basis unrealized appreciation (depreciation), accumulated net investment income (loss) and
accumulated net realized gain (loss) from investments is primarily attributable to adjustments for the Funds’ wholly owned
subsidiaries, the tax deferral of losses on wash sales, and mark-to-market on open futures, options and swap contracts.
Capital
losses incurred after October 31 within the fiscal year are deemed to arise on the first business day of the following fiscal
year for tax purposes. The Funds incurred and elected to defer such capital losses as follows:
|
|
|
Post October
|
|
|
|
|
Losses
|
|
|
ADBF
|
|
$
|
—
|
|
|
ADTF
|
|
|
—
|
|
|
ADIF
|
|
|
1,526,675
|
|
|
AMFSF
|
|
|
—
|
|
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
At
July 31, 2019, the Funds had capital loss carry forwards for federal income tax purposes available to offset future capital gains
as follows:
|
|
|
Non-Expiring
|
|
|
Non-Expiring
|
|
|
|
|
|
Capital Loss Carry Forward
|
|
|
Capital Loss Carry Forward
|
|
|
|
|
Short-Term
|
|
|
Long-Term
|
|
|
Total
|
|
|
Expired
|
|
|
Utilized
|
|
|
ADBF
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
ADTF
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
ADIF
|
|
|
101,214
|
|
|
|
—
|
|
|
|
101,214
|
|
|
|
—
|
|
|
|
—
|
|
|
AMFSF
|
|
|
732,574
|
|
|
|
160,651
|
|
|
|
893,225
|
|
|
|
123,374
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent
book and tax differences, primarily attributable to the book/tax basis treatment of net operating losses, equalization debits,
the expiration of capital loss carry forwards, and adjustments for the Funds’ wholly owned subsidiaries, resulted in reclassifications
for the Funds for the fiscal year ended July 31, 2019 as follows:
|
|
|
Paid
|
|
|
|
|
|
|
|
In
|
|
|
Accumulated
|
|
|
|
|
Capital
|
|
|
Earnings (Losses)
|
|
|
ADBF
|
|
$
|
1,407,433
|
|
|
$
|
(1,407,433
|
)
|
|
ADTF
|
|
|
(5,335,062
|
)
|
|
|
5,335,062
|
|
|
ADIF
|
|
|
70,118
|
|
|
|
(70,118
|
)
|
|
AMFSF
|
|
|
(11,346,363
|
)
|
|
|
11,346,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.
|
AGGREGATE
UNREALIZED APPRECIATION AND DEPRECIATION – TAX BASIS
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Unrealized
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Gross Unrealized
|
|
|
Appreciation/
|
|
|
Fund
|
|
Tax Cost
|
|
|
Appreciation
|
|
|
Depreciation
|
|
|
(Depreciation)
|
|
|
ADBF
|
|
$
|
44,875,416
|
|
|
$
|
5,155,069
|
|
|
$
|
(5,111,535
|
)
|
|
$
|
43,534
|
|
|
ADTF
|
|
|
103,801,156
|
|
|
|
5,354,454
|
|
|
|
(1,165,319
|
)
|
|
|
4,189,135
|
|
|
ADIF
|
|
|
5,626,408
|
|
|
|
123,812
|
|
|
|
(13,335
|
)
|
|
|
110,477
|
|
|
AMFSF
|
|
|
52,643,386
|
|
|
|
49,073
|
|
|
|
—
|
|
|
|
49,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
RECENT
ACCOUNTING PRONOUNCEMENTS AND REPORTING UPDATES
|
In
March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization
on Purchased Callable Debt Securities. The amendments in the ASU shorten the amortization period for certain callable debt securities,
held at a premium, to be amortized to the earliest call date. The ASU does not require an accounting change for securities held
at a discount; which continues to be amortized to maturity. The ASU is effective for fiscal years and interim periods within those
fiscal years beginning after December 15, 2018. These amendments have been adopted with these financial statements.
|
The
Arrow Funds
|
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
Subsequent
events after the date of the Statements of Assets and Liabilities have been evaluated through the date the financial statements
were issued.
Management
has determined that no events or transactions occurred requiring adjustment or disclosure in the financial statements.
|
The
Arrow Funds
|
|
EXPENSE
EXAMPLES (Unaudited)
|
|
January
31, 2020
|
|
|
As
a shareholder of the Arrow DWA Balanced Fund, the Arrow DWA Tactical Fund, the Arrow Dynamic Income Fund, or the Arrow Managed
Futures Strategy Fund you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchases, contingent
deferred sales charges (CDSCs) and redemption fees; (2) ongoing costs, including management fees; distribution and/or service
(12b-1) fees; and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing
in the Arrow Funds and to compare these costs with the ongoing costs of investing in other mutual funds.
These
examples are based on an investment of $1,000 invested at the beginning of the period and held for the entire period from August
1, 2019 through January 31, 2020.
Actual
Expenses
The
“Actual” table below provides information about actual account values and actual expenses. You may use the information
below, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the
table under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during
this period.
Hypothetical
Example for Comparison Purposes
The
“Hypothetical” table below provides information about hypothetical account values and hypothetical expenses based
on each of the Arrow Funds’ actual expense ratios and an assumed rate of return of 5% per year before expenses, which is
not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending
account balances or expenses you paid for the period. You may use this information to compare this 5% hypothetical example with
the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please
note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional
costs, such as sales charges (loads), or redemption fees. Therefore, the table is useful in comparing ongoing costs only, and
will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were
included, your costs would have been higher.
|
|
|
Beginning
|
|
|
Ending
|
|
|
Expense Paid
|
|
|
Expense Ratio
|
|
|
|
Account Value
|
|
|
Account Value
|
|
|
During Period *
|
|
|
During Period**
|
|
Actual
|
|
8/1/2019
|
|
|
1/31/2020
|
|
|
8/1/2019 - 1/31/2020
|
|
|
8/1/2019 - 1/31/2020
|
|
DWA Balanced - Class A
|
|
$
|
1,000.00
|
|
|
$
|
994.90
|
|
|
$
|
9.03
|
|
|
1.80%
|
|
DWA Balanced - Class C
|
|
|
1,000.00
|
|
|
|
991.50
|
|
|
|
12.77
|
|
|
2.55%
|
|
DWA Balanced - Institutional Class
|
|
|
1,000.00
|
|
|
|
996.20
|
|
|
|
7.78
|
|
|
1.55%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DWA Tactical - Class A
|
|
|
1,000.00
|
|
|
|
1,037.50
|
|
|
|
8.60
|
|
|
1.68%
|
|
DWA Tactical - Class C
|
|
|
1,000.00
|
|
|
|
1,033.30
|
|
|
|
12.42
|
|
|
2.43%
|
|
DWA Tactical - Institutional Class
|
|
|
1,000.00
|
|
|
|
1,038.20
|
|
|
|
7.33
|
|
|
1.43%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dynamic Income - Class A
|
|
|
1,000.00
|
|
|
|
1,046.80
|
|
|
|
12.19
|
|
|
2.37%
|
|
Dynamic Income - Class C
|
|
|
1,000.00
|
|
|
|
1,043.60
|
|
|
|
16.03
|
|
|
3.12%
|
|
Dynamic Income - Institutional Class
|
|
|
1,000.00
|
|
|
|
1,050.30
|
|
|
|
10.93
|
|
|
2.12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Futures Strategy - Class A
|
|
|
1,000.00
|
|
|
|
946.40
|
|
|
|
7.22
|
|
|
1.48%
|
|
Managed Futures Strategy - Class C
|
|
|
1,000.00
|
|
|
|
943.50
|
|
|
|
10.88
|
|
|
2.23%
|
|
Managed Futures Strategy - Institutional Class
|
|
|
1,000.00
|
|
|
|
948.30
|
|
|
|
6.02
|
|
|
1.23%
|
|
The
Arrow Funds
|
|
EXPENSE
EXAMPLES (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
|
Beginning
|
|
|
Ending
|
|
|
Expense Paid
|
|
|
Expense Ratio
|
|
|
|
Account Value
|
|
|
Account Value
|
|
|
During Period *
|
|
|
During Period**
|
|
Hypothetical
|
|
8/1/2019
|
|
|
1/31/2020
|
|
|
8/1/2019 - 1/31/2020
|
|
|
8/1/2019 - 1/31/2020
|
|
(5% return before expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DWA Balanced - Class A
|
|
$
|
1,000.00
|
|
|
$
|
1,016.09
|
|
|
$
|
9.12
|
|
|
1.80%
|
|
DWA Balanced - Class C
|
|
|
1,000.00
|
|
|
|
1,012.32
|
|
|
|
12.90
|
|
|
2.55%
|
|
DWA Balanced - Institutional Class
|
|
|
1,000.00
|
|
|
|
1,017.34
|
|
|
|
7.86
|
|
|
1.55%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DWA Tactical - Class A
|
|
|
1,000.00
|
|
|
|
1,016.69
|
|
|
|
8.52
|
|
|
1.68%
|
|
DWA Tactical - Class C
|
|
|
1,000.00
|
|
|
|
1,012.92
|
|
|
|
12.30
|
|
|
2.43%
|
|
DWA Tactical - Institutional Class
|
|
|
1,000.00
|
|
|
|
1,017.95
|
|
|
|
7.25
|
|
|
1.43%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dynamic Income - Class A
|
|
|
1,000.00
|
|
|
|
1,013.22
|
|
|
|
11.99
|
|
|
2.37%
|
|
Dynamic Income - Class C
|
|
|
1,000.00
|
|
|
|
1,009.45
|
|
|
|
15.76
|
|
|
3.12%
|
|
Dynamic Income - Institutional Class
|
|
|
1,000.00
|
|
|
|
1,014.48
|
|
|
|
10.74
|
|
|
2.12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Futures Strategy - Class A
|
|
|
1,000.00
|
|
|
|
1,017.72
|
|
|
|
7.50
|
|
|
1.48%
|
|
Managed Futures Strategy - Class C
|
|
|
1,000.00
|
|
|
|
1,013.94
|
|
|
|
11.28
|
|
|
2.23%
|
|
Managed Futures Strategy - Institutional Class
|
|
|
1,000.00
|
|
|
|
1,018.95
|
|
|
|
6.25
|
|
|
1.23%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Expenses
are equal to the average account value over the period, multiplied by each Fund’s annualized expense ratio, multiplied by
the number of days in the period (184) divided by the number of days in the fiscal year (366).
|
|
The
Arrow Funds
|
|
SUPPLEMENTAL
INFORMATION (Unaudited)
|
|
January
31, 2020
|
|
|
FACTORS
CONSIDERED BY THE INDEPENDENT TRUSTEES IN APPROVING THE INVESTMENT ADVISORY AGREEMENT
At
an in person meeting held September 19, 2019 (the “Meeting”), the Board of Trustees (the “Board”) including
the Trustees who are not “interested persons”, as such term is defined under Section 2(a)(19) of the Investment Company
Act of 1940, as amended (the “Independent Trustees”), considered the renewal of the investment advisory agreement
(the “Advisory Agreement”) between the Arrow Investments Trust (the “Trust”), and Arrow Investment Advisors,
LLC (the “Adviser”) with respect to the Arrow DWA Balanced Fund (the “Balanced Fund”), the Arrow DWA Tactical
Fund (the “Tactical Fund”), the Arrow Managed Futures Strategy Fund (the “Managed Futures Fund”), the
Arrow Dynamic Income Fund (the “Income Fund”), (each a “Fund” and collectively the “Funds”).
The
Board, including the Independent Trustees, unanimously approved continuance of the Advisory Agreement based upon its review of
the written materials provided at the Meeting, the reports provided at each quarterly meeting of the Board and the Board’s
discussions with key personnel of the Adviser. In their deliberations, the Trustees did not identify any particular information
that was all-important or controlling, and individual Trustees may have attributed different weights to the various factors. Below
is a summary of the Board’s conclusions regarding various factors relevant to approval of continuance of the Advisory Agreement:
Nature,
Extent and Quality of Services. In considering the renewal of the Advisory Agreement, the Board considered the nature,
extent, and quality of services that the Adviser provided to the Funds, including the Adviser’s personnel and resources,
a description of the manner in which investment decisions are made and executed, and a review of the financial condition of Arrow.
The Board reviewed the services the Adviser provided, including the backgrounds of the personnel that provided the investment
management and related services. They also reviewed information provided regarding risk management and compliance and regulatory
matters. The Board also considered the Adviser’s management of service provider relationships and oversight of sub-advisers.
The
Board found that the Adviser had a strong culture of research and compliance at the firm and had demonstrated an ongoing commitment
to analyzing various investment strategies in an effort to enhance returns to shareholders. Further, the Board considered the
consistency of the Adviser’s team, which provided the Adviser with tremendous experience and intellectual capital. The Board
concluded that the Adviser had sufficient quality and depth of personnel, resources, investment methodologies and compliance policies
and procedures to perform its duties under the Advisory Agreement and that the nature, overall quality and extent of the management
services provided by the Adviser to the Funds were satisfactory.
Performance.
The Board reviewed each Fund’s total return compared to the total returns of a group of funds selected by the Adviser
that employed similar investment strategies as the respective Fund (each a “peer group”), benchmark index, and Morningstar
category average.
Income
Fund: The Board reviewed the Fund’s average total return compared to the average total returns of its peer group, Morningstar
category average (Morningstar Long/Short Credit) and benchmark index (Barclays US Aggregate Bond Index). The Board noted that
the Fund underperformed its peer group, Morningstar category average, and benchmark index over the year -to-date, one-year, three-year
periods. However, the Board also noted that the Fund outperformed each of its peer group, Morningstar
|
The
Arrow Funds
|
|
SUPPLEMENTAL
INFORMATION (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
category
average, and Benchmark Index over the five-year period. The Board considered the enhancements the Adviser made to the Fund’s
models as well as the Adviser incorporating mortgage backed securities into the Fund’s portfolio, both of which had a positive
impact on the Fund’s performance. The Board also considered the Fund’s three-star Morningstar rating. The Board concluded
that the performance was satisfactory.
Balanced
Fund: The Board reviewed the Fund’s average total return compared to the average total returns of its peer group, Morningstar
category average (Morningstar Global Flexible Allocation) and its benchmark index (Barclays US Aggregate Bond Index). The Board
noted that the Fund outperformed its peer group and Morningstar category average over the year-to-date and one-year periods and
was currently outperforming its benchmark year-to-date. The Board also noted that the Fund underperformed or performed in-line
with its Morningstar category average and benchmark index over the three-year and five-year periods. The Board considered the
Adviser’s observation that while the Fund’s returns had been positive in all periods, the Fund’s requirement
to allocate a minimum of 25% of assets to fixed income securities will generally cause the Fund to underperform during periods
of strong equity performance. The Board considered the Adviser’s observation that the Fund’s strategy should benefit
shareholders during uncertain market environments. The Board considered that the Adviser would continue to closely monitor performance.
The Board concluded that the performance of the Fund was satisfactory.
Tactical
Fund: The Board reviewed the Fund’s average total return compared to the average total returns of its peer group, Morningstar
category average (Morningstar Global Flexible Allocation) and benchmark index (Barclays US Aggregate Bond Index). The Board noted
that the Fund outperformed each of the peer group, Morningstar category average and benchmark index over the year-to-date period,
but underperformed the peer group for the trailing 12-month period ended July 31, 2019, three-year and five-year periods, however,
the Fund outperformed its benchmark index for the three-year and five-year periods. The Board also considered the Fund’s
three-star Morningstar rating. The Board concluded that the performance of the Fund was satisfactory.
Managed
Futures Fund: The Board reviewed the Fund’s average total return compared to the average total returns of its peer group,
Morningstar category average (Morningstar Managed Futures) and benchmark index (Barclays Top 50 CTA Index). The Board noted that
the Fund outperformed each of its peer group, Morningstar category average and benchmark index over the year-to-date, one-year,
three-year and five-year periods, except for the three-year benchmark return. The Board also considered the Fund’s three
-star Morningstar rating. The Board concluded that that the performance of the Fund was satisfactory.
Advisory
Fee. The Board reviewed each Fund’s advisory fee and expense ratio, taking into account the Fund’s average
net assets, and reviewed information comparing the advisory fee and expense ratio to those of each Fund’s peer group and
Morningstar category averages. The Board discussed their duties to evaluate whether the advisory fees were not unreasonable. The
Board noted that the Adviser’s fees are reasonably applied based on the nature of each Fund’s investment strategy.
The Board noted that Funds considered to be “alternative strategies” may generally require enhanced oversight compared
to more traditional asset classes and that such additional cost may be evident in the level of the advisory fee. The Board discussed
the level of work involved in the Adviser’s oversight of the Funds.
|
The
Arrow Funds
|
|
SUPPLEMENTAL
INFORMATION (Unaudited)(Continued)
|
|
January
31, 2020
|
|
|
The
Board noted that with respect to the Income Fund and Balanced Fund the advisory fee was lower than the average of its peer group.
The Board also noted that the Income Fund’s advisory fee was lower than the average of its Morningstar category, the Balanced
Fund was above the average of its Morningstar category, and the overall expense ratios were in a reasonable range.
The
Board noted that with respect to the Tactical Fund, the advisory fee was in-line with its peer group and above the average of
its Morningstar category; however, the overall expense ratio was in a reasonable range.
The
Board noted that with respect to the Managed Futures Fund, the advisory fee was lower than the average of its peer group and Morningstar
category, and the overall expense ratio was in a reasonable range.
In
light of the nature, quality and extent of services the Adviser provided, the Board concluded that each Fund’s advisory
fee was not unreasonable.
Economies
of Scale. The Board considered the extent to which economies of scale would be realized as each Fund grows and whether
fee levels reflect a reasonable sharing of economies of scale for the benefit of Fund investors. The Board noted no Fund had yet
reached an asset level where the Adviser could realize meaningful economies of scale. The Board observed that economies of scale
would be considered in the future as Fund asset levels grow.
Profitability.
The Board also reviewed the profitability of the Adviser with respect to each Fund. The Board concluded that the profitability
of the Adviser in connection with the management of each Fund was reasonable, and that profits were necessary to adequately incentivize
the Adviser to continue to provide high quality services.
Fallout
Benefits. Because of its relationship with the Funds, the Adviser and its affiliates may receive certain benefits. The
Board reviewed materials provided by the Adviser as to any such benefits.
Conclusion.
Based on all of the information considered and the conclusions reached, the Board determined that the terms of the Advisory
Agreement were fair and reasonable, and that the continuation of the Advisory Agreement was in the best interests of each Fund.
PRIVACY
NOTICE
Arrow Investments Trust
|
FACTS
|
WHAT DOES ARROW INVESTMENTS TRUST DO WITH YOUR PERSONAL INFORMATION?
|
|
Why?
|
Financial
companies choose how they share your personal information. Federal law gives consumers the right to limit some,
but not all sharing. Federal law also requires us to tell you how we collect, share, and protect your personal
information. Please read this notice carefully to understand what we do.
|
|
What?
|
The
types of personal
information we
collect and share
depends on the
product or service
that you have with
us. This information
can include:
●
Social Security number and wire transfer instructions
●
account transactions and transaction history
●
investment experience and purchase history
When you are no longer our customer, we continue to share your information as
described in this notice.
|
|
How?
|
All financial companies need to share customers’ personal information
to run their everyday business. In the section below, we list the
reasons financial companies can share their customers’ personal
information; the reasons Arrow Investments Trust chooses to share;
and whether you can limit this sharing.
|
Reasons
we can share your
personal information:
|
Does Arrow Investments
Trust share information?
|
Can
you limit this
sharing?
|
|
For
our everyday business purposes - such as to process your transactions, maintain your account(s), respond to court orders
and legal investigations, or report to credit bureaus.
|
YES
|
NO
|
|
For
our marketing purposes - to offer our products and services to you.
|
NO
|
We
don’t share
|
|
For
joint marketing with other financial companies.
|
NO
|
We
don’t share
|
|
For
our affiliates’ everyday business purposes - information about your transactions and records.
|
NO
|
We
don’t share
|
|
For
our affiliates’ everyday business purposes - information about your credit worthiness.
|
NO
|
We
don’t share
|
|
For
nonaffiliates to market to you
|
NO
|
We
don’t share
|
|
QUESTIONS?
|
Call 1-877-277-6933
|
PRIVACY
NOTICE
Arrow
Investments Trust
|
What
we do:
|
|
How
does Arrow Investments Trust protect my personal information?
|
To
protect
your
personal
information
from
unauthorized
access
and
use,
we
use
security
measures
that
comply
with
federal
law.
These
measures
include
computer
safeguards
and
secured
files
and
buildings.
Our
service providers are held accountable for adhering to strict policies and procedures to prevent any misuse of your nonpublic
personal information.
|
|
How
does Arrow Investments Trust collect my personal information?
|
We
collect
your
personal
information,
for
example,
when
you
●
open an account or deposit money
●
direct us to buy securities or direct us to sell your securities
●
seek advice about your investments
We
also collect your personal information from others, such as credit bureaus, affiliates, or other companies.
|
|
Why
can’t I limit all sharing?
|
Federal
law
gives
you
the
right
to
limit
only:
●
sharing for affiliates’ everyday business purposes – information about your creditworthiness.
●
affiliates from using your information to market to you.
●
sharing for nonaffiliates to market to you.
State
laws and individual companies may give you additional rights to limit sharing.
|
|
Definitions
|
|
Affiliates
|
Companies
related
by
common
ownership
or
control.
They
can
be
financial
and
nonfinancial
companies.
●
Arrow Investments Trust does not share with our affiliates.
|
|
Nonaffiliates
|
Companies
not
related
by
common
ownership
or
control.
They
can
be
financial
and
nonfinancial
companies.
●
Arrow Investments Trust does not share with nonaffiliates so they can market to you.
|
|
Joint
marketing
|
A
formal agreement between nonaffiliated financial companies that together market financial products or services to
you.
●
Arrow Investments Trust does not jointly market.
|
PROXY
VOTING POLICY
Information
regarding how the Funds voted proxies relating to portfolio securities for the most recent period ended June 30 as well as a description
of the policies and procedures that the Funds use to determine how to vote proxies is available without charge, upon request,
by calling 1-877-277-6933 or by referring to the Securities and Exchange Commission’s (“SEC”) website at http://www.sec.gov.
PORTFOLIO
HOLDINGS
The
Funds file their complete schedules of portfolio holdings with the SEC for the first and third quarters of each fiscal year on
Form N-Q. Form N-Q is available on the SEC’s website at http://www.sec.gov. The information on Form N-Q is available without
charge, upon request, by calling 1-877-277-6933.
|
INVESTMENT
ADVISOR
|
|
Arrow
Investment Advisors, LLC
|
|
6100
Chevy Chase Drive, Suite 100
|
|
Laurel,
MD 20707
|
|
|
|
ADMINISTRATOR
|
|
Gemini
Fund Services, LLC
|
|
4221
North 203rd Street, Suite 100
|
|
Elkhorn,
NE 68022-3474
|